Amalgamation key for Wheatbelt councils

THERE are 138 councils in Western Australia, 88 of which serve populations of less than 2,000 people and many of which are unviable.

The small, unviable councils are predominantly in the Wheatbelt and have suffered from the depopulation of rural Australia.

These councils were established on the basis of a two-day horse ride between communities. More than 100 years ago, in the days of large country towns, dirt roads and limited access to the telephone, that size of country council made sense.

Today, with shrinking populations in Wheatbelt towns, good roads, satellites, mobile phones and the internet, that size of council makes no sense whatsoever.

Last year, the WA Local Government Association (WALGA) released its Systemic Sustainability Study (know as the SSS report) into the future of local government in WA.

Instead of stating what is obvious to everyone - that Wheatbelt councils should amalgamate into viable entities - the report recommended that groups of councils form a fourth tier of government, called regional councils, as a means of achieving economies of scale and financial sustainability.

It was a self-serving document written with a view of placating the large number of country councils that dominate WALGA's membership, rather than facing up to the issue of sustainability of small councils.

Amazingly, the Carpenter government accepted the report and even supported it publicly. WALGA patted itself on the back - mission accomplished.

But WALGA has not been so fortunate with the Barnett government. Last week, Local Government Minister John Castrilli rejected the findings of the SSS report and gave local governments six months to reduce the number of councils or face state intervention.

WALGA's failure to confront the issue of the unviable Wheatbelt councils has undermined the credibility of local government in WA. It will be interesting to see how WALGA responds to the minister's announcement - whether it will bury its head in the sand or start work on a plan to consolidate those councils.

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The government has also taken aim at councils in Perth's western suburbs. The premier lives in the midst of these councils and appears to have formed the view that there are too many of them.

While some of these councils are relatively small and arguably sub-optimal, they are by no means financially unsustainable or in any way comparable to the Wheatbelt councils. They all have small geographic areas to look after, wealthy ratepayers to fund them, and are facing population increases.

Mr Barnett has also said there is too much duplication of services, but this is what local governments do: they each provide similar services to their communities on a local basis, hence the idea of local government.

Local government can work well on a relatively small scale, where the size and complexity of its operations does not exceed the capabilities of its managers or its elected members.

The government has also said that it wants to make local government more efficient by amalgamating councils. There is, however, no evidence to support the idea that larger councils are more efficient and the reverse may, in fact, be the reality.

In fact, after a certain size, there are few economies of scale in local government; there is just scale.

Amalgamation proposals should be required to demonstrate annual cost savings of at least 20-25 per cent, otherwise there is no point in doing them. For one thing, the margin for error in any assessment of savings is probably at least 10 per cent.

Bear in mind that the large cost savings that are said to come from amalgamations are rarely specified or quantified and they are often illusory.

To illustrate this point, Brian Dollery has compared the savings that the Victorian and South Australian governments claimed would be achieved by council amalgamation in those states with the savings that were actually achieved.

In Victoria, claimed savings were 20 per cent, while actual savings were just 8.5 per cent. In South Australia, claimed savings were 17.4 per cent, while actual savings of 2.3 per cent were achieved.

This should come as no surprise to anyone familiar with the cost structure of local government.

So why go through the enormous disruption and expense of amalgamation, which will be borne by ratepayers, to reduce costs by the equivalent of an annual rate rise?

Government does not become leaner as it becomes larger. If you don't believe me, drive past any of the enormous office buildings of Perth's larger councils.

People who claim there will be overhead savings from creating larger councils have never seen the overheads of larger councils.

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There are two external factors that could play a major role in this process. This first is Nationals WA, whose heartland covers the same area as the Wheatbelt councils. The Nationals could derail the whole process - but they, more than anyone, should be aware of the desperate need to restructure those councils.

The second is the federal government, which would like to use a network of very large councils for regional service delivery, bypassing state governments.

That may be a good structure for 21st century government, but local government wasn't designed to do that and there are serious issues regarding governance, accountability and competency at that level of scale.

If the state and federal governments want to go down the path of regional bodies, they should set up state or federal authorities to carry out that work rather than try to adapt local government for that purpose.

n Simon Withers worked in London for 19 years in mergers and acquisitions and private equity. In October 2007, he was elected Mayor of the Town of Cambridge, having had no previous involvement in local government.