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Select Committee on the Reform of the Australian Federation
05/05/2011
Reform of the Australian Federation

BERESFORD-WYLIE, Mr Adrian, Chief Executive Officer, Australian Local Government Association

Committee met at 11 : 16

CHAIR ( Senator Trood ): I declare open this public hearing of the Select Committee on the Reform of the Australian Federation, the fourth in a series of public hearings the committee is holding in relation to its inquiry. The committee is to report by 20 June 2011. I welcome you all here today and I remind everyone that the witnesses giving evidence to the committee are protected by parliamentary privilege. Any act which may disadvantage a witness on account of their evidence is a breach of privilege and may be treated by the parliament as a contempt. It is also a contempt to give false or misleading evidence to a committee. Witnesses should be aware that if, in giving their evidence, they make adverse comment about another individual or organisation, that individual or organisation will be made aware of the comment and given a reasonable opportunity to respond to the committee. The committee prefers to hear evidence in public but we may agree to take evidence confidentially. The committee may still publish confidential evidence at a later date, but we would consult with witnesses concerned before doing this.

Our first witness is Mr Adrian Beresford-Wylie of the Australian Local Government Association. Welcome, Mr Beresford-Wylie. We have received a submission from your organisation which we have labelled submission 24. Do you wish to make any amendments to that submission at this stage?

Mr Beresford-Wylie : No, Senator.

CHAIR: We will be very happy to have an opening statement from you, if you care to make one, and then we will ask you some questions.

Mr Beresford-Wylie : Thank you for giving me the time, Senators, to appear before you this morning. I do not wish to make an extensive opening statement. You have our submission, which has attempted to deal with the issues that you have before you in your terms of reference. In particular, of course, there is material in there relating to the position of the Australian Local Government Association with regard to the constitutional recognition of local government.

We have also provided some commentary on the Council of Australian Government's processes. The Australian Local Government Association's president is a member of COAG and a member of 13 other ministerial councils—that is to say, the ministerial councils that exist until 30 June, and then there is reform. Local government expects to and I think will play a role in the councils that will exist after 30 June.

We have also provided a little bit of commentary on regional development and what we see as local government's important role in that area. I am happy to answer any questions the committee might have.

CHAIR: Thank you very much. Before I start the questions can I say that I think your submission provides the committee with a pretty clear understanding of the kinds of challenges that local government across the country confronts at various levels, particularly in relation to revenue activities. I personally am very grateful for that and it will be very helpful to the inquiry. I am sure my colleagues will take up the question of constitutional recognition of local government, but I might begin with the point you make about the challenges in relation to local government raising revenue. You make the point about rates being the major source of revenue. Given the challenges that local government face, in the absence of a possibility that there may be increasing Commonwealth funds, or indeed state funding, do you see any other alternatives for local government raising the kind of revenue it needs to perform its expanding services?

Mr Beresford-Wylie : We have two major sources of revenue that appear in an analysis of local government revenue. The first one is rates. We collect about three per cent of Australia's taxation revenue. Property rates are running at about $10 billion. Our second major source of revenue are fees and charges. I think rates are about 40 per cent of our revenue. Fees and charges amount to more than 30 per cent. That figure is proving a little escalated by the fact that in Queensland, western New South Wales and Tasmania local government provides water and sewerage. Therefore. that fees and charges figure includes what would otherwise be considered to be state revenue or revenue of privatised entities in other jurisdictions, so it is slightly higher. Rates do remain our major source of revenue.

The Productivity Commission carried out an analysis of local government's own-source revenue raising capacity a few years ago, and it made a couple of observations. One of them was that local government was probably raising about 90 per cent of its hypothetical revenue raising effort which, from my perspective, I would suggest is a good effort for a level of government. Local government is a democratically elected level of government. Yes, it delivers services to local communities, but we do in fact have more than 6,000 councils who are represented, and therefore represent their constituencies at local, level. That means we are responsive to the community and to its pressures, and we have to recognise that in setting rates one of the things we have to consider is the capacity of individuals to pay those rates, the capacity of the community to a better rate increases. Councils are very sensitive about how they deal with that issue.

Since we are at a level which is about 90 per cent revenue raising capacity that is a very high level. I suspect, if one considers the tax base of other levels of government, it might be a little higher. I think that constrains our ability to raise revenue through those rates. There are a large number of councils, particularly in regional areas, which have very small rates bases. They would certainly be constrained about their ability to raise rates, and there are of course some state constraints on local government's ability to raise revenue. There is rate capping in New South Wales and in the Northern Territory.

