Appendix A : National principles for allocating general purpose and local road grants

According to section 3 of the Local Government (Financial Assistance) Act 1995, the Federal Parliament provides financial assistance grants to the States for the purpose of improving:

• the financial capacity of local governing bodies
• the capacity of local governing bodies to provide their residents with an equitable level of services
• the certainty of funding for local governing bodies
• the efficiency and effectiveness of local governing bodies, and
• the provision, by local governing bodies, of services to Aboriginal and Torres Strait Islander communities.

These financial assistance grants are provided to the States for local government purposes in the form of general purpose and local road grants. The States distribute these funds to local governing bodies in accordance with recommendations of local government grants commissions but only after the Federal Minister has approved them. In determining grant allocations, grants commissions are required to make their recommendations in line with National Principles. The current National Principles are set out in Figure A.1.

The main objective of having National Principles is to establish a nationally consistent basis for distributing financial assistance grants to local government under the Act. The Act includes a requirement under subsection 6(1) for the Federal Minister responsible for local government to formulate the National Principles after consulting with States and local government.

The formulated National Principles are a disallowable instrument. As such, any amendments, including the establishment of new principles, must be tabled in both Houses of Federal Parliament before they can come into effect. Members and Senators then have 15 sitting days in which to lodge a disallowance motion. If such a motion is lodged, the respective House has 15 sitting days in which to put and defeat the motion, otherwise the amendment will be deemed to be disallowed.

The genesis of the 1995 Act was the 1993 Local Government Ministers' Conference at which Ministers agreed to a review of processes associated with payments made to local government under the Local Government (Financial Assistance) Act 1986. Two studies, commissioned as part of the review, examined local government finances and the methodologies the grants commissions used to distribute the grants (Macklin, 1994; Morton, 1994). These studies found that the seven different models operating were of little relevance in ensuring equity in grant distribution or allowing for monitoring of outcomes. This finding led to the drafting of the current 1995 Act and inclusion of the requirement for the National Principles and the National Report.

The current National Principles were formulated following extensive consultations with State Local Government Ministers and Local Government Association representatives. The Principles were formally agreed to at the April 1995 Local Government Ministers' Conference and came into effect in October 1995.

These National Principles were intended to reflect existing and well established distribution practices of the Commonwealth Grants Commission and most State local government grants commissions. It was also intended that the application of common principles would ensure, subject to the particular methodologies of the State grants commissions, that similar local governing bodies receive similar grants, at least in relative terms.

Figure A.1 National Principles for allocating general purpose and local road grants

Figure A.1 Notes

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