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Explaining the funding game

One of the most common inquiries I get as I travel around the State visiting member councils is about federal Financial Assistance Grants, or FAGs as they are known in the local government sector.

The system of calculating FAGs grants is complex. But that does not mean it defies simple explanation. Indeed, understanding how FAGs works and why individual councils receive a certain amount of money under FAGs should be among the nuggets of knowledge elected members have at hand to help them explain the business of local council to their community.

FAGs are important for several reasons but the main one is that they are the only legislated, allocative means of transferring money between levels of government to help address the fact that some levels of government (ie, councils) have less ability to raise revenue that others (ie, Canberra and the states).  It is still the case that local councils raise just over 3 percent of all taxation revenue in Australia yet the number and cost of services they are expected to provide keeps increasing. FAGs help relieve that imbalance.

FAGs have two parts: a general purpose component distributed to the state and territories by population, and a fixed roads component. FAGs funds granted to local councils are untied, meaning they can be spent on what the council decides are local priorities.

The Queensland Grants Commission allocates FAGs grants to local councils according to agreed national principles.

In practice, that means that rural councils in Queensland tend to get a much higher general purpose component of FAGs per head of population than larger urban councils. They also tend to get more general purpose money under FAGs per head of population than rural and remote councils in other states.

The large urban councils in Queensland are entitled to what is called a minimum grant to give them some certainty and to compensate them for the lesser ability of council rates to cover the cost of the services they provide.

There are some in local government in Queensland who say the larger councils, particularly those in southeast Queensland, should not receive the minimum grant because they have massive rate bases compared to some smaller councils.

But let’s remember this is taxpayers’ money we are talking about here, and the majority of taxpayers in Queensland live and work in the southeast.

The LGAQ has recently commissioned some research that shows that if the minimum grant was withdrawn from those councils, it would require an increase in rates of between 3 percent and 5 percent to make up for the lost revenue.

The same research shows that Queensland’s rural and remote councils are the best funded in Australia and, over the years, their position in relation to FAGs funding per head of population has improved markedly. By contrast, FAGs funding in large urban councils has decreased per head of population.

No matter where you stand on this argument, the value of FAGs to all Queensland councils cannot be denied. That is why one of the big wins the sector achieved this year was the restoration of indexation to FAGs grants after a three-year freeze.

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