So in terms of local governments ability to raise revenue, we face a difficulty. We did commission some work from PricewaterhouseCoopers in 2006 and they actually presented some recommendations about how local government might address its financial sustainability. They estimated that between 10 and 30 per cent of councils would face financial sustainability problems unless they tackled the issue. They made a series of recommendations about how we might go about approaching other levels of government for an increase in revenue and they made some recommendations about how local government itself might look at sharing services and improving its asset management to try to deal with some of the revenue challenges we face, coming at it from the opposite direction. I think it is clear that, in the absence of revenue reform, local government simply has to look at the sorts of services and infrastructure it provides to make sure that it can live within its constraints. That may mean that some of those standards of service and the levels of service are going to be constrained in the future.

CHAIR: You make the point that the expectations that are being placed upon local government have been increasing over the last decade, and perhaps even longer, which are putting increasing demands on the revenue that local government is able to generate, but not necessarily has there been a significant increase in its sources of revenue. Your submission refers to the Regional and Local Committee Infrastructure Program, which is about a billion dollars. To what extent will that alleviate the problem?

Mr Beresford-Wylie : I think that will go some way towards alleviating the issue for local government. But I must say that one of the recommendations of PricewaterhouseCoopers was to try to address that backlog in renewals for community infrastructure. We were quite disciplined in putting a position to the government of the day, which was the previous government, and this current government in saying that we were looking for assistance in the area of community infrastructure but we were cautious about a program that would actually lead to the construction of new infrastructure. We had hoped that the focus would in fact be on addressing our existing infrastructure and the backlog. So rather than building a new problem, we would address the existing problem.

The program that was put in place was a generous program. It did provide funding to councils to address community infrastructure issues; although, obviously some of the infrastructure that was provided was new infrastructure that was constructed over the two-year period. Of course the program was also designed to address the issue of the local impacts of the global financial crisis and to provide a stimulus to local economies. I dare say that it has been a very successful program, particularly that portion of the program that has flowed directly to councils where many thousands of projects have been completed at a local level. We are talking about $450 million of the $1.1 billion of funding that has gone directly to councils on an allocation basis. I think it has had a very positive response from councils and from local communities, and the government seems very pleased with the outcome. I think it has made a difference to the infrastructure backlog but not the same level of difference that would have been made had we had a program that concentrated specifically on existing infrastructure backlogs.

CHAIR: This is not a continuing program is it? It was a two-year program.

Mr Beresford-Wylie : No, it is a program that is terminated now. There is a program that has been announced under the Regional Development Australia fund, which is aimed also at the issue of community infrastructure but not specifically restricted, however, to local government. Non-government organisations—incorporated non-government bodies—are able to apply as well; they are eligible applicants under the program. The first tranche of that program, $100 million, is currently open for councils to apply for. It is an applications based program not an allocations based program. I think applications close on 13 May.

CHAIR: But your case here is that there are special needs for local government which are not being met through other means of revenue and that those demands on local government are increasing.

Mr Beresford-Wylie : That is correct.

CHAIR: For which it may be some of advantage to you to have access to another pot of money. But if you are competing with other levels of government then it is not serving your particular needs, is it?

Mr Beresford-Wylie : That is true. The issue was drawn out at a national level by PricewaterhouseCoopers. Drawing on a series of reports that have been produced at the state level, they identified the fact that a number of councils were facing pressure, particularly in delivering ongoing services that their community wanted. Councils were being faced with the challenge of doing a range of services that they had not done in previous decades. These were human related services.

In order to deal with the current service demands, councils were tending to reduce their level of depreciation and investment in renewals for the infrastructure. That is a growing problem. Councils are meeting the day-to-day obligations and the increased service demands of their communities. They are very responsive to those demands but it was showing up in the area of that infrastructure renewal. That is an issue which remains to be addressed. The most recent assessment we have of the likely backlog and gap in road funding for local government, a report we produced and released at the end of last year, suggests the annual gap over the next 20 years is probably about $1.2 billion—that is the gap between what we need to spend to maintain the standards of service for local roads and what we have access to in revenue.

CHAIR: Does that take account of the impact of floods in various states?

Mr Beresford-Wylie : No, this was an ongoing thing rather than taking account of the immediate impact, which has emerged during the summer period. It was before that.

CHAIR: I will give my colleagues an opportunity for questions and will come back to you.

Senator MOORE: Thank you for your submission. As you well know, because your organisation has been following the evidence that we have received, there has been quite a degree of discussion about the recognition of local government in the Constitution. Your own submission looks at the role of the Local Government Association up till now and I know that will be ongoing. But in your last paragraph you say:

... it is subject to considerable uncertainties because it has no formal place in the nation's Constitution.

Would like to expand on that? Why do you say that the role of local government and the existence of local government is uncertain because of the lack of recognition in the Constitution?

Mr Beresford-Wylie : In terms of our capacity to be ongoing as a financially sustainable level of government I think we face a significant challenge simply because of the nature—and I am going to be blunt here—of the vertical fiscal imbalance that exists in our federation. The Australian government, of course, has accrued taxation powers and collects a sizeable proportion of the taxation—probably around 83 per cent. Local government has a very small taxation base. It has a growing demand in terms of the services and infrastructure its communities expect, and I think reasonably expect. It has a very strong relationship with, and indeed, as people would say, is a creature of, the states, who find themselves under a lot of pressure in terms of the sorts of services they provide. They provide the big, expensive services in terms of public transport, health and education, and they face revenue constraints as well.

