5.4.2 E L CONTEXTO SOCIO ECONÓMICO DESDE LA PERCEPCIÓN DEL PCZ

In analysing sustainability and developing appropriate reform options for the local government sector in Australia, it is useful to consider successful funding approaches, and recent initiatives and reforms, internationally. Completion of this benchmarking analysis indicates that numerous local government sectors across the world suffer from similar issues associated with constant operating deficits, infrastructure backlog and asset management. While a number of jurisdictions have implemented a range of interesting initiatives to address these issues, both at a national and individual local government level, the applicability of these approaches to the Australian environment will need to be assessed.

1.5.1 United Kingdom

There are some 410 local authorities in England and Wales employing over 2.2 million people (2.1 million people in England and 164,000 in Wales). Local councils undertake an estimated 700 different functions. There is an average of 148,000 people per council, making UK councils on average 5.4 times larger than average Australian councils in population terms.

Local government in England and Wales is organised in two contrasting ways. In Wales and some parts of England, a single tier "all purpose council" is responsible for all local authority services and functions (Unitary, Metropolitan or London Borough). The

remainder of England has a two-tier system, in which responsibility for services is divided between district and county councils.

Local councils are heavily scrutinised in an effort to ensure effectiveness and efficiency in their service provision. However, it is arguable that the central government has had mixed success in this aim. The majority of the scrutiny is undertaken through the Audit Commission's Comprehensive Performance Assessment (CPA). Councils are awarded ratings - excellent, good, fair, weak or poor - on the basis of their service performance. There are currently a total of 69 in the excellent category, 146 in good, 119 in fair, 44 in weak and 10 in poor.14

Local councils are funded by a combination of central government grants, council tax (a locally set tax based on house value), business rates, and fees and charges from certain services including de-criminalised parking enforcement. The proportion of revenue that comes from council tax is low (covering about 26% of all costs). Central government retains the right to 'cap' council tax if it deems it to be too much. This is an area of debate in British politics, with councils and central government at odds over council tax rises.

In July 2004, the British Deputy Prime Minister commissioned Sir Michael Lyons to undertake an independent inquiry (the Lyons Review) to consider the case for changes to the present system of local government funding in England, including the reform of council tax. The terms of reference were extended in September 2005 to include the function of local government and its future role as well as how it is funded.

The key finding from the second component of the Lyons Review was that greater local choice, not more central control, is needed to enable local government to manage increasing pressures on public expenditure, increase satisfaction and build more prosperous communities. The review calls for central government to set fewer and better-focused targets, reduce supervision of local government by central government and provide more untied funding to councils, while also challenging local government to achieve further improvements through stronger leadership, closer engagement with local residents, effective partnership with other services and the business community, and a consistent commitment to efficiency and cost effectiveness.

14

Note that these are the reported figures located at http://local.gov.uk/default.asp?sID=1088162663359 and do not reconcile with the stated total number of Councils.

The Government is currently conducting another review of local government in England. Details are unclear, but the creation of new unitary authorities is possible, along with an introduction of the "city region" concept.

In October 2006, the UK Local Government White Paper15 was released, which proposes a new approach to local partnership whereby local authorities are given more opportunity to lead their area, work with other services to better meet the public’s needs. The White Paper signalled a continued progressive shift in funding away from SPPs to area-based funding streams in order to give local public service providers maximum flexibility in how they deliver shared outcomes. The White Paper also encourages greater focus on a regional service delivery model utilising a "city region" concept. Some commentators have suggested the city region concept is a step towards the restoration of strategic authorities for the metropolitan areas. A report released by the Institute for Public Policy Research in February 2006, titled City Leadership: giving city regions the power to grow, proposed the creation of two large city-regions based on Manchester and Birmingham.

1.5.2 Canada

Government in Canada is organised into three and often four levels: federal, provincial or territorial, and municipal (which is often subdivided into regional and local). The

municipalities are created by the province or territory, and are essentially arms of the provincial or territorial governments. Similar to Australia, Canadian municipalities source their revenue through:

• taxes: consumption, property and, other taxes

• sales of goods and services

• investment income, and

• funding, which includes general purpose transfers and specific purpose transfers. The intergovernmental transfers come from the two larger tiers of government in Canada, federal government and the thirteen provincial and territorial governments, the latter of which provide around 90% of overall funding to local governments. Also similar to the situation in Australia, there is municipal fiscal imbalance in Canada, which leads to operating deficit issues in some parts of the sector.

