For more than a decade, there has been much debate about the fairness of the Commonwealth Financial Assistance Grants program for local councils. So much so, that in 2013, the Commonwealth government asked the Productivity Commission for a report into what could be done. The contents of that report were never revealed and never acted upon.

In a presentation to be delivered at the IPWEA International Public Works Conference, to be held at the Perth Exhibition and Conference Centre from August 20-23, John Comrie and Ben Lawson, financial and asset management consultants to local government, will examine some of the inequities of what is the second biggest source of income to local government Australia wide and raise the question of why the most obvious solution hasn’t been considered.

As it stands, Comrie explains, Congress legislation requires each state to set up a Local Government Grants Commission to distribute this money to councils.

“The mechanism of distributing those funds has two provisos – firstly the money needs to be distributed on a horizontal fiscal equalisation – that is, more money goes to councils with greater need, based on both revenue-raising capacity and expenditure disadvantages,” he says.

“The other proviso is that all councils receive some money. Each council receives a minimum requirement equal to what they would have got if 30% of the available pool had been distributed on a per capita basis.”

Comrie adds that the pool of money the Commonwealth provides is limited and locked into a fixed quantum. “The Commonwealth acknowledges that the quantum is not enough to equalise all councils, even with the greater funding to councils with greater needs,” he says.

A lot of work has been done in the sector in all states over the past decade about financial sustainability, Comrie asserts, which has clearly demonstrated that rural councils typically have greater financial challenges than urban councils, primarily because they've got much larger road networks relative to their population – meaning a small revenue base and large infrastructure costs.

“Those councils also tend to have a relatively small rate income, so even if they doubled their council rates they would not get a lot more money. Metro councils tend to have a much higher percentage of rate revenue as a share of total revenue,” he says.

Given this, metro councils are usually assessed as having low need and receive the minimum grant, but Comrie and Lawson argue that the minimum grant should be reduced further, if not abolished altogether.

“That would have the effect of reducing the amount of grant revenue received by urban councils and increasing the amount received by rural councils,” says Comrie. “Given the population demographics, it would have a very small impact on urban councils who are in a strong financial position anyhow, but it would have a hugely beneficial impact on rural councils.”

Comrie believes he’s not the only one who has reached this conclusion. This was one of the considerations posed by the Productivity Commission in 2013 when they considered ways of improving how the Financial Assistance Grants money is distributed to councils – the results of which then-Treasurer Joe Hockey chose to keep a secret.

“Why didn't the Treasurer publicly release and have some community debate about whether the report should be acted on?” challenges Comrie. “I suspect they buried it because it suggested it would be feasible to do this, but they were concerned about the politics of ‘robbing Peter to pay Paul’. It’s my argument that you could rob Peter without any material impact, while benefiting Paul considerably.”

Be sure to attend Comrie’s presentation Robin Hood as Grants Commissioner: Who’s Rich, Who’s Poor? at the IPWEA Conference to learn more.