Enquiries: Chief Executive Officer Phone: 07 5540 5111 File Ref: 14/03/007 2 July 2018 Senate Standing Committees on Economics PO Box 6100 Parliament House Canberra ACT 2600 Submission to Inquiry: Regional inequality in Australia On behalf of the Scenic Rim Regional Council I provide details below in response to the Senate Standing Committee on Economics' Inquiry into Regional inequality in Australia. I thank you for the opportunity to provide this submission. The Scenic Rim region is located in the foothills of the Great Dividing Range in South East Queensland. Home to a population of more than 42,000, the region covers 4254sq km and is located an hour south of Brisbane and an hour inland from the Gold Coast. The region's primary businesses are agricultural/horticultural production, the equine industry and tourism/ecotourism. The most recent Australian Business Register indicated there were an estimated 4,301 local businesses (i.e. actively trading and registered for GST) operating in the Scenic Rim in June 2016, which represented an annual increase of 75 businesses, or 1.8%. Over the past five years, the population of the Scenic Rim Region has grown by 3,538 persons, or an average annual rate of 1.8%,higher than the average for Queensland (1.6%). Council's response aligns with the categories identified in the terms of reference as follows: a) fiscal policies at federal, state and local government levels; Issue 1 - Financial Assistance Grants (FAGs) require a revised calculation methodology Background The FAGs are administered by the Queensland Local Government Grants Commission (QLGGC) whose methodology uses a ten-year average of land valuations. This process does not conform with the concept of quality data or the equitable treatment of councils facing similar circumstances. This methodology was introduced in 2011 to assess the rating capacity of councils and followed a period of wide fluctuation in valuation changes. In addition, rating capacity is assessed at an aggregate level rather than across residential, commercial/industrial and rural land use categories as was the case prior to 2011. This results in the use of valuation alone to measure fiscal capacity, which is not considered appropriate as the Productivity Commission (PC) noted in its review of local government revenue-raising capacity (PC 2008, p. 53), "income is a more appropriate indicator of the fiscal capacity of a local government than the rateable value of land." The assessment of rating capacity has a significant impact on the FAGs outcome for each council and no other State Local Government Grants Commission uses an average of land valuations over such a lengthy period in their FAG calculations, although some do use a three-year average. The Local Government Association of Queensland states that "the grants methodology should be transparent and easy to understand, based upon quality data, produce consistency and predictability in grant outcomes and ensure equitable treatment of councils facing similar circumstances." It is considered that the current FAG methodology to assess rating capacity is flawed and should be reviewed to provide a more robust, accurate and equitable assessment of rating capacity as at present this is resulting in an inequitable outcome. PO Box 25, 82 Brisbane Street Tel 07 5540 5111 ABN 45 596 234 931 Beaudesert QLD 4285 [email protected] www.scenicrim.qld.gov.au P a g e | 2 The FAG formula is inequitable because a smaller or rural/regional local government lacks the ability to raise revenue other than through property rates. This revenue stream is too small despite the valuation of the land, to be able to meet the aging infrastructure burden and demands of these communities. This situation is worse for these smaller and rural/regional councils with their lesser developed commercial and industrial sectors. These sectors deliver a greater opportunity for broader rating revenue, with smaller and rural/regional councils relying on these mainly residential and rural sectors with their ratepayer base having a lesser deemed capacity to pay. In this regard, larger centres have a more defined commercial and industrial sector which can deliver enhanced rating options, more population growth at around 5% per annum and receive an ever-greater percentage of the FAG funding pool which only grows at 2.5% per annum. Outcome Sought The desired outcome is a fairer and more equitable assessment of valuations and rating capacity within the FAGs process for all councils, which is based on their current circumstances. Issue 2 - The identified Local Road Component within the Financial Assistance Grant (FAG) requires an increase in the level of funding and a review of the local road distribution methodology. Background A recent inquiry into the long-term financial sustainability of local government in Queensland conducted by the Queensland Parliament's Infrastructure, Planning and Natural Resources Subcommittee identified that the issue of vertical fiscal imbalance in the share of taxation revenues between federal state and local