The Optimal Size of Local Government, with Special Reference to New South Wales

Abstract

IntroductionIn the last 20 years, the three eastern Australian states of Victoria, Queensland and New South Wales (NSW) have significantly reduced the number of local councils. In the mid-1990s, Victoria slashed the number of local councils from 210 to 79. In 2008, Queensland reduced the number from 156 to 73 but, with four de-amalgamations in 2014, the number is now 77. As of May 2016 the NSW Government had reduced the number of councils from 152 to 129 and, at the time of writing, plans to amalgamate another 19 councils subject to the outcome of legal proceedings.These amalgamations have occurred despite much local opposition and notwithstanding that Australian local governments have an average population of 41,000, which is large by most international standards. The average population is 75,000 in Victoria and 50,000 in NSW. Among 22 'Western' countries (in Europe, North America and Australasia) only local governments in the UK, Ireland, Denmark and New Zealand have larger populations. On the other hand, the average population per local authority is 37,500 in the Netherlands, 32,500 in Sweden, 9,000 in Canada, 6,500 in Germany, 4,500 in the United States and only 1,500 in France.2 And it may be remarked that in terms of land size, Australian local governments are also considerably larger than local governments in the UK, Ireland, Denmark and New Zealand.In this paper, I discuss the major issues relating to the size of local government, examining four major criteria:1. Strategic capacity to work with higher levels of government2. Economic efficiency, sometimes described as financial capacity3. Effective provision of preferred local services4. Effective local democracy and social capital.The first of these has had special prominence in NSW. The other three are classic criteria in the economics literature. It should be noted that in NSW there has also been much rhetoric about the need for 'scale' in local government. The Independent Local Government Review Panel (ILGRP 2013a, 2013b) argued that at least 200,000 people are necessary for strategic and financial capacity. Likewise, the Independent Pricing and Regulatory Tribunal (IPART 2015), following terms of reference imposed by the NSW Government, concluded that most councils in NSW were 'not fit for the future' because they lacked requisite scale of some 200,000 people. However, scale is not itself a welfare objective. It is simply a possible means to achieve other objectives. Rather surprisingly, in reviewing the criteria, IPART (2014) provided no justification for accepting the scale criterion.While the paper draws on the NSW Government's policies to increase the size of local councils, most of its discussion and conclusions have general application both across Australia and internationally.State and local government relations, and 'strategic capacity'The criterion that local councils must have the strategic capacity to work with higher levels of government has had a high profile in the debate in NSW. Justifying the recommendations of the ILGRP that local councils should be amalgamated into units of around 200,000 people, the Chair, Graham Sansom (ILGRP 2015: 65), stated: 'The ILGRP's concerns were with the effectiveness of local government as an arm of metropolitan governance.' The rationale is that local councils should have the capacity to assist with metropolitan planning and the provision of adequate transport and housing infrastructure.In this section I discuss first some major governance issues for urban areas (urban planning, housing and transport) and then some micro criteria for strategic capacity advanced by the ILGRP.A major motivator of the state government's desire to halve the number of councils in Sydney is the desire to address the problems of high house prices and transport congestion. House prices in Sydney are 40 per cent higher than the average in other Australian capital cities (Reserve Bank of Australia 2015). …