Disaster Recovery Costs Likely to Rise for Councils

The final report of the Productivity Commission report into natural disaster funding has been released. The report, which was sent to the Federal Government in December last year, was publicly released on 1 May 2015.

The recommendations represent both good and bad news for the local government sector – although most of it appears to be negative.

The final recommendations are broadly in line with those in the draft report, released last September, so it is not surprising to find that the Commissioners have recommended a reduction in the Australian Government share of disaster recovery costs from the current level of 75% to 50%. The impact of this reduction in the share of Commonwealth disaster recovery funding would flow on to both the states and local government.

At the same time, the report recommends that the threshold for eligibility for Commonwealth funding be lifted from 0.225% of annual state government revenue to 0.45% of state revenue. What this would mean is that each state or territory government is required to double its level of annual expenditure on disaster recovery costs before being eligible for Commonwealth funding.

In NSW, for example, it means the initial state share of disaster funding would lift from $143 million a year to $286 million, for Victoria it would mean an increase from $110 million to $219 million. All other states and territories would face a similar increase in the threshold. The Commissioners express the view that state governments ‘have the capacity to manage disaster recovery costs well beyond the current funding thresholds without comprising fiscal sustainability’.

As flagged in last year’s draft report the Commissioners have also recommended an increase in the threshold for ‘small disaster criterion’ payments from $240,000 to $2 million, on the basis that the current criterion is too low, and captures many small, routine weather events.

There are some potential benefits for councils, however. The report recommends increasing Commonwealth funding to the states for mitigation activities to $200 million a year in an effort to contain future costs of disasters.

The Commissioners also recommend that the states introduce statutory protection from legal liability for local councils, as proposed by the National Sea Change Taskforce and others. They say this will increase the confidence of councils to share and act on natural hazard information in land use planning and development assessments.

Responding to the final report, Minister for Justice, Michael Keenan, said he would consult with the states to address the findings. “I have made it clear that the Australian Government is not proposing any radical reductions in the funding support it provides to the states,” he said. “Instead we will seek a more modest and gradual approach to getting the balance of mitigation and recovering funding right.”

The Australian Government will provide a full response to the inquiry report following consultations with the States. The full report is available at the following web site –

http://www.pc.gov.au/inquiries/completed/disaster-funding/report