governments in Australia is a key contributing factor to the challenge of local government achieving financial sustainability in Queensland. It is estimated that local government only collects 3.6% of all government taxes but is responsible for 36% of non-financial assets held by all spheres of government. This challenge continues to be exacerbated by declining levels of funding provided by other levels of government to local government, lack of certainty about funding streams and decisions made by state governments to restrict local government funding levels, such as capping infrastructure charges in Queensland and capping general rate revenue levels in some other states. The fundamental problem is funding for roads, with a recent Local Government National Report showing that local government's local roads are worth approximately $75 billion and that local government has an annual local road deficit of about $644 million per annum (or $344 million after the $300 million per annum Roads to Recovery funds are included). The imbalance is greatest in Queensland and is exacerbated by the financial assistance grants distribution between the states. It is estimated that Australia has about 810,000 kilometres of public roads with 650,000 kilometres (80%) of these local roads the responsibility of local government. About one-third of this network is sealed and two- thirds is unsealed. Until 1990-91, the Commonwealth Government provided specific purpose grants to local government for local roads under the Australian Land Transport Development Act 1988. The grants were distributed on the basis of criteria in this Act. The October 1990 Special Premiers' Conference agreed that road funds would be untied, with the effect of this decision being a freeze of the interstate distribution of identified road grants at the historical share that applied in 1991-92. Australia is a vastly difference place now compared to 1991, and an updated distribution methodology some 28 years later is sorely needed. General purpose assistance has been declining as a proportion of gross domestic product (GDP) since at least 1991-92. In the absence of action to change the situation, this trend will continue. The Local Government (Financial Assistance) Act 1995 provides for the level of financial assistance grants and identified road grants to be increased annually in accordance with rates of population growth in each jurisdiction and changes in the P a g e | 3 consumer price index. This formula maintains the per capita value of assistance in real terms and places a 'floor' under the level of assistance. But the formula does not provide growth in the real level of assistance. Since GDP has grown faster, the level of general purpose assistance has fallen as a proportion of GDP. The Australian Local Government Association has argued that the level of general purpose assistance should be increased and set at 1% of total Commonwealth taxation receipts.. Regional Australia has a dispersed economy with a high reliance on logistics to facilitate economic growth. Both state and local roads are a key contributor to enabling access and facilitating the distribution of products and, as such, are critical to the rate of GDP growth. Additional funding for these critical assets will assist to lift the rate of GDP growth in regional Australia, and within the Scenic Rim, and thus benefit the Queensland and Australian economies. The RDA Ipswich & West Moreton Regional Roadmap 2016-2020, developed by the Ipswich and West Moreton Regional Development Australia (RDA) branch, identifies three key infrastructure priorities including transport and logistics infrastructure to support economic growth. A key risk identified in the roadmap is that poor quality roads and limited capacity bridges add time and cost to the transportation of regional goods, thus affecting industry competitiveness. Outcome Sought The desired outcome is an underlying level of funding availability for road infrastructure that assists with addressing the issue of local government financial sustainability and facilitates economic growth in regional Australia. An increased level of funding for the Identified Local Road Component of Financial Assistance Grants is sought, along with a review of the local road distribution methodology which has not been reviewed since 1991-92. b) improved co-ordination of federal, state and local government policies; Issue 3 - Public transport and transport for medical and mental health access requires improvement, including disadvantage due to location of services. The Scenic Rim has the unenviable position of being split across three Health and Hospital Districts, along with three Primary Health Networks. The districts and networks generally do not coordinate with each other, which can make it difficult to engage and advocate on key issues such as drug and alcohol, mental health and domestic violence. In basic geographical terms, Beaudesert is often considered part of Logan City, Boonah as part of Ipswich City and Tamborine Mountain as part of Gold Coast City.