Local government advocates have called for funding shake-up in a federal inquiry.

Local governments across Australia say they are experiencing increased financial strain, prompting calls for the federal government to provide more untied funding to ensure their continued operation and service delivery.

Councils are central to maintaining essential services, including road maintenance, waste management, and public parks. However, financial pressures threaten their ability to sustain these services. 

The Australian Local Government Association (ALGA) is calling for a greater share of federal tax revenue as the sector's financial sustainability comes under scrutiny.

A federal inquiry, announced in March, is currently investigating the financial sustainability of the local government sector. 

The inquiry has received hundreds of submissions from councils and advocacy groups nationwide, highlighting issues such as worker security, financial sustainability, and cost shifting. 

Many are concerned about cost shifting, which occurs when councils are required to provide services previously managed by state or federal governments, often without adequate funding. 

This practice places a substantial financial burden on local governments, with legislative changes potentially costing councils millions of dollars annually.

Grants constitute over 20 per cent of annual revenue for about one in four councils, with this figure significantly higher in regional, rural, and remote areas. 

The ALGA has called for an increase in the Financial Assistance Grant from 0.5 per cent to 1 per cent of total federal tax revenue. 

This grant has steadily declined since 1996, according to ALGA's submission to the Standing Committee inquiry into the sector's sustainability. 

It notes that local governments manage one-third of Australia's public infrastructure, including 77 per cent of the national road network.

Federal Minister for Local Government, Kristy McBain, says the government is significantly increasing funding to bolster councils' capacity to deliver services. 

“Local councils go that extra mile for their community, which is why we've brought them back to the table as a trusted delivery partner,” Ms McBain said. 

She did not confirm whether increasing the Financial Assistance Grants was under consideration, but noted the early provision of $2.78 billion in financial assistance to ensure councils had the necessary funds to deliver services.

This amount represents 85 per cent of the Financial Assistance Grant allocations for 2024-25.

Additionally, Ms McBain announced the doubling of the Roads to Recovery fund to $1 billion annually and a $50 million boost to the Safer Local Roads and Infrastructure Program.