Question

Some State Governments around Australia have pursued policies to merge Local Government Councils. Explain the economic rationale for these policies, use cost curves and related evidence to support your arguments.

Answer 1

In general, the consequences of structural reform programs in Australia
local government have typically consisted of forced and voluntary council
amalgamations, the development of a multitude of co-operative organizational
arrangements between adjacent municipal councils, especially in regional, rural
and remote areas of the country (Dollery and Johnson 2005), as well as boundary
changes to the spatial configuration of council responsibilities, largely through
recommendations by the various state-based Local Government Boundary
Commissions to reform-minded state governments. The Local Government
Association of Queensland (2005, p.15) has distinguished between four different
models that have been employed in Australian structural reform:
‘Merger/amalgamation’, where two or more councils are consolidated into a single
larger local authority; ‘significant boundary change’, where the spatial area of
municipal jurisdictions is altered substantially; ‘resource sharing through service
agreements’, in which one local authority undertake specific functions for other
councils, like strategic planning and waste management; and ‘resource sharing
thorough joint enterprise’, in which municipalities combine their activities in a
given service function in order to reap scale economies, such as official recordhas been demonstrated both in Australia and elsewhere that not
only do many of the claims asserted by proponents of municipal consolidation lack
credible empirical support in the literature, but even the more plausible benefits
purportedly flowing from council amalgamations have often been overstated
(Dollery and Crase 2004). If this argument is accepted, and the chief weapon in the
armoury of Australian state and territory local government policy makers is indeed
defective in achieving its intended outcomes, then what can be said of structural
reform programs that employ either the threat of forced amalgamation or reward
councils that consolidate? Should they be viewed as ill conceived and clumsy
efforts aimed at enhancing municipal efficiency that are doomed to failure?TRUCTURAL REFORM IN AUSTRALIA
In its Local Government National Report 2003-04, the Commonwealth
Department of Transport and Regional Services (DOTARS) (2005, p.66) observed
that ‘a key feature of Australian local government reform has been the use of
council amalgamations as the primary policy tool in the search for more cost
effective local services’. Moreover, during ‘the 80 years from Federation to 1991,
the number of councils in Australia fell by over 20 per cent’ and ‘in the 13 years
since 1991, council numbers have fallen by a further 27 per cent’. An aggregated
We have seen that the proposition that ‘bigger is better’ in local government has
informed Australian local government policy formulation for a very long time.
Furthermore, advocates of municipal amalgamation typically contend that existing
empirical evidence supports this proposition. For instance, in its 1997-98 Local
Government National Report, the Commonwealth National Office of Local
Government (1998, pp.51-2) argued that the Commonwealth government
financially assisted structural reform in local governance involving municipal
amalgamation for three principal reasons. Firstly, ‘larger councils have a more
secure and adequate financial base; are better able to plan and to contribute to
economic development; are more effective community advocates; and interact
more effectively with government and business’. In essence, this argument invokes
the notion that small local authorities lack administrative and technical capacity
compared with larger municipalities. Secondly, because the Commonwealth
Financial Assistance Grants constitute about ten per cent of council income,
councils must ‘deliver value-for-money services to local communities’, and
because ‘structural reform delivers economies of scale and permits counci
However, the 1997-98 Report did acknowledge a negative dimension to
structural reform, albeit with several caveats. For example, it noted that ‘structural
reform does have some perceived negatives’, including ‘diminished communities
of interest and voter representation’, potential ‘dominance of one area over
another’ and attendant ‘loss of identity’. Moreover, the Report acknowledged that
‘amalgamations are unlikely to be viable for sparsely populated councils in remote
areas’, although it added that many rural shires that ‘serve very small populations
over relatively small areas which are not in remote localities’ would stand to gain
from amalgamation with adjacent councils because ‘larger and better resourced
councils’ are able to ‘better identify community needs’, ‘better articulate
community views’, ‘improve community involvement in decision making’, ‘boost
local economic development’, ‘take a more strategic approach to urban design