What Can We Learn From Local Government in Australia?

Vicarious learning is a concept derived from the education psychology literature referring to the potential for people to learn from observing the negative or positive consequences arising from the actions of others (Bandura, Ross, and Ross 1963). Riker (1986) famously asserted that vicarious learning was a worthy “substitute for practice” and Drew (2024) has shown that it holds much potential for improving public policymaking for local government. In particular, it has been asserted that we should strive to learn from the mistakes of other jurisdictions and thus optimize our own outcomes (Drew 2024).

However, whilst there is clearly a strong case for vicarious learning a few obstacles are present. First, it is often hard for international scholars to find a succinct description of the different local government systems. Second, related to the first point, it is sometimes hard for international scholars to fully appreciate the significance of what has occurred. Taken together, this means that lessons are not always learned, and mistakes are therefore needlessly repeated (Gendzwill, Kurniewicz, and Swianiewicz 2021; Tavares 2018).

To illustrate the potential for vicarious learning, I will recount a recent public policy failure in New South Wales, Australia after first providing key contextual information.

New South Wales (NSW) is the largest state by population and economic output in Australia. It is now comprised of 128 general purpose local governments, which represents around a quarter of the nations’ 537 authorities. Like its counterparts in other states, NSW local government has an extremely limited suite of responsibilities compared to peers abroad; focused principally on roads, rubbish and recreation. Services such as health, education, and policing are largely the purview of the state governments whilst welfare is the responsibility of the federal (Commonwealth) government (Drew 2022).

Roads are the single largest area of concern for local governments in Australia—attracting the bulk of the capital and operational expenditures. ¹ Indeed, well over 80% of the vast nation’s roads are controlled and operated by local government with the remainder falling to the state and federal authorities (the latter are principally the main highways). Given that Australia’s economy is highly dependent on agricultural and mineral exports the responsibilities of local government in this domain takes on national significance. However, low population density—especially in rural areas where much of the exports originate—mean that local governments typically struggle to maintain their road assets at an adequate standard (Drew 2022).

In addition to these responsibilities, local governments in rural and some regional areas are also charged with operating water and sewer businesses. Where this is the case (around two-thirds of the sector), the water and sewer operations account for approximately one quarter of operational spending (Drew, McQuestin, and Dollery 2023).

Local government in Australia is funded through a combination of property taxes (colloquially referred to as “rates”), fees, and intergovernmental grants. In aggregate for NSW, each element accounts for around a third of the operating expenditure (Drew 2022). Rates in NSW are apportioned according to unimproved land value (in response to Georgian [George 2010] notions). Fees and charges are supposed to cover the cost of non-public goods such as water, sewer, rubbish collection, aerodromes, and cemeteries. Intergovernmental grants include competitive capital grants from the state government, as well as library operating grants, in addition to the refund of half of the mandated pensioner discount on rates. Furthermore, the Commonwealth provides untied operating grants to local governments ostensibly (but not practically) according to horizontal fiscal equalization objectives (see Drew 2022 for a discussion of the failure of the grants to meet their statutory objective).

In the sections that follow I will briefly outline the inquiries into financial sustainability in NSW, which prompted amalgamations, and later de-amalgamations. I will conclude with some thoughts about the vicarious lessons that ought to be learned so that the mistakes made in the antipodes aren’t repeated elsewhere.

Financial Sustainability

Our story starts with a putatively industry led inquiry—called Destination 2036—into financial sustainability for NSW local governments that commenced with a public forum on the 19th of August, 2011. It was basically a gathering of local government councilors and senior staff, along with some regulatory authorities and self-identified experts. There was much discussion, claims of dire financial sustainability positions, and assertions around failing infrastructure. Many of the participants seemed to be under the impression that the state government might step in with additional funding to relieve them of their financial concerns (see, Drew and Dollery 2015).

The process (renamed Fit for the Future) continued on a tortious path until it culminated in forced amalgamations in May 2016 (see the next section). Surprisingly, there was very little robust evidence put forth to substantiate any of the opinions professed by the various parties. This was particularly startling given that the inquiry was headed up by an adjunct industry professor ² and was repeatedly asserted to be “evidenced based” (ILGRP 2013, 7).

One of the few pieces of evidence that was tendered was a financial sustainability study of all NSW local governments by the NSW Treasury Corporation, TCorp in 2013. This work was extremely synecdochal (just 10 financial ratios), used known distorted data (especially the asset condition data; see Drew 2017), and employed a process for summarizing the ratios into a single financial sustainability rating that was never fully disclosed ³ (see also, Drew and Dollery 2015).