Local governments' lack of recognition in the Constitution and the uncertainty that exists around the ability of the Commonwealth to invest directly in local communities pose a challenge for local government in the future. One of the things that we have been keen to tread around very cautiously is the nature of any recognition we might seek through the Constitution. There has been a lot of discussion and debate over 30 years on the nature of that recognition, and after an extended process taking more than three years ALGA has come down on the side of a very simple and pragmatic change to the Constitution to address what we see as an ongoing issue, which is not intended to impinge upon the nature of the relationship with our state governments and the accountability framework under which we live.

Senator MOORE: So it is a minimalist approach?

Mr Beresford-Wylie : It is, but it is a reflection of the fact that our research tells us a couple of things about what people will deal with in terms of constitutional recognition. They are not interested in symbolic changes to the Constitution. They are interested in changes that actually have an impact on themselves and in fact that either fix a problem or make life better at a local level for individuals. I will be blunt and say it did not emerge during our discussions with councils that they favoured some sort of broad reform which would see them move away from their current relationship with state governments. A lot of councils were certainly of the view that they had a tough time dealing with their state governments, but they thought that would be nothing compared to dealing, quite frankly, with the federal government if it had direct control over local government. So they shied away from any suggestion that there be a change in the Constitution to give the federal government control over local government.

Senator MOORE: But you also did not want to go into a clear definition of roles process?

Mr Beresford-Wylie : I think the difficulty there is an obvious one—that is, those changes that occurred at the state level, with the state government saying to local government in the last 15 years or so: 'We used to tightly prescribe the sorts of things that you did in legislation. We are happy to grant you general powers of competence—that is to say, you, local government, can provide services and infrastructure that your community wants as long as it is not illegal, as long as it does not conflict with state government policy and as long as you think you can afford it.' That is the challenge that local government has had. I think attempting to define those roles really is incredible in terms of a specific role definition.

Senator MOORE: I hope I am not going to intrude on your line of questioning, Scott.

Senator RYAN: I will probably pursue it after you.

Senator MOORE: One of the things we have talked about in the committee is the fact that the nature, the size, the activity and the competence of local government across the states varies enormously, so to make a standard argument for the variation of local governments is an issue in terms of people looking at any kind of change. I am from Queensland, as is Senator Trood, and we have gone through the process of amalgamations and have sizeable local governments now with significant budgets. So, from my perspective locally, it seems to be a reasonable request that that level is put in the Constitution. But in other states the whole role of local government is much different and their political history has been dynamic. I am interested in whether the association has a response to the fact that the constitutional change would be impacting on types of local government that vary enormously across our country—much more so than the types of state government. You can make an argument that the states vary enormously as well, and people have made that argument, but just the sheer number of local governments makes things more difficult.

Mr Beresford-Wylie : That is right. My observation would be that there are 560 or so local governments and they do vary enormously in their capacities; but, in a sense, local government is just that: it is local. It needs to be looked at in context. We have the local governments, which we need, to suit local conditions, all which state governments have determined will be the way that local government operates in their individual jurisdictions. Because of that, the change we are seeking really talks about the capacity of a federal government to directly fund local government. We are not talking about some sort of institutional recognition of local government, whatever that might be, or the preservation of local government bodies in their current form or whether their boundaries should be changing or not. That really is a matter for state governments. We operate under state legislation and state accountability frameworks. For that reason, we are quite comfortable with the idea that we have addressed a very narrow focus for that recognition, which is not intended to give local government and individual local government bodies a status that they do not currently have.

Senator RYAN: I want to explore this issue further. It is fair to say, is it not, that the outcome of the Pape case is not clear cut and certain? The outcome of the Pape case was not, with a majority judgment, that the Commonwealth cannot fund local government.

Mr Beresford-Wylie : We took some advice on that.

Senator RYAN: But there are conflicting judgments. The point I am making is that it is not certain one way or the other. I accept that there is doubt, because some judges wrote that there could be doubt, but it is not certain—there is no ruling—that the Commonwealth cannot directly fund local government as we stand today, is there?

Mr Beresford-Wylie : I would argue that it follows three other judgments, which essentially say that the Commonwealth's capacity to fund things not covered by section 51 is far more constrained than they thought it was.

Senator RYAN: Funding is still in place today, though, is it not?

Mr Beresford-Wylie : It is. If you are asking if they specifically ruled that funding under, for instance, Roads to Recovery was unconstitutional, I would have to say no.

Senator RYAN: I think it is an important point to make in this debate that there is some confusion about whether the Commonwealth has stopped funding local government, which it has not.

