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Local government finances

Background

The Office of Local Government supports a wide understanding of the financial performance and position of local government and trends in its finances over time.

It has drawn together financial data from all councils and provided a high-level summary and analysis of the Financial Performance and Position of the Local Government Sector (PDF 378.4 KB). The Office acknowledges the assistance of the Local Government Grants Commission in providing data for this purpose.

The Local Government Association (LGA) assembles, for each Annual General Meeting, a report with the latest values, history and comparisons of key financial indicators for the local government sector as a whole. The most recent report is the Financial Indicators Report 2016. Detailed explanatory information about each financial indicator and trend data on individual councils is available here (XLS 197.3 KB)

The South Australian Model Financial Statements help councils comply with Australian Accounting Standards and have considerably improved the reliability, consistency, comparability and understanding of publicly available information on council finances. The latest version is the Model Financial Statements 2016.

The use of a uniform, sector-wide financial reporting framework (based on a simplified Australian Bureau of Statistics Government Finance Statistics framework) has ensured that summary information on both operating and capital investment activities is available on a consistent basis and enables more meaningful comparisons of council's finances. It also focuses on a council's operating surplus/(deficit) as the key measure of financial performance. An explanation of the framework is given in Uniform Presentation of Finances (PDF 20.8 KB).

The Local Government (Financial Management) Regulations 2011 require that council budgets, long-term financial plans, annual financial statements and mid-year budget reviews include summary financial information using this uniform approach.

Financial institutions and initiatives

The LGA, with state government assistance, has created a number of financial institutions to manage, on behalf of councils, a range of commercial arrangements, including:

  • the Local Government Finance Authority
  • the LGA Mutual Liability Scheme
  • the Local Government Superannuation Scheme
  • the LGA Workers Compensation Scheme.

These institutions deliver efficient and effective shared service arrangements for local government and are strongly supported by individual councils. At 30 June 2015, the institutions were managing assets valued at more than $2 billion and had a combined net worth in excess of $100 million.

Councils are custodians, on behalf of their communities, of infrastructure and other assets valued at $22.4 billion at 30 June 2015. As the result of an independent inquiry in 2005, the LGA, with the support of councils and the state government, embarked on a comprehensive Financial Sustainability Program to improve councils' long-term financial and asset management planning.

One of the most important outcomes of the Program was a state-wide project, initiated in 2006, to help councils develop strategies, policies and tools for sustainable asset management. The LGA entered into an alliance with the Institute of Public Works Engineering Australia to adopt an internationally recognised approach for preparing asset management policies and plans.

Associated projects include development of rigorous long-term financial plans, improvement of external financial reporting and strengthening of internal and external audit regimes. 

More information about the Program can be found on the LGA's Financial Sustainability Program webpage. Interested readers may need to seek approval from the LGA to access this information. 

Financial relationships with the Commonwealth Government and State Government

Commonwealth Government

The Commonwealth provides both general and specific purpose payments to Local Government in South Australia. The general purpose payments are made to the State and on-passed to councils on the recommendations of the South Australian Local Government Grants Commission. Arrangements for the payment of these untied financial assistance grants to councils are embodied in the Commonwealth's Local Government (Financial Assistance) Act 1995. The financial assistance is provided in two parts - general purpose grants and untied local roads grants. General purpose grants initially allocated by the Commonwealth are not subject to horizontal fiscal equalisation (HFE) as they are distributed to States on an equal per capita basis.

For South Australia, financial assistance grants of $153 million were provided in 2014-15, consisting of $114 million in general purpose funding and $39 million in untied local road funding.

The Commonwealth legislation provides for the allocation of financial assistance grants to councils within the State on the basis of HFE principles, subject however to a minimum grant provision. This provision requires that each council receive, as a minimum, its per capita share of 30 per cent of the general purpose pool of grants. The minimum grant requirement, together with the initial per capita distribution of general purpose grants between States, means that fiscal equalisation in Local Government in Australia is not truly comprehensive.  

Details of Commonwealth payments for specific purposes received by SA councils under a variety of programs can be located in Federal Budget Paper No. 3 - Australia's Federal Relations.

State Government

In 2004, a State-Local Government Relations Agreement was established to improve consultation arrangements and communication practices and to build more productive and collaborative working relationships between State and Local Government. The Agreement is between the State Government and the LGA and is signed by the Premier and the President of the LGA. An updated Agreement (PDF 197.2 KB) was signed in January 2015.

In 2007, amendments to the Local Government Act 1999 were brought into effect. Amending provisions aimed at improving the accountability of councils as well as strengthening their financial governance, asset management, rating practices and auditing arrangements.

The changes included the requirement for councils to:

  • prepare and adopt long-term financial plans;
  • prepare and adopt long-term infrastructure and asset management plans;
  • establish audit committees;
  • adopt several measures to strengthen the independence of external auditors; and
  • adopt a consistent and improved reporting format for annual financial statements.

These legislative reforms supported the directions of the LGA's Financial Sustainability Program, which helped councils to meet these requirements. Additional legislative amendments occurred in 2009 to further improve the legislative framework for internal and external review of council administration and financial management. During 2011, the Local Government (Financial Management) Regulations were completely remade. The revised Regulations simplified and rationalised some requirements on councils. 

Details of State Government grants and subsidies to councils (including for State programs) or payments to councils for local government or joint state-local government programs can be located in the State Government Budget Papers.

Care needs to be taken in any comparison of the level of State Government financial support to councils provided in different State jurisdictions. Significant definitional differences exist between the States and the level of information captured within each varies. In addition, certain funding in some States relates to functions that in general are not performed by South Australian councils.