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New index to measure local govt cost rises


Councils will be able to better measure the cost of delivering services to the community with the release of an alternative measure for cost budgeting, according to the Western Australian Local Government Association.
The association has released a Local Government Cost Index (LGCI) as an alternative to the sole use of the Consumer Cost Index (CPI), commonly used in planning and budgeting processes.
Association President, Cr Bill Mitchell said the new process would allow Councils to better gauge their costs and financial viability and assist in the setting of rates.
"This new cost index will allow Councils to balance more accurately the service expectations of the community with the capacity of the Local Government to fund these services," Cr Mitchell said.
"With the current focus on the sustainability of Local Government, better forecasting and measurement processes will assist Councils to decide on the best ways in which they can service their community."
Using a combination of the CPI and the General Construction Index WA (70% and 30% respectively), the Local Government Cost Index will offer an indication of those changes in the WA economy that relate more closely to the functions of Local Government.
The CPI is a measure of the increase in price of a bundle of goods consumed by an average household and as such is an inaccurate guide to actual Local Government cost increases, as Local Government has very different consumption patterns to the average Australian household. A South Australian inquiry into Local Government financial sustainability has found that reliance on the CPI alone may undermine the long term financial sustainability of Local Governments.
As the 'bundle of goods' relating to Local Government has a high proportion of general construction activity in the form of works such as roads, bridges and sewerage systems, taking into account the General Construction Index of WA will give a better indication of the changes in prices for delivering Local Government services.
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