Mr Beresford-Wylie : No, it has not.

Senator RYAN: You say that you would like a power to directly fund—I think that is how you described it—not an institutional recognition. I do not mean to verbal you; I am paraphrasing what you said earlier. Is that a fair characterisation?

Mr Beresford-Wylie : It is.

Senator RYAN: Are you looking at a section 96 type arrangement? We have to recognition of the institution in order to be able to fund it, because you cannot fund something that is not at least vaguely described. The states are in the Constitution because they were the direct authorities delegated by Westminster under the colonial self-government act when we formed the Commonwealth of Australia. Are you looking at the recognition of local government in a section 96 type arrangement or a head of power to fund local government in a section 51 type arrangement?

Mr Beresford-Wylie : A section 96, not a section 51.

Senator RYAN: Would there be a description of local government somewhere else in the document?

Mr Beresford-Wylie : No, not necessarily.

Senator MOORE: Is that your position?

Mr Beresford-Wylie : That is correct. I should point out that this is a position that draws on the ALGA board's position.

Senator RYAN: I appreciate that.

Mr Beresford-Wylie : And it is a position that draws on the advice we have received.

Senator RYAN: You may have picked up that I am slightly more sceptical of this than Senator Moore is. I will get to this point, then. If we get a section 96 type arrangement, those grants can be tied, can they not? The Commonwealth does not usually hand over money. Historically, it has ratcheted down the amount of money it has handed over as financial assistance grants that are untied. A section 96 type arrangement would say that the Commonwealth can directly fund you on the basis of certain conditions.

Mr Beresford-Wylie : Yes. Parliament can appropriate the funds on whatever terms and conditions—

Senator RYAN: Therefore, the terms and conditions that the Commonwealth parliament can attach to those grants can be completely unrelated to the grants.

Mr Beresford-Wylie : It is entirely up to them and what parliament approves.

Senator RYAN: I am just looking at the behaviour of this parliament, which for over a century has been increasing the scope of its activities rather than maintaining them where the founding fathers intended. My concern here is that if there is a section 96 type of arrangement the Commonwealth parliament could continue to fund Roads to Recovery programs on the basis of planning laws that the local government may be forced to adopt, which may be in contravention of particular state policy wishes but the Commonwealth would then override the states by virtue of its power in section 109. Do you see what I am saying? There is the possibility of tied grants here that would allow the Commonwealth parliament to dramatically increase its scope and control over what local governments do.

Mr Beresford-Wylie : I must admit that it is not something that I had thought a Commonwealth parliament would try to do. I am not aware that it happens at the state level; I might be wrong. For a set of grants there is normally a set of terms and conditions that apply to those grants which relate specifically to what the funds are being appropriated for. If you are suggesting that there would be an attempt to tie grants to some outcome in some other area—

Senator RYAN: There is a long history of that. I know you may not have imagined that, but I imagine the people who wrote our Constitution did not imagine many of the things that the Commonwealth parliament does today as well. My concern here is that if a tied funding grant power is given to the Commonwealth parliament to directly fund local government on the same terms as it could fund the states, it dramatically opens the door for the Commonwealth parliament to start directing the activities of local government.

Mr Beresford-Wylie : I am not sure I can accept what you say. I can understand why you are putting that position, but I would suggest that there are a couple of things. First of all, I would hope that the Commonwealth parliament might recognise it. I can say from the history of the Australian government that I have not actually seen the Australian government necessarily intrude in a significant way into local government.

Senator RYAN: Not yet.

CHAIR: I think it is a kind of 'Be careful what you wish for' kind of question.

Senator RYAN: Call me devil's advocate.

Mr Beresford-Wylie : Yes, but I think for what you are suggesting I would have to be blunt. The Financial Assistance Grants are currently provided under a power whereby they are untied, but the Roads to Recovery grants are tied specifically to the outcome of roads. In a sense they are grants, I suppose. Realistically, if a Commonwealth government attempted to influence local government in a variety of different areas that were inconsistent with state legislation and inconsistent with the practices of local government then there would be a very serious question about whether local government would accept those grants.

Senator RYAN: Historically, I think it was a former Labor prime minister who said, 'Never stand between a premier and a bucket of money.' If we add this power one might want to add 'local councillor' or 'mayor' because as you have outlined so comprehensively in your submission you are under substantial funding pressure. The history, as this parliament has aggregated taxing power to itself, has been that other levels of government—mainly state—in dire need of financial support as their taxing powers have been removed have ended up acquiescing to the demands of the Commonwealth parliament simply to get to the cash.

Mr Beresford-Wylie : I think we would still fall under the legislative control of the states.

