Council amalgamations to deliver $500m to state

Landmark research has revealed that council amalgamations could deliver more than $500 million to local communities across South Australia.

The Property Council of Australia commissioned public policy consulting firm ACIL Allen to undertake economic modelling around a reduction in statewide councils from 68 to 32. As part of this modeling, metropolitan council boundaries would be recast to create nine councils rather than the existing 19.

SA Executive Director of the Property Council Daniel Gannon said local government reform is a potential game changer for South Australia’s local communities, but also for the state’s economy.

“At a time when South Australia’s policy-makers are exploring future opportunities like nuclear energy, we need to continue to be bold and examine the role of local government,” he said.

“This report reveals that a reduction in councils from 68 to 32 would deliver savings to councils and the community of around $65 million per annum and result in a total benefit of $505 million.

“It also outlines that there will be fewer mayors, fewer councillors and fewer local government executives. However, it must be stressed that there would be no net reduction in non-executive staff as councils move to increase services across the board.

“What is now clear is that the benefits of recasting council boundaries substantially outweigh the costs.

“Any effort to implement local government reform will not be easy, but that doesn’t mean we should ignore it.

“Recasting council boundaries needs to be considered to ensure every dollar of ratepayer money is wisely spent at a time when our state’s economy is struggling.

“To encourage economic development, we need to ensure that our local tier of government is as efficient as possible. While this can be an emotive subject, it has to be in the policy mix.”

Mr Gannon said that while there would be significant upfront costs in implementing any reforms, the benefits overwhelmingly outweigh the costs resulting in a benefit-cost ratio of 4.54.

The Property Council in July 2015 undertook research to determine the community’s attitudes towards the number of Councils servicing SA, the level of support for mergers, the level of support for a review into their performance and the level of satisfaction with services. These results are listed below:

  • The majority of people living in metropolitan Adelaide (53%) are supportive of amalgamations.
  • Among those who indicated that they were in favour of council mergers, the main reason was around cost effectiveness, named by 56% of those in support of amalgamations.
  • 64% of respondents were in favour of a State Government performance review into councils, compared to just one quarter in opposition to this proposal.

ECONOMIC IMPACT

The report models a reduction in councils from 68 to 32, with a reduction in metropolitan councils from 19 to nine and a reduction in regional councils from 49 to 23. A reform of this nature is more conservative than options considered in the past.

This modeling would result in a total benefit of $504,894,057 in net present value terms.

Savings would include $5.5 million per annum from a reduction in the number of councillors and mayors, and $50.67 million in savings after Year 3 from a more streamlined total executive number (reducing from 576 to 330 positions).

Costs would be incurred in any amalgamation arising from ICT costs, redundancies and the costs of transition.

While this report provides an estimate of the potential financial benefits of council mergers, the real benefits should be in terms of improved services and lower rates which could be passed onto the community and improved capacity and capability of councils to provide essential infrastructure. For many of the relatively small councils in South Australia, this improved capability is likely to be considerable.

COMPARATIVE COUNCIL PERFORMANCE

The report highlights areas of opportunity to address comparative disadvantages, including:

  • SA councils are heavily reliant on a relatively narrow rate base for their revenue. Approximately 63% of SA council revenue comes from rates compared to only 38% for Australia as a whole.
  • Adelaide metropolitan councils are even more reliant on rate revenue than the state as a whole with rates accounting for 76% of their total revenue base.
  • The dilemma for local government in SA is that other sources of revenue such as grant revenue from the Commonwealth are in decline due to declining population share.
  • To avoid ongoing pressures on the rate base, councils in SA will need to significantly reduce costs, increase efficiencies and explore new business models to increase alternative sources of revenue.
  • SA councils have very few commercial activities or other sources of income and receive only 28.6% of their revenue from the sale of goods and services or other sources (compared with 54% for councils in the rest of Australia).
  • SA rates per capita are the highest in the country at $774.16 in 2013-14, almost $150 more than the Australian average.
  • Rates per person in SA are the highest in the country and increasing at a faster rate. Revenue from rates in SA increased by more than 20% over the three years to 2013-14 compared with an 18.6% increase for the rest of the country – this is despite higher growth in interstate property values.

The over-reliance on rate revenue in South Australia means that any cost pressures are more likely to result in rate increases than in other states. Councils in other jurisdictions have a more diverse revenue stream and therefore a lesser reliance on rates.

 

Media contact: Daniel Gannon | E dgannon@propertycouncil.com.au