New research shows forced council mergers led to higher costs

Associate Professor Joseph Drew.

by Joseph Drew, Associate Professor of Public Policy and Local Government at the University of Technology Sydney, shows conclusively that the forcibly merged councils in New South Wales have not made the promised savings.

Drew’s research, based on four years of financial data and to be published next year, shows that the amalgamated councils have in fact increased costs by about 11%.

The economic rationale behind the 2016 forced mergers contained in the Coalition’s “Fit For Future” policy argued that economies of scale would drive costs down. Clearly, this has not happened.

Where to now?

Drew said the government had a few options including council rate rises. This has happened in the Armidale (10%), Cootamundra-Gundagai (53%), Canterbury-Bankstown (36%) and Central Coast (15%) councils, among others.

Another option would be for the NSW government to provide untied grants to the amalgamated councils to help get back into the black.

A popular and democratic option would be to allow councils to de-amalgamate. Drew said this option is “not popular with the regulators”, but that “we have done many times before in Australia” and “it is something we know how to do”.

He said the amalgamated councils accounted for 80% of successful special rate variations over 2021–22. Special rate variations allow councils to increase their general income above the rate peg, under the Local Government Act 1993 (NSW). Amalgamated councils were therefore more likely to impose higher-than-average rate rises.

Drew also wants the commercial consultants involved in the Fit for Future “debacle” to be held to account. “All the assumptions were clearly wrong. Now we can show or prove it was wrong,” he said.

[Joseph Drew is releasing a new book in early 2022, titled Saving Local Government.]