Senator RYAN: What really concerns me is that the consequences of this have not been aired. For example, if there was a funding power under section 96 it would be very easy for the High Court to determine that a tied grant which the local government accepted may then allow the Commonwealth to set terms and conditions for that grant and the activities of local government in that sphere or in other spheres. This could then trigger the section 109 provisions which would mean that the Commonwealth legislation overrode that of the states. Therefore, any state laws that managed local government or required certain accountability measures that are inconsistent with the grant that the Commonwealth parliament had legislated and appropriated for may then be deemed void because the Commonwealth parliament clearly has superior legislative power within areas of its competence.

Mr Beresford-Wylie : I find it difficult to comment on something that is so hypothetical. While you say it may be easy for the High Court to reach that conclusion, I am afraid that I cannot share the view that the High Court is easily persuaded of anything.

Senator RYAN: I suppose my point is that when we deal with constitutional amendments we deal with hypotheticals because it is not something that can be undone. Similarly, I would venture to say that it is not an unrealistic scenario at all. It is less complex than the 1940s cases where the Commonwealth appropriated the states' taxation powers by adding one or two Commonwealth powers together. The unforeseen consequences of this might mean that your wish to still maintain your relationship with state government is in fact completely destroyed. It would then be up to the Commonwealth parliament to determine your relationship with the states.

Mr Beresford-Wylie : As I said, I can only work on the basis that the Commonwealth, as you point out, funds local government through Roads to Recovery. It has had the opportunity to influence that expenditure—which it has done—to determine that it be spent on roads. It has had the chance to move into other areas in terms of a relationship with local government and it has not really chosen to develop that relationship along the lines that you are suggesting. So I am really not in a position to comment. I know that you said it was a hypothetical, but I have some difficulty going that far along a hypothetical path.

Senator RYAN: With all due respect, I will give you another example that is ridiculously obscure. In 1995, when the Victorian and Western Australian parliaments passed a law that meant that students did not have to pay student union fees at universities, this parliament went to the trouble of passing another law that meant that whatever money the student unions lost by virtue of students of not joining was removed from the financial assistance grants—the untied grants—given by the Commonwealth parliament to the states and then handed to the student unions. I could give you 20 or 30 examples of behaviour like that where, quite frankly, a micro level of interference in the domain of state legislative responsibility has been undertaken by this parliament. I venture to say that as soon as you put yourself on a document you may find yourself in exactly the same situation. One author described it as 'a hundred years of tears' with respect to the autonomy of the states under the Commonwealth constitutional arrangements. So I do not think it is fair to say that it is particularly hypothetical. Do you have a response to that, given the experience of the states over a century?

Mr Beresford-Wylie : I do not have a response to that.

Senator RYAN: It is still possible, even if Pape held, that there could be no direct funding. Let us say that there was another case, Pape II, in a few years that said that the Commonwealth's appropriations power was limited to section 51, the other scattered direct powers and also section 60, which was considered under Pape. It is also entirely possible for the Commonwealth to give money to local government via the states via section 96 grants. For example, they could give all the Roads to Recovery money through section 96 tied grants to the states to then be passed on without a ticket being clipped by state parliaments or state governments. That is still entirely possible under the scenario of Pape being taken to its extreme conclusion.

Mr Beresford-Wylie : If you are asking me if the answer is yes, the Commonwealth can fund what it likes in terms of section 96 as long as it goes through the states—you are quite right.

Senator RYAN: So what is the problem with that? What is the problem with the Commonwealth parliament dealing with the six or eight organs—which, quite frankly, have a lot more capacity to deal with something as complex as the Commonwealth? For the city of Yarra—where I live—the city of Maribyrnong and all the ones scattered around Melbourne in country Victoria in my home state, the state government could get the money on condition that it is passed on in these amounts to these councils, so there is no ticket clipping and commission taken on the way. What is the problem with that arrangement?

Mr Beresford-Wylie : The only comment that I would make there is that the quantum or the base level of financial assistance grants has not changed since 1990. While the view that you are putting forward sounds reasonable, I have not seen any evidence that successive Commonwealth governments have been willing to increase the financial assistance grants that they provide to local government. They have chosen to go through a different mechanism, which is the provision of funding under Roads to Recovery and a variety of other programs rather than expanding those financial assistance grants. That is hardly surprising, given that their experience with the states is that while the states do pass those financial grants on, as you have said, without delay—and the states do not take a cut of those financial grants—in some instances historically the states have taken credit for that funding. There have been documents produced by state treasurers in particular, who have announced that their support for local government has been in the order of $300 million or $400 million. It is only when you drill down a little bit further that you discover that the majority of those funds are in fact financial assistance grants from federal governments. That is in indication of why Australian governments of all colours have not increased those financial assistance grants for many years.

Senator RYAN: I am a politician, so people may cynically accuse me—and I am not saying that you would—of being slightly craving of publicity. The ability to claim credit funding is surely not a rationale to change the Constitution.

