LGAQ Council Cost Index 2018 LGAQ Council Cost Index 2018

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Authorised by: Greg Hallam PSM Chief Executive Officer Monday, 26 February 2018

Circular: 2018-02 | For Information

The LGAQ Council Cost Index 2018 has been calculated at +1.89%. The LGAQ Council Cost Index is a composite index collated to represent the average cost increases experienced by councils over the previous 12 months (Dec to Dec quarters). The LGAQ CCI 2017 was +1.74%.

The LGAQ Council Cost index (CCI) provides a measure of the average cost increases experienced by councils across the state for the previous year. A comparable average revenue increase will be necessary to maintain current levels of service before provision for growth, irregular maintenance and capital replacement.

The Australian Federation’s fiscal arrangements mean that federal, state and territory governments together collect approximately 97% of all public revenue (ABS 5512). Given the respective responsibilities of each level of government, fiscal redistribution is necessary to fund local government service delivery to communities.

An additional increase in own-source revenue will be necessary if all other revenues, namely federal and state grants, are not also indexed or otherwise increased at least in line with cost increases. Financial Assistance Grants indexation was re-applied from 2017-18.

Councils will be aware that 50 per cent of the 2017–18 Financial Assistance Grant payment was brought forward and paid in 2016–17. At this time, Financial Assistance Grant payments are expected to return to the normal quarterly payment schedule for 2018-19. The 2018 Federal Budget, to be handed down on 8 May, will confirm the payment schedule.

Federal and state budget breakdown

Based on the 2017 budget, 2018-19 levels of funding received by councils through the Federal Government’s Roads to Recovery program are due to be reduced by half to an estimated $70M for Queensland (of the $364.5M national allocation).

Councils applying for funding under the Bridges Renewal Program will compete for a national funding pool of $85M programmed in the budget papers for 2018-19. Funding is available up to a maximum of 50% of the total project cost (Round 3 contributions were capped at $5M).

The Heavy Vehicle Safety and Productivity Program is expected to receive a 2018-19 national allocation of $60M, and funding is available up to 50 per cent of the total project cost to approved projects (up to a maximum of $5M).

The Black Spot Program (road safety) has a national allocation of $85M in 2018-19 and 2019-20, and councils can nominate a project for funding online.

2018-19 funding for Developing Northern Australia (i) Improving cattle supply chains and (ii) Northern Australia Roads are expected to be allocated a national pool of $42M and $220M respectively. Funding is available up to a maximum of 80 per cent of the total project cost in partnership with the state, territory and local governments.

The Queensland Government’s Works for Queensland Program has been allocated a further $100M per year from 2018-19 to 2020-21. The State’s commitment to provide this allocated funding over the next 3 years will be crucial to councils planning much needed capital works.

Building Our Regions is expected to offer $63M annually in 2018-19 and 2019-20 on an application basis for eligible councils across its three sub-programs: https://www.statedevelopment.qld.gov.au/regional-development/building-our-regions.html

Information on grants and funding programs are available at http://lgaq.asn.au/grants

CCI in-depth

The LGAQ has published a CCI since 2005 to provide a more appropriate indicator of cost increases across the range of services and infrastructure delivered by local government, compared with the CPI which represents a basket of household goods and services.

The LGAQ refined the method for calculating the CCI over recent years, drawing on the composition of Queensland local government expenditure and indexes in other jurisdictions which confirmed the inclusion of wage costs, road and bridge costs and the CPI as the most relevant elements used in calculating local government cost indexes.

In Queensland, ABS data for recent years shows that local government employee costs represent about 44% of total operating expenses (excluding depreciation), and roads and transport outlays are around 30% of expenditure (ABS 5512).

From the 2013 release, the LGAQ CCI for Queensland local government has included three weighted components: the wage price index (50%), the ABS road and bridge construction index (30%) and the CPI for Brisbane (20%) to represent general consumables.

Recent data for the road and bridge index displayed significant volatility and movements in some periods did not reflect the actual cost increases experienced by councils. To address this problem, a five-year moving average has been applied to the road and bridge index.

While the LGAQ Council Cost Index provides a measure of the average cost increases experienced by councils across the state, the mix of construction and non-construction activity will vary from council to council.

For example, road and bridge construction costs may have increased by a higher rate in some parts of the state compared with the average. Local circumstances and supplier markets will need to be considered by each council when determining the required level of rates and other revenues necessary to provide the community's desired levels of service and standards of infrastructure.

For further information on the Council Cost Index please contact roland_mcmillan@lgaq.asn.au or telephone 07 3000 2222.