The case for Local Government amalgamation


In its Fit for Future package, the NSW State Government has published its position on local council mergers. It makes no pretence at forcing amalgamations, instead providing financial incentives to encourage local councils to make their own moves.

In its Fit for Future package, the NSW State Government has published its position on local council mergers. It makes no pretence at forcing amalgamations, instead providing financial incentives to encourage local councils to make their own moves.

While this answers in part the “what’s in it for us?” question for local councils and their communities, it highlights the apparent absence of other compelling motivators for amalgamation.

Is “bigger better”?

Conventional wisdom cites economies of scale and efficiencies for merged councils as the justification for amalgamation.

For example, Randwick City Council estimated in April 2013 that a hypothetical Eastern Suburbs Subregional Council comprising Woollahra, Waverley, Randwick and part of Botany, would achieve a surplus of $518 million with no debt, service levels maintained and no infrastructure backlog over a 10 year period.[1]

However, academic analysis has cast doubt on the validity of the economies of scale argument. New England University’s study of merged councils demonstrated that one small South Australian council, Walkerville, which elected not to merge despite its tiny size (7,144 population) achieved sustainable cost savings for its community through cleverly executed ad hoc joint ventures and co-operative procurement arrangements.[2]

Adopting the right metrics for assessing economies of scale is difficult – per capita cost savings aren’t the whole answer as population densities must be factored into the equation.

For local communities, the issue is not just about the kinds of services provided, it’s as much about their quality. To understand service standards and how they might be improved with scale requires more than mere economic analysis.

Many NSW councils have sensibly already analysed and taken the benefit of scale. Primarily this has occurred through the networks of co-operative arrangements known as Regional Organisations of Councils or “ROCs”.

Councils around the world have enjoyed the benefits of scale by establishing other kinds of co-operative arrangements and joint ventures to reduce unit costs in services such as waste and asset maintenance. However, not all apparently eligible services and functions benefit from economies of scale.

Eyes up

The economic justification for NSW mergers is incomplete. What’s missing is the landscape beyond local level scale efficiencies and economies.

New South Welshman all bear the burden of costs to the State in administration of its 152 local councils. In a myriad of ways, fewer councils would reduce the handling costs of departments and agencies such as Planning, Local Government, Treasury, Family and Community Services, Police, the Electoral Office, Fire, Water, Rail, Transport, IPART, and the Environment Protection Authority – to name a few. A State-level efficiency analysis may well provide the missing piece of the merger business case.

Imagine a world where State planning policy changes involved consultation with a couple of dozen local councils instead of 152. Business-as-usual changes to local environmental plans might be achieved in a quarter of the current timeframe.

More importantly, the opportunities to substantially improve the certainty and efficiency of doing business in NSW are real. Fewer local councils with jurisdiction over larger areas of the State offers up the opportunity for greater consistency of policy. An obvious example is coastal policy where an urgent comprehensive approach is required to respond to the impact of climate change along the State’s coastline.

Other candidates for freed up State resources are social housing, disabled and aged care services, health and education.

Answering the nay sayers

Local communities rail against amalgamation of their councils arguing loss of local identity and character. But planning professionals around the world have demonstrated over and over again their ability to conserve and enhance local characteristics of neighbourhoods, villages and regional areas.

On the political front, local control of destiny can be maintained in properly organised structures where population and density unevenness is rebalanced with voting weight adjustment.

Larger organisations attract best of breed professionals. While the benefits of well-managed local councils are often intangible, they can make a material difference to the quality of life of local community members.

Importantly, Prime Minister Abbott’s recently announced White Paper on federal-state relations is an imperative for merger of NSW local councils. Larger, financially stronger councils staffed by high quality professionals are much more likely to command a seat at the policy table in a world where the States have a higher level of control.


The local level debate around council marriages is missing the bigger picture economic and lifestyle benefits available to the people of New South Wales.

In the global village in which we live, local councils and communities need to lift their gaze, to improving the efficiency and cost-effectiveness of State services as a sustainable driver of growth.

  [1] Randwick City Council Submission ‘Future Directions for NSW Local Government – Twenty Essential Steps”, April 2013

  [2] See also Measuring Economies of Scale in Australian Local Government: The Case of Domestic Waste Collection in NSW: Byrnes, Dollery and Webber; Are There Economies of Scale in Municipal Government Expenditures? Randall, G. Holcombe, Florida State University and De Edgra W. Williams, Florida A&M University

The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.

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Christine Covington

Partner. Sydney
+61 2 9210 6428