Mr Beresford-Wylie : No. But the ability of local government to have a relationship with the Australian government that allows the Australian government to reach a partnership agreement, if you like, on what it is going to fund for councils and to deal directly with local communities seems to me to be a good reason to change the Constitution. It is about ensuring that local communities get the services that they need and deserve; it is not about some sort of grandiose idea that individual councillors will achieve some degree of recognition.

As for the idea that governments like to achieve an acknowledgement of their support for communities, frankly that is what our Roads to Recovery funding signs and a variety of other signs we have indicate—that when governments go through the pain of raising taxation they expect some degree of acknowledgement from communities that they are playing a role in the provision of services and infrastructure in those communities.

Senator RYAN: The capacity of some councils though to effectively work with the Commonwealth parliament differs. The untold story of COAG is that a number of our state and territory governments actually lack the capacity to deal with some of the complex issues that are undertaken at COAG because there is a critical mass issue here. When the Commonwealth department of whatever is responsible for local government at a given time is dealing with a council that might have 3,000 or 4,000 ratepayers what worries me is that even a small state has a lot more capacity to represent the interests of its people than does a small organisation like that up against the behemoth of the Commonwealth.

Mr Beresford-Wylie : I would make two comments there. The first one is that the Commonwealth is already doing that through Roads to Recovery. It is already dealing directly with those councils. The second thing is that the Commonwealth's ability to deal directly with those councils, even under a changed version of the Constitution, would really depend on what those councils could actually do. As we already established when we discussed it this morning, councils do not have an unending capacity to deal with the issues raised by their local communities. Some of them are very small. The things that councils have in common generally are to do with roads, bridges, community infrastructure and waste disposal. They are not into a variety of different areas. Those are the things that they actually do.

When we talk about a direct funding relationship between the Commonwealth and local government it would have to be on the basis that a council is able to actually play a part in a relationship that it has. For many councils that will be a constrained relationship. I am not suggesting that somehow councils will be able to do everything and that there would be a significant engagement with the federal government which would cause a significant problem for councils. Most councils—in fact, all councils—seem to be dealing effectively with the relationship they have currently with the federal government department under Roads to Recovery. I cannot see that there would be a difference if there was a different type of funding going to councils, as long as it was a type of funding that was addressing an issue which those councils were capable of dealing with—and that is going to be fairly narrow.

Senator RYAN: You have a more charitable view of what the Commonwealth parliament gets up to over time than I do.

Senator BACK: Mr Beresford-Wylie, in your submission you made reference to the fact that:

In each of the states and territories in the last 10-15 years, the relevant legislation creating and regulating local government has been reviewed and significantly amended, or replaced with new legislation …

And you have made the observation that in many instances that was the first in 50 years. In those upgrades to the legislation with greater powers consistent with principles of general competence, in general terms, where have the relationships of funding between local governments and state governments been addressed?

Mr Beresford-Wylie : Those reviews have tended to be of those accountability frameworks and those powers.

Senator BACK: The opportunity must surely have been there, given the tension between state and local governments in terms of funding availability, to have addressed the funding question and the difficulties that local government faces?

Mr Beresford-Wylie : The opportunities may have been there but they have not been addressed.

Senator BACK: They have not been?

Mr Beresford-Wylie : No. One of the things that characterises local government and its relationship with state governments has been a tradition of cost shifting. We saw an examination of that issue by the Commonwealth Grants Commission at the beginning of this decade.

Senator BACK: I also note that you go further and say in terms of distribution there was a move away from property based services to human based services between the early 1960s and the late 1990s, and you make mention of recreation, culture, housing, community amenities, education, health, welfare and public safety services. Nearly all of those are actually state responsibilities under the Constitution. It seems to me that the argument being put is that local government is increasingly being asked to shoulder services that are constitutionally state services but without the funding following. Is that the case you are making?

Mr Beresford-Wylie : It is.

Senator BACK: And therefore why hasn't there been a greater effort at ALGA level to address this iniquity through the state constitutional process rather than an attempt to amend the federal Constitution?

Mr Beresford-Wylie : There have been efforts, but the efforts have been made at the state and local government association level rather than the Australian Local Government Association level. We exist to have an interaction at the national level. Some of those state local government associations will have appeared and no doubt will have spoken for themselves. They have a very active and ongoing relationship with their state governments, obviously, where they put the position on a constant basis that the relationship between the state governments and local governments should be one where adequate resourcing is provided to local governments for them to carry out the responsibilities that they have accrued, often under state legislation.

Senator BACK: Do you believe that the states and territories in general support the local government move to amend the Constitution to include local government in the Constitution?

Mr Beresford-Wylie : It is an interesting issue that is yet to be resolved. One of the things that we, the Australian Local Government Association, are doing is that we have a campaign to address this issue. One of the things that we have is a relationship with each of our member associations. Those member associations are raising the issue of constitutional recognition in terms of what we are putting forward, and I must say that these are only the terms the Australian Local Government Association is putting forward. The Australian government obviously has not said what it might do in terms of recognition.

