93 – ‘Cost shifting’, or ‘State services paid for by rates’? It is our choice.

Posted by Colin Weatherby                                                                         670 words

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In local government in Victoria middle maangers are often asked to identify ‘cost shifting’ at budget time to identify the portion of the planned rate increase that is needed to cover additional costs in delivering services prescribed by the State government. A little bit of whinging usually goes along with it. Councils often feel as though they are victims being forced to do something against their will. I think it is a mindset problem.

What is really happening is that the State government is choosing to have its services delivered through local councils and for those services to be paid for by the people who receive them through their rates (property tax). Historically, these services have included building surveying/regulation, town planning and environmental health. The service levels and charges for all of these services are largely, if not completely, determined by the State government or its appointees. Council just have to hire the staff, provide office accommodation, and make up any shortfall in funding.

More recently, major services like libraries and aged and disability care have been initiated by the State with seed funding and then gradually left for councils to provide most or all of the required funding. Last year the State government legislated for councils to collect their new fire services levy at considerable cost to some councils.  In recent changes to a code of practice defining responsibility between the State government and councils for road asset management,  some small dimenisonal changes saw thousands of assets become the responsibility of councils. Almost daily there are little changes that transfer funding responsibility to local government.

You can forgive the people in local government who complain and say that the State government treats local government as simply another department responsible for delivering their policy. I say, why complain when you can’t stop it and there might even be economic benefits for ratepayers in paying for the services this way.  I agree with that view that it should be labelled. Councillors unfairly bear the political backlash for some of the rate increases necessary to implement policy that is not of their making.

My solution is that councils should physically separate the delivery of State services into another building and sign it with ‘State government services delivered by Council’ (or similar). It would help ratepayers to know what they are actually paying for and who determines what they get.

Going back to economic efficiency, the council rates, effectively a property tax, is one of the most efficient taxes raised in Australia. It is more effective than the GST, the main tax that the State government relies upon (over 50% of the Victorian government’s revenue comes from it). According to the Treasury, the GST is more efficient than income tax, with company tax and stamp duties the least efficient. If the State believes a service is needed, why not fund and deliver it in the most efficient and responsive way? Council’s complain about their limited ability to influence many of the services they are required to deliver, but it is possible and might happen more often if councils were more cooperative.

I am not suggesting waiving the rights of citizens in a municipal district to behave their views represented by their councillors, especially if those views differ from the State government policy, but that should be dealt with separately from the delivery of the service.  Deliver the service and then complain about it through other channels. First separate it in our own minds, the minds of the State government, and minds of people in the community.

It is really up to councils how they deal with cost shifting. One option is to call it that and fight it. Alternatively, call it State services and get on with delivering them in a way that makes it crystal clear to recipients who is determining service levels and how they are paying for it.

It is our choice.

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