Thus, financial sustainability was deemed to be in great peril based mostly on matters of opinion (in Aristotelian jurisprudence terms) only. Where evidence was employed, it was far from reliable. Unfortunately, this is a common state of affairs in public policymaking and explains many of the ex post outcomes that often stand in stark contrast to ex ante claims (Ferreira et al. 2025; Tavares 2018). Recent scholarship has argued that policymakers should issue a clear statement of logic, so that their thinking might be exposed to testing and public debate—doing so might reasonably be expected to result in better outcomes (see, e.g., Drew 2025 for an accessible explanation of the practical syllogism).

The apparent implied reasoning of the people conducting the inquiry—which ultimately metamorphized into an amalgamation program—was that (i) larger councils were more efficient, (ii) that efficiency inexorably resulted in greater sustainability, and (iii) that the aforementioned effects were sufficiently significant as to provide an efficacious solution to the serious (yet largely unsubstantiated) problems faced by local government (ILGRP 2013). Missing from deliberations was any robust evidence attesting to either: (i) the assumed economies of scale confidently asserted to yield size-related efficiencies, or (ii) a statistically significant and material association between efficiency and sustainability. It is notable that scholars had indeed completed work largely refuting these assumptions prior to the execution of amalgamations, however it seems that this might have been neglected by decision-makers (see, Drew and Dollery 2015; Drew, Kortt, and Dollery 2015).

Amalgamation

After four hefty reports from the ILGRP—as well as additional “modeling” and analysis from KPMG and the Independent Pricing and Regulatory Tribunal (IPART)—the state government decided to act on the matter of financial sustainability by establishing a voluntary amalgamation process (Baird 2015). This program was incentivized by grants of up to $AUD25 million for each merged entity (ibid). However, just four proposals for voluntary amalgamation were forthcoming (Drew, McQuestin, and Dollery 2023).

Thus, in late 2015 the NSW state government announced a forced amalgamation program which by law had to go out for community consultation. It was claimed that the amalgamations would deliver “$2.0b in total financial benefits for councils over 20 years”; a “3-year payback period when merger benefits will exceed merger costs”; and “stronger balance sheets” (NSW Government 2015, ii).

Following these processes an announcement was made on the 12th of May, 2016 that nineteen amalgamations had been executed by Governor’s proclamation. It seems that a number of local governments had been forewarned of the impending proclamation and instigated legal proceedings against the state government just prior to the proclamation (generally according to a claim that procedural fairness had not been observed). These proposed amalgamations could not lawfully take place until decisions and appeals had been heard in the courts.

Several early judicial decisions went against the state government, although these were appealed to at higher courts. Meanwhile, community resentment to the amalgamations had grown and the state government lost a crucial bi-election for a previously considered safe seat (Drew, McQuestin, and Dollery 2023). Shortly thereafter the Premier and Deputy Premier were “encouraged” to resign, and a stay of execution was put in place for the 26 local governments still conducting legal contests.

As a result, the initial plan to reduce the number of local governments in NSW from 152 to 112 was thwarted and concessions made that would see an ultimate reduction to just 128.

De-amalgamation

It is important to recall the claims of the state government that local government amalgamation would save billions of dollars, pay for themselves within three years, and lead to greater sustainability. Actual experience was quite different, and this led to a good deal of resentment and ultimately de-amalgamation activism.

Signs started to emerge early on that the policy might be in trouble when the amalgamated Central Coast council was placed into administration after running out of unrestricted cash in November 2020 (Drew, McQuestin, and Dollery 2023). Shortly thereafter other signs of stress emerged—most notably when six amalgamated local governments successfully applied for large tax increases for the 2020–2021 financial year (e.g., Cootamundra-Gundagai had an increase of 53.5% approved by IPART, Canterbury-Bankstown 36.34%, and Georges River 32.6%).

Moreover, scholars shortly confirmed (using sophisticated difference-in-difference econometrics) what councilors and executive had suspected—that the amalgamations had not only failed to produce the touted savings but in fact had increased unit costs. McQuestin, Miyazaki, and Drew 2020 showed that costs had increased on average for amalgamated councils, after controlling for all other possible explanatory factors, by some 11.2% after three full years. Drew, McQuestin, and Dollery (2022) showed that after four full years costs were still on average 11% higher as a result of the treatment of amalgamation, and furthermore that the financial sustainability ratios had mostly deteriorated—some quite alarmingly. Drew, McQuestin, and Dollery (2023), also showed that the treatment of amalgamation had resulted in higher unit expenditure in the order of 11.1% after five full years.