Senator BACK: In relation to exactly that question, what role if any did your association have in the establishment of the 55 regional development authorities?

Mr Beresford-Wylie : The RDAs?

Senator BACK: Yes.

Mr Beresford-Wylie : We were consulted with by the government when it was in opposition. They discussed with us the nature of our relationship with the previous ACCs, area consultative committees, and what they might do or how they might move forward in regional development. One of the things we stressed to them was the idea that any move towards a regional development structure must not lose the benefits that accrued from being able to interact with local government. Local government is in place and has been in place in jurisdictions for more than a century. It has dealt with economic development issues. We did not want to see a situation where local government was marginalised or where what was put in place was a duplicative set of administrative arrangements.

Senator BACK: I wonder if you could respond to a comment that was made by the Minister for Regional Australia, Regional Development and Local Government in October last year in which he said:

Entrenching local empowerment and regionalism in a whole of government approach at the Federal level will clearly have knock on consequences at the State and Local Government levels.

How do you interpret what he said?

Mr Beresford-Wylie : I would interpret that as saying that local government, state government and federal governments will be working together more effectively if they are trying to achieve some of the regional interests that they have. The announcement of RDAs took place after a discussion that had taken place within the Regional Development Council, a ministerial council that was established to look at regional development issues. There was quite a discussion about the proposition from the Australian government that it wanted to achieve a greater synergy between local government efforts for economic development, state government efforts and the federal government and to try to bring together a greater collaboration of effort so that the resources were directed towards shared goals. I would interpret it as being along those lines.

Senator BACK: I have a view that in our Federation it is critical that no one level of government has too much power. The concern that I have and that I put to you for your response is that a move of the type that you suggest would certainly give one level of government too much power. He who holds the gold makes the rules. Would you respond to that in terms of a local government and its relationship with the states? I ask you your view: do you not consider that in this whole-of-government approach the knock-on consequences for state and local government would in fact be a diminution of the states' role in the Constitution?

Mr Beresford-Wylie : There are a couple of complicated things there. As I have said, we are not seeking to change the relationship between local government and the states in putting this proposition forward. Local councils came together in a constitutional convention in Melbourne at the end of 2008 and one of the things they accepted was that they were and would remain creatures of the states. They accepted that they would be under the accountability framework of the states. They were not seeking to move outside that framework. In terms of regional development, I would say that local government has been quite strong in its dialogue with the Australian government about the need to make sure that individual councils' views are reflected in the regional frameworks that are put in place. But what is evident to us is that those RDAs are very slimly resourced. They do not really have the resources and indeed potentially the capacity to play a substantive role at that regional level without significant input from local government. It will be local government plans and advice which have a significant influence on the shape of the regional development plans those RDAs are required to produce. Councils are represented on those RDAs. I think that most RDAs have perhaps one or two staff members. They have been in place for a short period of time; they do not have much resources in terms of their administrative ability. Our emphasis has been on making sure that they draw on local government expertise so that whatever they put forward at a regional level reflects the priorities of local communities as they have been brought forward through local councils. So I do not see that those RDAs pose a threat, if you like, to local government and its ability to operate at the local level.

Senator BACK: Do you accept that, whilst local government might have the noble view that it does not want to see a deterioration in its relationship with states and territories as a result of this change, it actually has not got much control over that process?

Mr Beresford-Wylie : I suggest that it does have control and the states have control. I think we have seen evidence that states will respond to the way the federal government deals with local governments; states are cautious to maintain their ability to administer local government. I am not thinking that the states would stand by and watch what has been postulated here as potentially some sort of takeover of local government by the federal government. In terms of local government, we have talked about the fact that local government receives grants from the Australian government but those grants are about 15 per cent of local government revenue. Local government does face significance issues in terms of revenue constraints, but grants are not the majority of revenue that local government have. They are, for most part, a small part of the revenue and in some cases of metropolitan councils a very small part. They are, however, a very substantial part of the revenue received by smaller, more regional and remote councils who are, in a sense, dependent on that grants revenue.

Senator BACK: In the event that this proceeds and, for the third time, is unsuccessful, what strategies would local government have in place to still try to address this imbalance which is so evident and so well explained in your submission?

Mr Beresford-Wylie : We have talked about the fact that all local government will continue to articulate cases with their state governments about the need for adequate resourcing. Local governments have to look at the services they provide and the level of those services and trim their ability to provide those services for the revenue that they have. We have talked about the fact that there is little scope for them to actually exploit rates more fully. There is just a limited capacity there. Local governments do have the capacity to form structures in an attempt to achieve efficiencies. That is why we see the sharing of services across councils. They do try to achieve those efficiencies. There are programs put in place by state local government associations to try to support councils to improve their performance in the area of asset and financial management. That will continue to be the case. That will be an incremental process and it will continue.

Senator BACK: Thank you.

CHAIR: Were the boundaries of these RDAs that have been established discussed with the association?

