The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
Picture of Rod Kemp

Rod Kemp

Assistant Treasurer

14 October 1996 - 25 November 2001

Speech of 19/10/00

NO. 012

MAV Annual Conference

Thank you very much for inviting me here to speak to you today.

I firstly wanted to place on the record my congratulations to the MAV for putting this annual conference together, and also for the long-standing and constructive role which the Association has played in supporting municipalities and providing leadership for the local government sector here in Victoria.

I learned only recently that the MAV is some 120 years old, having been formed at a meeting in July 1879 at the Melbourne Town Hall involving representatives from Shire Councils from around the colony.

This makes the MAV older even than the Federal Government, so the Shadow Treasurer and I are really the new kids on the block here today.

Moreover, I understand that the idea of a body like the MAV was inspired by an article in the Argus, which concerned a similar umbrella body being formed in the England.

I know that Councilor Matheson was leading a delegation to England recently, and I wonder if the English umbrella organisation, mentioned in the Argus in 1879, is still in existence today.

Certainly the Argus is no longer with us, but the MAV lives on, as vibrant as ever.

The strength of the program for this Conference is a testament to the continuing vitality and relevance of the MAV.

I am particularly pleased to see Mr. Col Dunkley of Arcadia Waters making an appearance, although I confess to being a bit disappointed that Bob Jelly of Pearl Bay was unable to make it.

The popularity of shows like Grass Roots and Spin City, and the success of Rats in the Ranks a few years ago, indicate that the dramas and deliberations of the Local Council or the Mayor's office can be of sufficient interest or intrigue as tomake for good TV or cinema.

We have all seen plenty of police, courtroom or medical dramas, but the political drama as a genre has generally been underdone.

Interestingly, when there have been sucessful shows about government or, it has often been local government which has tended to be the backdrop.

Perhaps this is attributable to the fact that local government is closest to people's lives, and deals with issues which most viewers find relevant and familiar.

For that reason, programs like Grass Roots show viewers in very stark terms the trade-offs which are inherent in any form of government. Mayor Dunkley and his team face the micro-politics associated with the issues of everyday life, which all of us understand.

For example, an improved service might require a rate rise. A planning decision will inevitably please some and displease others.

So viewers are able to see the tricky and often tantalising choices which governments at all levels have to make, in relation to issues which are very close to home.

It seems often in the Federal tier of Government, that many even respected commentators forget about the existence of those trade-offs.

For example, we currently have calls for reductions in the petrol excise, as a way of ameliorating the effects of high petrol prices on the Australian community.

But none of the proponents of an excise cut, or an indexation freeze, have yet itemised which hundreds of millions of dollars in Government outlays they would nominate to be reduced in order to pay for that tax cut.

Of course, one of the biggest trade-offs which Governments at all tiers face is that of balancing local and specific demands, with the overall requirement to provide sound fundamentals.

It is that trade-off which we all, at our respective levels of Government, face when putting together annual Budgets: demands for extra spending in any number of high priority areas have to be balanced against the need to produce an overall surplus.

In the case of the Federal Government, a healthy surplus is important in order to keep interest rates low – something which brings significant, but diffuse, benefits to the Australian community.

Here in Victoria, local councils seem to have taken on that , since the amalgamations of the mid-1990's.

The challenge for councils is to balance the traditional role of service delivery with the broader role of getting the fundamentals right – in particular, creating a general climate which can attract investment and foster regional economic development.

In my experience, the Local Governments I have dealt with have managed this balance very well.

By taking a pro-active role in getting those fundamentals right, councils also have tended to develop stronger links with other tiers of Government, especially to advocate the broader policy directions which they feel will help to create the right general climate for economic and social development in their region.

Having looked at the motions to be discussed at this conference, it would seem that around half deal with this sort of issue – everything from road funding to addressing salinity.

I think most Federal and State MP's find their local Councils to be an excellent source of feedback as to what State and Federal decisions would most benefit their constituencies.

Getting Australia's fundamentals right

For our part, the Federal Government has devoted a great deal of its energies to those broad policy fundamentals which create the climate for growth, investment, jobs and a strong society.

A big part of that challenge was returning the Budget to surplus. Two weeks ago, the Treasurer was able to announce a $13 billion surplus for the 1999-2000 year.

This is the largest surplus ever in dollar terms, and the largest as a proportion of GDP since 1971.

Whilst these aggregate figures can sometimes be so large as to seem almost meaningless, they do have tangible benefits.

Firstly, Budget surpluses put downward pressure on interest rates, which are still historically low, even despite the small rises of the past few months.

Home loan interest rates are around 8%, compared with the peak of 17% in the late 1980's.

That is of benefit not just to homeowners, but to businesses and indeed to local councils and Government instrumentalities like water boards who either have existing borrowings, in which case they benefit from lower debt-servicing costs, or it may even allow them to pursue some infrastructure investment which would not otherwise have been economic had interest rates remained so high.

The present run of sustained economic growth, with low inflation and high productivity is almost accepted now as a natural phenomenon, but in fact it only comes about through policies aimed at making Australia a competitive economy and an attractive investment location.

Aside from returning the Budget to surplus, those changes have included industrial relations reform, reforming the financial system, revolutionising the market for employment assistance, introducing new apprenticeships and a host of other reform initiatives – many of which were initiated by the previous Labor Government.

