Payments to local governments

While local government is the responsibility of the States, in 2006-07 the Australian Government provided $2.1 billion in financial assistance to local governments to enhance their capacity to provide services to local communities. This funding was provided in the form of financial assistance grants (which are specific purpose payments through the States) and specific purpose payments direct to local governments.

Financial assistance grants to local governments

The Australian Government provided $1.7 billion in financial assistance grants to local governments in 2006‑07, an increase of $62 million (3.8 per cent) from 2005-06. Table 35 provides details of these grants for each of the six States and the Northern Territory. These grants are provided to the States to be distributed to local governments in each State. An analogous payment is made to the Australian Capital Territory.

Financial assistance grants are increased annually on the basis of an escalation factor determined each year by the Treasurer. The 2006-07 grants were based on an estimated escalation factor determined in June 2006 of 1.0406 and incorporated an underpayment of $1.7 million in respect of 2005-06.

Table 35: Financial assistance grants to local government (cash)

1. There was an underpayment in 2005-06 because the estimated escalation factor of 1.0397 was less than the final factor of 1.0408. A balancing adjustment of $1.7 million was paid in 2006-07.
2. Total financial assistance grants are the actual cash payment that the State receives on behalf of local government. They are equal to the estimated entitlement for a given year, adjusted for an overpayment or underpayment from the previous year. The difference between the estimated entitlement and the final entitlement for the current year will be adjusted in the following year. The information presented in this table differs from that in Table 37, which is prepared on an accrual basis.

On 25 June 2007, the Treasurer determined the final 2006-07 escalation factor to be 1.0421 on the basis of the Australian Statistician's determination of population and the All Groups Consumer Price Index. The difference between the estimated and the final escalation factor for 2006-07 has resulted in an underpayment of $2.4 million in 2006-07 for which there will be an adjustment in 2007-08, as provided for under the Local Government (Financial Assistance) Act 1995.

Specific purpose payments direct to local governments

The Australian Government provides specific purpose payments direct to local governments to help fund local roads and infrastructure, child care, and disability and other services administered by local governments. These payments totalled $381 million in 2006-07. They mainly comprised AusLink Roads to Recovery funding, which assists local councils with upgrading and maintenance works on local roads.