Tasmania releases new Council cost index

The Local Government Association of Tasmania (LGAT) recently released its second Council cost index to assist Councils with their rate setting deliberations.

Launched by LGAT President, Mayor Mike Gaffney, the index will help Councils to more appropriately reflect the costs of doing business and providing services to the community.

Councillor Gaffney said that in the past, the Consumer Price Index (CPI) has been used as a guide to benchmarking rate movements. However, on the basis of capacity for ratepayers to pay, the cost drivers on Councils are not necessarily best reflected by this particular measure.

“It is generally accepted that the goods and services provided by Local Government contain a relatively high proportion (around 50 per cent) of general construction activity in the form of roads, bridges, water supplies and sewerage systems,” he said. “The costs associated with these general construction activities bear little relationship to the CPI and are captured by a series of indexes grouped under the General Construction Industry Index.

“This index includes price movements for activities such as house, building, road and bridge construction.

“The mix of construction and non construction activity varies from Council to Council, however, it is apparent that costs for Local Government have again increased at a rate higher than the CPI over the last 12 months.”

Although the CPI increased by 2.5 per cent for the 12 month period ending December 2006, the General Construction Industry Index increased at a rate of 5.8 per cent.

Councillor Gaffney said because of this known movement in prices and the general split of Council costs, LGAT is proposing that the average movement in costs for the average Council in Tasmania would be in the vicinity of 4.15 per cent. This is up from last year’s initial Council cost index of 3.95 per cent and is influenced mainly by the increase in construction costs over the past 12 months. Tasmanian Councils will be encouraged to consider this benchmark when considering budgets and the setting of rates.

“The cost index provides Councils with the opportunity to assess service levels, current expenditures and savings opportunities against the true cost of doing business,” he said. “Coupled with the findings of the recently released report into Local Government Financial Sustainability (see page 8), the release of this year’s index provides Councils with an improved understanding of the impacts of costs on their operations.

“They will also have the ability to make better choices in terms of service and asset maintenance levels and the resources needed to provide these services.”

For further information contact Councillor Gaffney on 0409 015 253.