New South Wales’s $1Billion reform package

The New South Wales Premier Mike Baird announced on the 10th September 2014 funding of up to $1Bn in a council overhaul including cash incentives if they merged. According to the press release for the Fit for the Future package it includes:

$258 million to assist councils who decide to merge and make the changes needed to provide better services to communities ($153m for Sydney councils and $105m for regional councils) and $13 million to support councillors who “lead the transition to a new council”; Cheaper finance for councils to build and maintain the facilities that communities need, saving them up to $600m; Up to $100 million savings through reductions in red tape and duplication; And improvements to the local government system, including the laws that govern it, the way the State works with councils and the support that councils receive.        

Local government NSW President Keith Rhoades says that the $600m promised in the incentive package is based on government estimates of councils saving money over a 10 year period if they borrowed money from the government. So if you don’t borrow money you won’t get the savings. Many councils were also wondering whether the Government’s ‘no forced amalgamation’ policy will change once the 2015 State Election is over. The Fit for the Future package is based on the Independent Local Government Review (LGRP) panel which identified issues local councils face due to a lack of funds and other things such as, the declining level of grants for public libraries (which originally covered 50% of councils’ operating costs); Contributions to the NSW fire brigade, Rural Fire Service and the State Emergency Services; Waste disposal levies; Pensioner rebates and costs relating to processing development applications and other approvals or inspections which can’t be recovered due to State controls on the fees councils may charge.

The panel views rates as a tax, not a fee-for-service; that need to be set in accordance with the principles of taxation according to the Henry review – equity, efficiency, simplicity, sustainability and policy consistency. The level of rates paid relative to property values varies greatly from one local government to another, raising a number of equity issues (notably the relatively low rates paid by property owners in many affluent suburbs of Sydney). It also looked at achieving more equitable rates from apartments and the increase of Special Rate Variations (SRV) to create revenue. The panel found concessions for disadvantaged rate payers were justified but that social welfare shouldn’t be a local government responsibility and that pension concessions should be reviewed. It also wanted non-rateable land and exemptions for government businesses, charities and others to be reviewed. Land used for health and safety; Aboriginal land; cemeteries, public places, libraries were recommended to remain exempt. It also recommended removing or modifying current exemption of commercial forestry in State forests and commercial activities in National parks; removing the exemption for oyster cultivation, cattle dipping and land leased for granted mineral claims. Other exemptions looked at were for mainly commercial purposes such as the Royal agricultural society and the Sydney cricket ground. Rate pegging or setting was another big issue particularly because NSW is the only state that has the Independent Pricing and Regulatory Tribunal (IPART) determining the rate peg cap that applies to local government income.

Rate pegging the panel found, had consequences of unrealistic expectations in the community (and because of some councillor’s) that rates should be contained indefinitely without factoring in rising household expenditure; big cuts on infrastructure maintenance and renewal led to an infrastructure back log and low borrowing due in part, to uncertainty that increases in rates needed to repay infrastructure loans would be granted. Reluctance to apply for the rate raises known as SRV, even when necessary are weighed up with politics and red tape. The chairman of IPART interestingly is Peter Boxall who was also a commissioner for the Abbott government’s Commission of Audit (COA). According to IPART, over the period 2001/2 to 2010/11, growth in the total revenues of NSW councils was 5.7% per annum, compared to an average of 8.0% for the other states. Taxation revenue (rates) increased by 4.4% per annum in NSW compared to an average of 8.0%. This points to lost revenue of well over $1bn. The fact that rates in other states being increased without community anger suggests that political sensitivities in NSW have been a little overstated. To apply for a SRV for the rates above the 2.3 per cent cap set for 2014/2015, Sydney councils had until the 3rd of March 2014. There are 152 different local government bodies in NSW, the IPART gave the okay for 31 out of them to raise their rates. The residential rate rises typically range between $1 and just over $2.20 per week.

Of the Sydney councils that got the okay the one council that protested the loudest was Warringah, which happened to be former Prime Minister Tony Abbott’s and Mr Baird’s electorate. Residents in Warringah made 60 submissions to IPART rejecting the rate rise, including a petition with 153 signatories. Warringah Mayor Michael Regan originally wanted a 26.2% rate rise over 4 years, he ended up getting 19.6% rise, with rate rises of $35 for the next 3 years rising to $224 in 2017-2018. The IPART knocked it down, saying it was “the only application where a need for the increases was not demonstrated in the near future”. NSW government deputy whip Gareth Ward slammed rate rises across the state, saying, “No wonder people are calling for metropolitan council amalgamations.” Going back to Mr Baird’s press release it states – “This is about councils working for the communities they represent and putting downward pressure on the rates you pay.”

It appears that all the NSW government got out of the review was to keep the lower taxes mantra to appease their electorate’s even if not practical and to throw money at the problem. It’s also of interest that the amount is around about that of potential revenue of near $1Bn lost, a common theme for the NSW government whom while Mr Baird was treasurer, gained a surprise surplus (from a deficit) of $1 Billion due to poor accounting. It’s also troubling in a time where so many  allegations have been made against the NSW government (including stood aside Federal assistant treasurer Arthur Sinodinos) with the Independent Commission against Corruption (ICAC) that cash incentives are still favoured by the Coalition government.

How much longer can the major parties stall a Federal ICAC?

 

 

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