An increasing number of Queensland’s councils are becoming financially unsustainable, an audit shows.

A report released by the state’s audit office this week says 48 of the state’s 77 councils are financially unsustainable, up from 45 in 2021.

It says that for the second year, councils have received more of their federal financial assistance grants for the next year in advance, and reported this as revenue.

But despite this, 24 per cent of the 63 councils that had completed their financial statements by 31 October had generated operating losses, and over half would have made losses without the extra cash.

“At 30 June 2023, 48 councils (compared to 46 in 2021–22) are still at either a moderate or a high risk of not being financially sustainable,” the report says.

The audit also found the local government sector’s investment in community assets is at its highest level in five years, with $5 billion invested last year compared to $4 billion in 2021-22.

 However, this is mostly due to increased procurement costs and “not because council assets are being maintained to the level that meets their communities’ needs”.

Reliance on grants a problem

The report also warns that reliance on grants is affecting the sector’s financial sustainability.

“When a council increases its reliance on grants, its ability to be financially sustainable decreases,” Auditor General Brendan Worrall says.

When a council increases its reliance on grants, its ability to be financially sustainable decreases.

Queensland Auditor General

Mr Worrall acknowledges that dependency on grants is unavoidable for the sector, and without grants for operational needs and capital purposes most councils would not be able to provide basic services or maintain their assets. 

“However, it is also important that councils make sure they have good budgeting and monitoring processes in place to be as financially sustainable as possible,” he says.

The audit also identified poor accounting practices by councils, and said this wasn’t helping them mitigate financial risks.

Local government peak blames cost shifting

The state’s peak local government body says cost shifting by other tiers of government is causing local government to become more unsustainable.

LGAQ says every year councils face a $360 million gap between what they are being paid to provide and what they need to spend to meet community needs.

“It is no surprise that when councils are having to step in because the state and federal governments and the private sector have pulled the pin on services that so many are falling into the red,” LGAQ said in a statement.

“Queensland councils have reached a tipping point where they and their communities cannot continue to fund the services and infrastructure that are properly the responsibility of state and federal governments and the private sector.”