Mr Beresford-Wylie : Not with the Australian Local Government Association, no.

CHAIR: Do you have a view as to whether they usefully reflect what might be regarded as regional interests?

Mr Beresford-Wylie : They reflect an Australian government interpretation of what those regional interests are—

Senator TROOD: I appreciate that. My question is whether or not that view expressed at a Commonwealth level is shared amongst the members of the Local Government Association in general.

Mr Beresford-Wylie : It is not something that the Australian Local Government Association has commented on or has established a view on, but I will say that local governments themselves have established regional frameworks, regional structures and regional organisations of councils to deal with what they consider to be a regional community of interest for those local governments. Those are the structures they have put in place. On the RDAs, there is a single RDA for the entire metropolitan area of Sydney, for example. There are quite a number of regional organisations of councils operating within Sydney which reflect what local governments in Sydney consider to be their regional communities of interest.

Senator TROOD: You have put your finger on what I see as something of a concern. We seem to have three levels of regionalisation. We have the RDAs. We have what you referred to in your submission—although you do not use this term, but what I would refer to as—organic regionalism, which has developed within states. I think in particular of the examples in Queensland that I know to exist in the south-west corner in relation to the combination of councils involving Barcoo, Diamantina, Longreach et cetera, which is an increasingly strong regional grouping. Then, of course, in most states there are regional boundaries which relate to things like health, education and police districts, and they are all over the place. In Queensland, I think it is fair to say there is no regional boundary that relates to health that in fact accords very clearly with the educational district or the police district et cetera.

So we have these three levels of regionalisation creating, in relation to the idea of regionalism, a great deal of confusion, I suppose. It seems to me that one of the things that might be useful is if someone decided that, if we want to pursue a regional program, we ought to try to rationalise these various levels of regionalisation. I wonder whether you have a view on that.

Mr Beresford-Wylie : The only view I would put forward is that in developing a regional program I think it is useful to build on the existing structures. You are right in saying that a number of different structures exist—catchment management authorities and the regional NRM bodies are further examples of people attempting to create regional communities of interest.

From a local government perspective, though, I do not want to overstate the regional dimension of local government. Local government is created to be local; it is created to look after those local entities. To some extent individual councils will come together and see a benefit from acting slightly more broadly in regional terms and create bodies or share services and do a variety of other things, although they are doing so out of their own initiative because they have a shared community of interest. Not all councils are members of regional organisations of councils. ROCs do not apply everywhere and so some councils do not see that they have that same community of interest with their neighbours.

Senator TROOD: That of course is true, but that kind of regional cooperation may be a strategy which appeals to local government more regularly if the funding and revenue constraints continue to be very strong.

Mr Beresford-Wylie : There may well be a sharing of resources, as we have said. There are some good examples in western New South Wales, around the Orange area, where councils have come together to share resources to create some efficiencies and some back-office efficiencies as well, but they have not lost their separate individual identities as councils.

Senator TROOD: That is true.

Mr Beresford-Wylie : They can rule that line around what it is that they are doing to achieve the efficiency gains without necessarily losing that identity.

Senator TROOD: That is true in Queensland as well. You made the point about RDAs being underresourced—I think that is the point you were making. Is the association concerned that the absence of resources necessary for RDAs to effectively conduct their affairs might make increasing demands on LGA resources?

Mr Beresford-Wylie : When I say they are underresourced, I listen to the role that has been articulated for Regional Development Australia committees, and it seems a very broad role. To my mind it is a role which, if it is going to be anywhere near achieved, will have to draw on the expertise and input of other bodies such as councils. So it is made in that context. It is entirely up to the Australian government how it wishes to resource those organisations. The emphasis then falls on local government to make sure it is actually having an input and an influence in those RDA committees to make sure that they are, in fact, drawing up local experiences and local priorities when they draft their regional plans.

That is one of the things we have done at an ALGA level: simply going out to our councils and saying, 'The imperative is on you to actually seek out those RDAs and make sure you have an interaction with them and are providing them with the input necessary to meet the responsibilities the federal government has given them.' At the same time we emphasised to RDA officers when they came together in Canberra that, to be perfectly frank, local government is their best friend. Their councils, in fact, are a mechanism and an asset that they should engage with, not a competition. They are not a competitive level of government and not a competitive structure.

CHAIR: We have run over time and have other witnesses, so we will have to move on. Thank you very much for giving your time to the committee today. It has been very helpful. The submission has been very helpful to us. If there is anything you wanted to make reference to subsequently, we would be happy to hear from you, but I do not think we have any questions that we want to put later on.

Mr Beresford-Wylie : The only thing I would say is that we have referred to some research and, of course, to the George Williams opinion on the nature of the Pape case and the things leading up to it. That is available on our website. It is in the public domain if you need to refer to it.

CHAIR: Thank you for your time today. We are very grateful to you for coming.