Canada has implemented a Municipal Performance Measurement Program (MPMP) that requires municipalities to report annually on 54 measures of effectiveness and efficiency in 12 key service areas. The MPMP was designed to strengthen local accountability by keeping citizens informed about municipal service plans, standards, costs and value. It was also meant to help municipalities improve local services by stimulating productivity and creativity. 15 _See: www.communities.gov.uk/pub/98/StrongandProsperousCommunitiestheLocalGovernmentWhitePaperVol1_i d1504098.pdf Introduction 35

The Federal Government of Canada is currently increasing the funding it provides to local governments for infrastructure programs to achieve the country’s overall objectives. As part of the 2005-06 Canadian federal budget, a decision was made to share 1.5 cents per litre of the 10 cent a litre gasoline tax with local municipalities, with $C600 million per annum to be shared with local government in a ‘Gas Tax Fund’. The budget also committed to providing larger Canadian cities with five cents per litre or $C2 billion per annum. The intention of the funding is to foster better collaboration between federal, city and local jurisdictions and to solve issues within communities such as the municipal infrastructure deficit, affordable housing and improving the transit systems. This new funding builds upon a $C700 million full rebate of all goods and service tax (GST) from municipal governments in Canada from 2004-05 onwards.

1.5.3 New Zealand

In 1998, a number of reforms were introduced to local government by the Department of Internal Affairs to promote the social, economic, environmental and cultural well-being of communities for the present as well as the future.

These reforms resulted in the amalgamation of local governments reducing the number of councils from 675 to 86, the introduction of annual planning and reporting requirements, accrual accounting requirements, enhanced accountability for chief executives and consolidation of rating powers. These accountability plans include the development of long-term council community plan with a 10-year timeframe.

New Zealand councils now comprise 12 regional councils; 15 city councils; and 57 district councils (including four unitary councils which have regional functions). There is an average of 48,180 people per council, making NZ councils on average 1.7 times larger than Australian councils. Councils have a combined annual operating expenditure of $NZ3 billion, $NZ800 million in capital expenditure, $NZ31.2 billion in rate payer equity and contribute around 3.5% of national GDP.

The main functions of regional councils are:

• management of the effects of use of freshwater, coastal waters, air and land

• bio-security control of regional plant and animal pests

• river management, flood control and mitigation of erosion

• regional land transport planning and contracting of passenger services

• harbour navigation and safety, marine pollution and oil spills, and

• regional civil defence preparedness.

The main functions of territorial councils (district and city councils) are:

• community well-being and development

• environmental health and safety (including building control, civil defence, and environmental health matters)

• infrastructure (road and transport, sewerage, water/stormwater)

• recreation and culture, and

• resource management including land use planning and development control. New Zealand local government receives its revenue from five sources. These are:

• rates

• central government grants

• regulatory income, eg development applications

• investments, and

• user charges,

In the year ending June 2004 local government received some $4.6 billion in operating income. Around 57% ($NZ2.6 billion) of this came from rates, 12% ($NZ555 million) from central government assistance, 6.5% ($NZ300 million) from investments, 5% (NZ$231 million) from fees and fines, and 19.5% ($NZ900 million) from other sources.

The NZ local government sector is generally not heavily indebted, nor is it forecast to be so in the foreseeable future, with most local authorities within their self-imposed debt limits.

Rates amounted to $NZ2.8 billion in local government revenue in 2004-05. Rates as a proportion of revenue vary significantly between local governments, ranging between 2% and 16% or amounting to $NZ1,200 - $NZ3,700 per household. Rates per household have been set to increase by about 20% between now and 2012-13.

In the year to June 2004, land transport was the largest single expenditure category – accounting for 26% of operating expenditure ($NZ1.1 billion), followed by culture, recreation and sport at $NZ0.843 billion or 19%.

Since the 1998 reforms, local government has moved dramatically away from being static providers of traditional services, to become more strategically focussed in identifying and responding to local needs, and using innovative means to purchase local public goods and services.

It is reported that many councils continue to investigate the most appropriate local government structures to meet their community's needs and the more efficient delivery of services. This may involve looking at new structures for delivering services, such as contracting with inter-district or regional service providers, eg for library services and water supply management.

An issue of current debate in New Zealand is around the Rating Powers Act. Local governments seek to build on the improvements and savings of the last ten years by seeking changes to funding tools so that costs are more equitable, transparent and understandable. The general view of local government is that the Ratings Act is prescriptive, overly-complex, outdated and has failed to keep pace with recent reforms.

Changes sought are:16

• the liberalisation of rating powers

• streamlining outdated or unnecessary procedural requirements

• providing for councils to charge actual and reasonable costs, and

• all land being rateable (including Crown and Maori land). While local communities require that central government:

• complete the review of the Rating Powers Act to give local government a set of flexible, modern rating powers

• removal of prescriptive charging powers and their replacement with a power to charge actual and reasonable costs, and

• central government pay its own way.

In November 2006 the NZ Government commissioned a further review of the local government sector, focused on rates. The inquiry's objective is: 'to consider issues relating to current local government rating, and to other revenue raising mechanisms, and provide recommendations to the Government for enhancing rating and other funding mechanisms for local authorities.' As part of its process the inquiry will look into: the level of rates and related trends, drivers of local authority expenditure, and the sustainability of rates as the major revenue raising tool. The inquiry will report to the Government by 31 July 2007. Public submissions will be called for early in 2007.17

Implications of local government international review for Australia