Possibly the most tangible benefit has been the impact on unemployment.

Tax Reform and local Government:

Of course, the most recent major policy initiative pursued by the Federal Government has been the reform of the taxation system.

Once again, this is an example of a reform pursued because it helps to create that broad climate conducive to jobs, savings, investment and incentive.

Some of the more significant benefits of the package are well-known:

  • income tax cuts worth $12 billion;
  • increases in pensions and allowances;
  • increased family assistance;
  • a 24 cent per litre effective cut in the tax on diesel for heavy transport operators; and
  • the abolition of several existing taxes, including the Wholesale Sales Tax, the Financial Institutions Duty and the Stamp Duty on share transactions.

Some of the other benefits are more general and will be realised over the medium term, stemming from the fact that the indirect tax base has now been redesigned. For example:

  • The tax base is now much broader, with services taxed as well as goods;
  • The 10% rate is common across those goods and services (with only a relatively small number of exemptions). This removes the distortions associated with a tax system which taxed different commodities at different rates;
  • Businesses can claim tax credits for the GST they pay on their business inputs, meaning that the tax does not 'cascade' through the production chain as the old Wholesale Sales Tax did.
  • Exports are effectively GST-free, since they are not consumed in Australia. However, exporters can still claim input tax credits for the GST they pay.

For local government, a further benefit can be added to this: namely that an estimated 95% of local government revenue is effectively GST-free.

There is no GST on local council rates, compulsory garbage collection, penalties or fines.

The areas where council charges do attract GST are in the provision of services which could be (and often are) provided in the private sector.

However, the abolition of existing taxes, and the ability to claim input tax credits provide local councils with the opportunity to achieve considerable savings.

I know that the Victorian Government commissioned a report by Arthur Anderson, showing (I am led to believe) annual savings of between $380,000 for a small rural council, up to $1.9 million for a large metropolitan council.

Essentially these are the potential benefits – they require councils to be pro-active about achieving the savings which are outlined.

It should also be mentioned that, of course, the GST revenue all flows to the States and Territories.

Whilst under the revised tax reform package, the Federal Government retained funding responsibility for local government, the fact that the States now will have a secure, robust and growing revenue stream will nonetheless be of great benefit to councils, since so many worthwhile community service delivery initiatives are in fact driven by Local & State Government partnerships.

Of course, the $1.32 billion of Financial Assistance Grants to local government 2000-01 continues to be financed from the Federal Government, rather than from GST revenue.

Of that amount, $311 million comes to Victoria, with around $228 million for general purpose grants and $84 million for local roads.

In addition, there are some other Federal Government programs which I should mention briefly.

Firstly, the Rural Transaction Centres Program is a 5 year, $70 million program for small rural communities with up to 3,000 people to access a range of services which they might not otherwise be able to access.

The program has proven an excellent way for these small local communities to restore or improve services in their towns, including banking services, Medicare easyclaim facilities and often rooms for visiting medical practitioners.

To provide 2 Victorian examples, it was recently announced that the Mount Alexander Shire Council will receive funding of $69,300 to establish an RTC facility at Newstead, providing banking, Medicare easy claim services, a meeting room and visitor information services.

The Welshpool and District Rural Transaction Centre is also being expanded to allow the hosting of a visiting GP, a chiropractor, a reflexologist, and I am led to believe a Shiatsu practitioner as well.

Programs like the Rural Transaction Centre initiative are excellent examples of ways that all tiers of Government can work together in improving service delivery.

They also confirm that having put those sound fundamentals in place, it is also necessary to deliver the additional assistance required by those communities, such as those in rural areas, which have specific local needs.

Another program which I will mention briefly is the $4 million Local Government Incentive Program, which is now in its second year.

The idea of the program is to provide grants of up to $100,000 for councils to implement strategies which will enhance service delivery or better equip councils to provide leadership in their communities, particularly in promoting regional development.

I mention this program in part because the applications close on October 27, so this is a good opportunity to remind everyone to get their applications in.

Conclusion

What all of this points to is that the enormous challenge of leadership in the new millennium is balanced by significant opportunity as well.

Government leaders all face the balancing act between getting the broad fundamentals right, at the same time as delivering services on the ground.

Local Government here in Victoria is facing that challenge very well. Councils now have the size and the critical mass to play a strong role in providing local leadership and strong advocacy on regional development issues.

Indeed, Councils are benefiting from a great deal of name-recognition in the wider community as a result of playing that role to good effect.

At the same time, the demand for high-quality, effective and efficient local service delivery has never been greater, and councils are facing the challenge of performing their local, as well as their more global, roles to the satisfaction of rate-payers.

I started today by mentioning that governance is often about difficult choices and trade-offs. Often they are trade-offs which our respective constituencies do not fully understand or want to face up to. After all, that's why they have elected representatives – to make those difficult choices on their behalf, and then (of course) face the consequences at the ballot box if they have made the 'wrong' choices.

That is the challenge of leadership. It is the challenge which the Federal Government has taken up in trying to get our economic fundamentals in place, and reforming our tax system so that we are positioned to take advantage of the opportunities offered by a new millennium.

It is also the challenge which Victoria's local Government sector seems to be accepting and handling very well – balancing the needs of local service delivery with the imperative of showing regional leadership and being a voice for their localities in the wider policy debate.