Council advice 2023-24

28 Feb 2024


Under the Local Government Advice Scheme established through the Local Government Act 1999, the Essential Services Commission has released advice for the second tranche of 17 of the State’s 68 councils. Under the Scheme, the Commission is an advisory body, providing advice to all councils across a four-year cycle. The aim of the Scheme is to provide independent, risk-based advice to assist councils when making long-term financial and investment decisions for the benefit of ratepayers.

Councils are long-term businesses with ongoing service provision obligations and long-lived assets. From an overall community perspective, it is important that council rates are set at levels as low as sustainably possible, while:

  • providing the standard and breadth of services that ratepayers value, and
  • ensuring that councils have robust, long-term asset management, financing and operational plans which allow them to manage their assets efficiently and effectively over the long term, so as to sustain the delivery of those services and minimise their lifetime cost.

In that context, the advice relates to the appropriateness of councils’ long-term financial plans, infrastructure and asset management plans and revenue sources as outlined in funding plans. It is an advisory scheme, identifying both risks and areas of good practice for councils to consider, with decision making remaining the hands of the councils. 

Having reviewed, in accordance with the statutory scheme, available material in relation to the second tranche of 17 councils, the Commission has several observations across the sector as a whole, noting that not all observations apply to all councils.

First, in an improvement since 2022-23, it is positive to see that the majority of councils in the second tranche have taken the approach of bringing together their annual business plans and budgets and their long term financial plans, so that there is alignment. This allows the impacts of decisions taken through the annual budget process can be understood in a long-term financial context. The Commission encourages councils across the sector to continue this positive action.

Second, the significant number of unexpected events in recent years have continued leading to the current state of flux in macro-economic conditions facing the community. These have given rise to inflationary impacts and uncertainty in the economy, affecting Federal, State and Local Governments as well as ratepayers. It is therefore prudent for councils to have processes readily in place to annually reassess the forecasts adopted in their planning and operational documents. While some councils do this effectively, it does not yet appear to be a practice which is embedded across the sector. A further key consideration in reviewing plans should include the alignment of asset renewal requirements in the various asset management plans, and the timely inclusion of new assets into the asset management plans.

Third, growth in the number of ratepayers and providing services to meet the community’s needs continues to be a key planning issue for councils. Councils need to constantly monitor demand in their areas to ensure services are not stretched when the population or nature of the area changes. At the same time, councils need to balance their planning and investment decisions and consider the risk of spending ahead of development, potentially placing a burden on existing ratepayers at the expense of intergenerational equity. A balance is required between the costs of infrastructure necessary to meet community expectations and potential increases in costs. The Commission recognises the challenges involved in these assessment and balancing processes, and encourages the sector to continue to explore ways to support councils in that regard.

Fourth, future rate expectations need to take account of affordability for ratepayers and minimise the impact on the community where possible, particularly where the current economic climate is putting more pressure on many communities’ capacity to pay for further rate increases. It is prudent for councils to constantly review their internal costs with a view to finding efficiencies and savings to keep rates as low and affordable as possible over the long term, while demonstrating a commitment and ability to meet community needs and value. Again, while some councils have demonstrated good practices in this regard, it may be of value for the sector as a whole to focus on this area going forward.

Finally, the Commission further observed emerging risks across the sector that require further consideration. These include:

  • Poorly drafted long-term financial plans, with little detail around the assumptions underlying the figures presented therein.
  • Asset management plans either out of date or not regularly reviewed, causing uncertainty in the condition and useful lives of assets.
  • Assets not revalued regularly or within the Commission’s recommended timeframe (no later than every four years).
  • Underspending on asset renewals leading to increased costs for future renewals, repairs and maintenance of assets (as they deteriorate more rapidly if not properly upkept).
  • Over-estimated inflation forecasts which are not in line with the RBA-Based inflation figures, potentially leading to greater rate rise forecasts in the council’s long-term financial plan.
  • Unrealistic, under-estimated (based on historical experience), unjustified or optimistic forecast of expense growth, which may be difficult to realise in the current macro-economic environment.

The Commission thanks each of the 17 councils for meeting with Commission staff, and for providing relevant information to assist the Commission in preparing the advice.

The advice is generally based on information available to the Commission as at 19 February 2024.

For further information on the advice, including the advice provided to each council, please refer to the Commission’s advice to Local Government.