Local government financial sustainability

Financial sustainability is the biggest challenge facing Australia’s local governments.

A 2025 Parliamentary inquiry interim report confirmed that the role of councils has evolved and expanded over time, and this is putting significant pressure on local government budgets.

For almost one in four councils, federal Financial Assistance Grants make up at least 20 per cent of their annual operating revenue. This funding is untied, meaning it can be used to address local priorities.

However, the value of Financial Assistance Grants as a percentage of Commonwealth taxation revenue has halved over the past 30 years, from one per cent in 1996 to just 0.5 per cent today.

Sustainably funded, councils can deliver local solutions to national priorities but need a significant increase in untied and non-competitive federal funding.

To address the local government financial sustainability emergency, ALGA is advocating for five new, untied funding streams to be distributed to all councils on a formula basis, including:

• $1.1 billion per year for enabling infrastructure to unlock housing supply,
• $500 million per year for community infrastructure,
• $600 million per year for safer local roads,
• $900 million per year for increased local government emergency management capability and capacity, and
• $400 million per year for climate adaptation.

ALGA is also advocating for permanent, full membership of National Cabinet, the Council on Federal Financial Relations and the Local Government Ministers’ Forum to ensure local perspectives are considered in national decision making.