Thus, it came as no surprise when a number of communities started agitating for de-amalgamation. Cootamundra-Gundagai Regional Council (CGRC) was the first to formally apply for a de-amalgamation in 2021, followed shortly thereafter by Snowy Valleys Council (SVC). Both were denied by a Boundaries Commission established by the state government which had earlier forced their amalgamation. Undeterred by this set-back CGRC immediately applied for de-amalgamation a second time and had this request approved by Minister Tuckerman in August 2022—the first time in history that a de-amalgamation had been approved by the same government responsible for the original amalgamation (see Drew, Kim, and Dollery 2024). A number of other de-amalgamation proposals are currently being heard in NSW—including a second proposal by SVC.

It might be noted that Australia is no stranger to local government de-amalgamations—there had also been one in Victoria following the Kennett government amalgamations in 1994; and four in Queensland following the 2008 Beattie government mergers (see Drew 2022 for further details). In each case de-amalgamation activism was initially based on arguments around local identity and the need to have a binding voice on the future decisions. However, the real impetus came when people realized that actual fiscal outcomes were starkly at odds with the promises made prior to the amalgamations. Discontent with this gap led to political action aimed at mitigating diseconomies as well as regaining control over future local decision-making (see Drew 2022 for a thorough discussion of the theory and patterns around de-amalgamation).

Conclusion: The Importance of Sound Reasoning and Evidence

To summarize the story thus far: NSW embarked on inquiries in response to opinions about deteriorating financial sustainability, the inquiries contained little robust evidence, voluntary amalgamations were tried without success, forced amalgamations were then executed, financial sustainability declined alarmingly, and de-amalgamations were subsequently sought and approved. I note that the political, emotional and pecuniary costs of first amalgamating a local government and then de-amalgamating it again are substantial and thus should be studiously avoided.

Sadly, the story that I have related is well-known to scholars of Australian local government—after all, it has been repeated at least two previous times in the past (in Victoria and Queensland). However, I am mindful that this level of public policy failure might be less well-known to scholars abroad—hence the importance of this essay.

It is clear that there are a number of lessons arising from the sad tale of NSW local government reform that might be observed by others, across the globe, in order to prevent the mistakes being repeated elsewhere.

First, the events that I have related in this essay underscore the importance of placing more reliance on robust empirical evidence and less on mere opinion. It is notable that scholars predicted—with a startling degree of accuracy—the actual outcomes achieved post -amalgamation, prior to their executions in 2016 (Drew, Kortt, and Dollery 2015). If note had been taken of this robust envelopment evidence, then matters might have turned out quite differently for many communities across the state.

Second, it is clearly important for people expressing opinions on weighty public policy matters to carefully set out their reasons for holding their position. As we have seen, amalgamations designed to mitigate declining financial sustainability would appear to rest on at least two key propositions: (i) that larger local governments are more efficient, and (ii) that the potential efficiency gains are sufficiently material to elicit the desired effect. Once the thinking behind public policy claims has been made stark, we might then be in a position to test the reasoning for soundness (Drew 2025).

Third, related my point above, it is crucial to test key premises that underpin public policy prescriptions in a robust way. As I related earlier, these premises were in fact evaluated by scholars using sophisticated empirical techniques prior to the amalgamation. Had policymakers been aware of the importance of the premises to their argument—and also the evidence that suggested the premises might not be true—then they might have been expected to have made quite different decisions.

All three lessons point to a crucial role for scholars with respect to the task of improving policy outcomes. Scholars are uniquely equipped with the empirical tools necessary to test assumptions in independent robust ways. However, as my own experience attests, merely exposing flaws in reasoning through the scholarly journal process may not be sufficient. It is essential that we get the information out into the public sphere through mainstream media and other channels . . . how precisely we do that is probably a matter for a future essay.

In sum, the lesson seems clear: unsubstantiated opinions, expressed without clear reasons, are not a sound basis for public policymaking. Sadly, until more people observe the negative consequences arising from a failure to conform to basic elements of reasoning, public policy failures of this kind are likely to be repeated. I therefore hope that others will learn from the negative consequences arising from the actions in NSW