Bigger is not always better when it comes to local councils

CONTROVERSY surrounds structural reform in local government, especially whether reducing the number of councils enhances the operation of the new local government entity.

Empirical evidence suggests that while council amalgamation may improve the capacity of local government, it is not only costly but has other adverse consequences such as the loss of local choice and local voice.

The claim 'bigger is cheaper' rests on the assertion local government service delivery would benefit from economies of scale. Thus, larger councils servicing a larger population would benefit from relatively lower administrative costs and increased purchasing power. In general, labour-intensive services such as council rangers would be unlikely to generate economies of scale. But capital-intensive services, like domestic water supply, may yield substantial economies of scale since the cost of fixed assets can be spread across a larger number of households.

Research I conducted with the Centre for Local Government at the University of New England has found little evidence for scale economies in the Australian context. If policy makers were to adhere to evidence-based policy then scale economies do not represent an argument for council amalgamation.

Michael A. Kortt is a senior lecturer in applied economics at Southern Cross Business School at Southern Cross University.



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