The Commission is charged with developing a methodology for the distribution of the Commonwealth Financial Assistance Grant that meets the National Principles as prescribed by the Commonwealth Government.
The Financial Assistance Grant is distributed according to relative need. That is, grants are distributed to councils that are unable by their own effort to provide the average level of services for local government within the state. The Commission's task is to identify local governments who have a relative need and quantify the amount of Financial Assistance Grant they will receive.
There are two components to the Financial Assistance Grant:
- General Purpose Grant
- Identified Road Grant
The Identified Road Grant is allocated as far as practicable on the basis of relative need for each local governing body for roads expenditure and to preserve its road assets. The National Principle states that two aspects are to be considered when allocating the Local Roads grants, they are, relative needs and preservation of assets. There is no requirement for horizontal equalisation.
The second component of the Financial Assistance Grant is termed the Fiscal Equalisation or General Purpose component. The methodology used for allocating this component must comply with five National Principles.
Both grants are untied and can be used for any of the council's general activities.
For an overview of the methodology please refer to the Methodology Report ( 140 KB).
After state averages for revenue and expenditure are applied to each local government (according to drivers such as the Unimproved Capital Value (UCV), population or traffic volumes for example), the Commission alters the assessment for factors outside the council's control that can affect its ability to rate at capacity or spend at average, in line with the effort neutrality principle. These factors are termed cost adjustors and are the key instrument the Commission used to establish the relative grant need of each council.
General Purpose Grant
The methodology used for allocating this component must comply with seven national principles ( 27 KB).
The general purpose pool is distributed under these principles as:
- 30 per cent minimum grant
- 70 per cent relative need.
Every local governing body in the state is entitled to a minimum grant. This grant is equivalent to 30% of the general purpose pool distributed on a per capita basis.
To determine relative need, the Commission develops averages for revenue raising and expenditure on services to be applied equally to all local governments within the state.
The Commission's methodology only calculates what each council would raise in revenue and spend on service provision if it was the average Queensland council. The model's only purpose is to allocate the general purpose grant in line with the national principles; it is not a financial decision-making model for councils. Cost adjustors are the means by which the Commission establishes the relative general purpose grant need of each council. Cost adjustors are explained and published on this website and in the Commission's publications.
Determining averages/state standards
To arrive at averages for both revenue and expenditure the Commission must:
- Identify the variable causing the most cost per category. For example, in the expenditure category of community amenities, the variable is population, while the revenue driver for rates is valuations.
- Total the local government revenue and expenditure per category. This information is obtained through aggregating revenues and expenditures across local government purpose classifications provided on the function detail worksheet of each council's Consolidated Data Collection.
- Divide the total of each category by the relevant cost driver to obtain a standard unit (i.e. the state average). For example, the total local government expenditure on community amenities is divided by the state's population to arrive at an amount per capita.
Determining relative need
When a council's assessed expenditure exceeds their assessed revenue, a relative need is established.
The Commission allocates the grant to these councils in such a way that the assessed revenue plus the grant equals the same percentage of assessed expenditure.
Identified Road Grant (IRG)
The formula used to distribute the Identified Road Grant among councils is set on the basis of road length and population. The Commission currently applies the following formula:
- 62.85 per cent according to the road length;
- 37.15 per cent according to population.
The Queensland Local Government Grants Commission has completed a review of the methodology used for the allocation of the general purpose grant component of the Commonwealth's Financial Assistance Grant.
The completion of this review satisfies a recommendation of the Local Government Reform Commission from 2007. The Commission is confident this new methodology will provide a greater balance and equity of grant outcomes across the different types of councils in Queensland, now and into the future.
The Commission's methodology review, general purpose grant, Financial Assistance Grant information paper ( 140 KB) details the final decisions made regarding the methodology.