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Concerns regarding ‘cost shifting’ to local government are longstanding and ongoing

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Cost Shifting

The Victorian Local Governance Association (VLGA) has established a Working Group on Cost Shifting  to seek a fair deal for councils.

In January, the Minister for Local Government, the Hon Natalie Hutchins MP, wrote to the VLGA confirming the Victorian Government's participation in the working group.

What is Cost Shifting?

Cost shifting can be broadly defined as when one level of government shifts the costs related to a program or service to another level of government. In this case, between the Victorian State Government and local governments.

The 2003 Parliamentary Inquiry ‘Rates and Taxes; a Fair Share for Responsible Local Government acknowledged this reality and suggested that parties involved need to find an agreed definition as an initial starting point in addressing the issue.

This same report suggested that on some counts, cost shifting to Victorian councils is estimated as above some $40 million annually. In considering the broader context, the inquiry concluded that ‘Cost shifting can be seen as a symptom of the current weaknesses in our system’, referring to the intergovernmental framework and the relationships involved.

VLGA Working Group on Cost Shifting

Three key matters will frame the Working Group’s considerations:

1. The nature, scope and quantum of ‘cost shifting’

The Working Group will be tasked with establishing a shared understanding of what cost shifting involves, and where it is happening in terms of services, activities and functions. As an initial starting point, it will begin from the 2003 Parliamentary Inquiry’s identified cost shifting ‘areas’;

  • The withdrawal of financial support once a program is established leaving local government with the choice of continuing a program or suffering the political odium of cancelling the service
  • The transfer of assets without appropriate funding support
  • The requirement to provide concessions and rebates without compensation payments
  • Increased regulatory and compliance requirements; and
  • Failure to provide for indexation of fees and charges for services prescribed under state legislation or regulation’
  • To this list should be added consideration of a failure to adequately adjust or grow grants to local government in line with expense

The Working Group will look at the particular circumstance of rural local governments and it will seek to provide an estimate of the extent of cost shifting based on its agreed shared understanding of the areas in which this is currently occurring.

2. Options for addressing cost shifting

The Working Group will be tasked at looking for practical ways to address cost shifting, such as alternate funding arrangements, as well as looking at what constitutes a ‘fair’ arrangement between State and local governments in providing services.

3. A shared approach to seeking a fairer deal from the Federal Government.

Given the Federal Government’s key role in providing critical funding to particularly rural local governments, the arrangements governing the provision of grants will be a focus for the Group. As outlined in the recent Ministerial Statement on Local Government (Action 12: a better deal for rural councils), the State Government has recognised the need to advocate to the Federal Government in the area of grants. Building on this acknowledgement, the Group will seek a shared approach between State and local governments in making a case for a fairer funding deal for local governments from the Federal Government.

Download a copy of the Terms of Reference 

For more information about the VLGA Working Group, email VLGA Chief Executive Officer, Dr Andrew Hollows.

The VLGA is committed to connecting communities and strengthening democracy

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