An argument against amalgamation

Sunday, August 2, 2009

The aim of council amalgamations, so the Minister for Local Government, John Castrilli says, is the 'potential to save ratepayers millions of dollars per year'. The Minister is advocating that amalgamation will reduce the cost of local service provision through increased operating efficiency. In other words, 'bigger is better'.

No systemic review of these outcomes has ever been done in Australia! If I could find any paper or report that shows that council amalgamations led to cost efficiency and better service delivery, I would support amalgamation.

There is revealing research into the impact of amalgamation in South Australia by the Financial Sustainability Review Board (FSRB) (2005) in its Final Report: Rising to the Challenge: Towards Financially Sustainable Local Government in South Australia (Dollery 2005). The FSRB (2005, 48) found that council 'size does not seem to matter much, with both larger and smaller councils both typically registering operation deficits in 2003-04.' Also mentioned is whether population density was a factor and the conclusion reached was 'the same is true for density characteristics, with both the denser and sparser groupings also both registering operating deficits that year'.

The Board also argued that although the architects of earlier structural reform in South Australia claimed the reform process had achieved 'recurrent savings' of $19.4 million per annum, 'whether the ongoing savings have in fact continued is a moot point'. The Board also concluded that, 'fewer, larger councils are not the instant or easy fix that many would like to believe, especially in non-metropolitan areas dominated by the "tyranny of distance" and other impediments'. (FSRB 2005, 85)
From these observations, the Board also concluded that 'amalgamation brings with it significant costs and often exaggerated benefits' and that 'there are many intermediate forms of cooperation/integration among councils, with amalgamation being the most extreme (and confronting) form of integration'.
Also, 'there are ways to overcome this disparity between councils' capacity to fund service delivery, including shared service models, strategic alliances and virtual local governments'. The report also stressed that 'collaboration between councils can and should be a major contributor to councils being financially sustainable in the future'.
The Commonwealth Grants Commission (2001, 52-3) found five main reasons for financial difficulties that confront Australian local government, three of which result from higher levels of government placing strictures and controls on local government:

1. 'devolution' - where a higher sphere of government gives local government responsibility for new functions
2. 'raising the bar' - where a higher tier of government through legislation or other changes, raises the complexity and/or standard at which local government services must be provided, thereby increasing the cost of service provision
3. 'cost shifting' - where federal or state government ceases to provide an essential service, thereby forcing the local authority to take over the responsibility

It is doubtful that amalgamation is going to alleviate or reduce these problems. No one has been able to prove that 'bigger is better'.

The City of Wanneroo has indicated in a document entitled 'Draft Community Engagement Brief', dated 18/6/2009, 'amalgamation programs conducted in other states have generally failed to improve financial sustainability. Indeed, it would seem that the financial position of many local authorities, both large and small, has continued to deteriorate. A national report by PricewaterhouseCoopers in recent years, indicated little difference from a sustainability perspective, between councils where amalgamations had been forced and councils in States such as Western Australia where forced amalgamations had not occurred'.

So, with all this evidence indicating just the opposite of what the Minister hopes to achieve through this reform, why is he still pursuing this course of action?