Mayor column: with Cr John Harvie

Published on 26 February 2025

What is cost shifting and what does it cost you? 

In recent columns I have written about the financial challenges that local councils are currently experiencing. These challenges are due to a 50% reduction in Commonwealth funding since 1997, equal to $10.8 million each year for MRC alone, and significant cost shifting by state and federal governments. Cost shifting occurs when state and federal governments force councils to assume responsibility for infrastructure, services and regulatory functions, previously performed by them, without providing sufficient supporting funding to councils. The top cost shifts onto NSW Councils, according to Local Government NSW, are:

The waste levy: The waste levy is an invisible tax levied on ratepayers through councils. The waste levy is paid by all waste facilities to the NSW Government, the cost of this levy is $288.2million annually.

Forced rates exemptions: Councils are required to exempt government and other organisations from paying rates in the local government area. These organisations utilise local government services and infrastructure. As they are exempt from paying rates, the burden of the costs they incur is shifted to the ratepayers to fund. 

Councils are also required to provide pensioner rebates on rates and other charges, for which the State government only subsidises 55% of the cost, the rest is funded by ratepayers. Council supports pensioner rebates, but the State government should fund it 100%. Cost: $273.1million annually.

Imposing additional regulatory functions: State and Federal levels of government impose and increase regulatory requirements through legislation that is then required to be administered by local government. These include planning, health and building, domestic animal controls, management of noxious weeds etc. Cost: $208million annually.

Councils absorb the costs of service and market gaps that should have been provided by State or Federal governments particularly in rural and regional NSW, where councils often must step in to provide a range of services from aged, or childcare through to education, and community transport services. Estimated, $268.6million annually.

Councils are required to contribute to the cost of Emergency services. Cost: $165.4million annually. 

Councils also fund libraries to the tune of $156.7million annually.

Cost shifting total for NSW local councils = $1.36 billion annually.

Therefore, $490.10 from each MRC rate notice is used to fund cost shifts and council can only use the remainder to fund its operations.

For MRC, reduced commonwealth funding ($10.8m) + Cost shifts ($4.6m) = minus $15.4m annually.

State and federal governments expect MRC to increase rates or cut costs by $15.4m each year to become financially sustainable.