What's a council cost index?

Published: 11th June 2020

Since 2005 the LGAQ has published a Council Cost Index (CCI) to provide an indicator of cost increases across the range of services and infrastructure delivered by local government.  

This is similar to the more widely known Consumer Price Index (CPI) which represents a basket of goods and services purchased by the typical household. 

But what does an index series tell us?  

Index number series are only useful in the form of a time series. That is, an index number is interpreted by referencing earlier index numbers calculated using the same methodology. From time to time, index number methodologies may be revised and it is then necessary to revise the entire series to ensure consistency of the indicator over time. 

Here’s what 19 years of the Council Cost Index, along with its component indexes, looks like. 

 

We can see from the series that, according to the CCI, council costs for providing a unit of service have increased by approximately 80 per cent over the past 19 years. 

What has driven this increase? As with most businesses, the general answer is input cost increases.  The LGAQ CCI for Queensland local government includes 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 Queensland local government sector shows that local government employee costs represent about 41% of total operating expenses (excluding depreciation), and roads and transport outlays are around 27% of expenditure (ABS 5512).  

To smooth the volatility evident in the road and bridge index, a five year moving average was applied to the published series. Some of the volatility displayed in the series can be attributed to fluctuations in bitumen prices which are related to the price of oil. 

Councils will be aware that they need to consider the mix of construction and non-construction activity and regional cost variations. That is, for some councils their road and bridge construction costs may represent a greater proportion of council expenditure, and the unit costs for projects will have increased by a higher rate in some parts of the State compared with the average. 

The regional economic situation and supplier markets will also need to be considered by each council when determining the amount of council revenue required to provide the community's expected levels of service and standards of infrastructure. 

The Australian Federation’s fiscal arrangements mean that Federal, State and Territory governments together collect approximately 97% of all public revenue (ABS 5512). The local government sector collects about 3% of public sector revenue and manages 33% of general government sector assets. As a consequence of these arrangements, fiscal redistribution is vital for local government to deliver services to the communities where taxpayers live and work. 

An additional increase in own-source revenue will be necessary if all other revenues, namely Federal and State grants relied upon to supplement councils’ own revenue, are not also indexed or otherwise increased at least in line with cost increases. Financial Assistance Grants indexation using the formula in Section 8 of the Local Government (Financial Assistance) Act 1995 was re-applied from 2017-18.  

Councils will be aware that 50 per cent of the 2019–20 Financial Assistance Grant General Purpose payment was brought forward and paid in June 2019. Over 2019-20 quarterly payments will comprise 25% of the balance of the General Purpose Grant and the Identified Road Grant. 

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