By Paul Hemsley and Julian Bajkowski

A push by the Independent Local Government Review Panel to the New South Wales government to encourage “voluntary amalgamations” of councils has sparked widely divergent reactions from stakeholders as peak body Local Government NSW (LGNSW) continues to argue that forced mergers are not, and should not, be state government policy.

The Review Panel last week put forward its laundry list of recommendations and suggestions that includes offering councils a voluntary authority to amalgamate as a less onerous and more workable option for local governments facing financial difficulties.

The latest discussion paper is essentially the final release from the Review Panel before it submits its concluding report to the state government in June.

In an acknowledgement of the public sensitivity of many local government issues, the Review Panel has put forward a two-pronged compromise to deal with the politically volatile issue of rate pegging – a regulatory mechanism that is widely reviled by local governments but has become an article of faith for a number of interest groups as well as tabloid and talkback media.

The latest fix offered essentially recognises that NSW’s rate pegging system is awkward and inefficient enough to be abolished – but it also offers a three per cent margin for increase over rate levels now determined by the state’s Independent Pricing and Regulatory Tribunal (IPART).

Although the compromise solution is administratively inelegant, it is clear that the solution aims to refine a blunt regulatory instrument without provoking a public and media backlash.

While not directly linked, the key issues of rate pegging and forced mergers have remained on the boil for many financially challenged councils that are restricted in how they can raise revenue.

The local government sector in NSW has previously fought off suggestions that the O’Farrell government will backflip on its election promise not to force councils to amalgamate, however the latest report from the Panel has challenged the state government to promote voluntary mergers through financial incentives to “early movers”.

The controversial issue has aggravated opponents who do not want the local governments in NSW to travel a similar path as Queensland where amalgamations were forced in 2008 by Anna Bligh’s Labor government. The Newman Government, elected in 2012, subsequently gave councils options to de-amalgamate if referenda held in affected resulted produced a produced a popular vote by residents to restore council areas to how formerly stood.

A key reason for electoral resentment over the Queensland mergers was that services declined while costs and rates went up.

In NSW suspicion has been simmering about a potential flip-flop by the state government on its “no forced amalgamations” policy after a series of media reports despite denials by Minister for Local Government Don Page.

Even so, the Review Panel’s discussion paper has heavily emphasised how around 20 “new look, multi-purpose County Councils” should be established.

The Paper has also pushed the government to consider “extensive restructuring” of local government in the Sydney Metropolitan Area, Lower Hunter and Central Coast.

These plans would involve expanding the City of Sydney’s boundaries from the CBD east to the coast and south to Botany Bay; expanding the cities of Parramatta and Liverpool; combining the cities of Newcastle and Lake Macquarie in an effort to increase development in the Lower Hunter; and merging Gosford and Wyong.

Those suggestions resulted in City of Sydney Lord Mayor Clover Moore immediately seeking to hose-down any idea that her well-funded inner-city manor could extended into the far less affluent and semi-industrial eastern suburbs.

LGNSW joint-president Ray Donald has also reiterated that the organisation “strongly opposes” any change to the present NSW government policy of no forced council amalgamations.

“However, some councils and communities have flagged their interest in merging and LGNSW urges the Panel to provide clear direction and recommend worthwhile incentives for councils that would like to join forces,” Mr Donald said.

Although Mr Donald called the Panel’s proposal to streamline rate pegging by giving councils a three per cent window of flexibility above IPART’s determination as an “improvement on the current system,” he called it a “far cry” from the Panel’s earlier acknowledgement that rate pegging should be abolished.

“No other state government in Australia imposes a rate cap on councils. The Panel should stand by their research and recommendations to remove the rate-cap instead of providing a watered down alternative,” Mr Donald said.

This comes just one week after the NSW Treasury Corporation (TCorp) found in its Financial Sustainability of the NSW Local Government Sector report that rate pegging has “severely hamper[ed]” councils’ ability to fund present and future levels of service.

However the suggestions put forth by the Panel’s discussion paper about not forcing amalgamations were not enough to make the significant changes that have been demanded by the development peak body, the Urban Taskforce of Australia (UTA).

UTA chief executive officer Chris Johnson said the focus on three different structures for local government including county councils, 15 councils for metropolitan Sydney and three “super councils” in Parramatta, Liverpool and Sydney is a “good approach”.

He said, however, if they are not “forced amalgamations”, they will never happen.