The indexation freeze on Financial Assistance Grants has been in place for almost two years now, hurting rural, regional and remote areas the most.
In the 2014 budget, the Federal Government announced – to the surprise of many in the local government sector – that an indexation freeze would be placed on local government Financial Assistance Grants (FAGs) until 2017–2018.
A recent report from the Australian Local Government Association (ALGA) has established that the impact of the three-year freeze has varied from council to council, and, while some areas have been able to absorb the financial loss, smaller councils have struggled to do so.
In the Western Australian wheatbelt, President of the Shire of Mukinbudin, Gary Shadbolt, said the freeze has caused financial strain in the dryland area of about 500 people.
“It stops the progress of the community, you can’t spend money on infrastructure that you need to. It’s a case of falling behind fast.”
The Shire is responsible for contributing funds to keep a doctor in the area, and, among other things, Financial Assistance Grant money helped cover this cost.
“The problem is state and federal governments pass the responsibility to local governments, and we have to pick up where they left off,” President Shadbolt said.
The area has been drought affected in recent years, so the Shire has tried to avoid passing on the financial burden to ratepayers. But, President Shadbolt said,“It’s catching up to us now.”
The nearby Shire of Wyalkatchem has been put in a similarly tough position by the indexation freeze.
Chief Executive Officer Ian McCabe said the loss to the Shire of about $80,000 per year might seem insignificant to larger councils, but it has an impact on the small area.
“Larger councils have a larger rates base and property prices are much higher, plus there are commercial enterprises which generate money and can provide a buffer against withdrawal of state and federal grants,” Mr McCabe said.
A large aging population in the area has prompted the need for an aged care co-ordinator, but due to the freeze this is not currently an option for the Shire.
In 1996, Financial Assistance Grant funding amounted to 1 percent of Commonwealth taxation revenue. By next year, it is projected to have dropped to 0.52 percent.
ALGA has estimated the three-year freeze will cause a loss of $925 million in revenue to local government by the time indexation is restored.
ALGA President, Troy Pickard, said it is evident the freeze has hurt regional areas the most.
“There are many councils in regional and remote areas of Australia who rely on financial assistance grants – in some instances for their entire wage bill – so not only have they had to make some tough decisions on delaying infrastructure and reducing services, in some instances they’ve had to reduce the capacity of the organisation to serve the community.”
Mayor Pickard said a range of community services have been affected.
“Some councils have reduced mowing on local parks, reduced the funding available to community groups, reduced opening hours of waste transfer stations, their customer service centre, their libraries, and, all of these decisions ultimately end up adversely impacting on the local community.”
President of the Local Government Association of the Northern Territory (LGANT), Damien Ryan, said the freeze would have a destructive impact across the territory.
“The freeze on FAG money was very much a regressive step,” Mayor Ryan said, “When you look at remote areas in the territory, that three years is going to be a real issue.”
Mayor of West Arnhem Regional Council, Lothar Siebert, agreed the freeze has hurt regional and remote areas of the territory: “Out in the bush we’re always the last to get anything.”
As a result of the freeze West Arnhem had to implement an organisational restructure Mayor Siebert said.
A spokesman for Minister for Major Projects, Territories and Local Government, the Hon Paul Fletcher MP, said that the decision to implement the indexation freeze was a necessary step in a tough financial climate.
“While some councils are disappointed with the Government’s decision to pause the indexation applied to the programme, it has contributed to the important task of Budget repair,” the spokesman said.
“Councils continue to be big winners from this Government’s commitment to build the infrastructure of the 21st century, with substantial increases in Commonwealth funding available to councils.”
In 2015, the federal government doubled Roads to Recovery funding, which was welcomed by councils across the board.
“Overall, councils are receiving more Commonwealth funding than in previous years,” the spokesman said.
Mayor Pickard said this funding is welcomed, but does not provide the flexibility afforded by FAGs.
“Additional funds from those programs is appreciated, but they’re tied.
“They’re tied to a particular outcome, and invariably governments like to tie programs to achieve policy objectives, however FAGs are untied so that allows a local council to make determinations based on the best interest of their local community.”
In New South Wales, and soon Victoria, the issue is compounded by the implementation of rate capping.
In regional Victoria, Murrindindi Shire has been put in a difficult situation as a result of the freeze.
In 2009, the area was devastated by the Black Saturday bushfires and, following the disaster, Council was gifted around $33 million worth of infrastructure.
Chief Executive Officer Margaret Abbey said this has presented problems.
“While this assistance did much to help life return to normal, it also resulted in a range of new and unintended challenges for Council.
“The assets were gifted to Council without additional funding support to pay for their management, maintenance, insurance and renewal, despite our ongoing efforts to ensure this was forthcoming.
Ms Abbey said due to the added pressure of a freeze on financial assistance grants, Council believes it will have no choice but to apply for a variation on the incoming 2.5 percent rate cap.
“The alternative is to examine options for cutting a range of services to the community.”
Mayor Pickard said the ALGA’s concern now is the “legacy issue” after the indexation to Financial Assistance Grant funding is restored; the freeze is estimated to cause a permanent reduction of about 13 percent in the grant’s base.
“Unfortunately the legacy impact of the freeze will mean it will by many, many years before councils are in a position to start to grow their services or even return their service delivery model to pre-freeze levels,” Mayor Pickard said.
In its pre-budget submission the ALGA has put forth a number of policy proposals, including a Community Infrastructure Program designed to help lessen the burden of infrastructure maintenance and upgrades for councils.
Eyes are now on the forthcoming May budget, in which it is expected that funding will be slated to be restored in 2017.