Road to Ruin? Horizontal Equalisation of Road Grant Allocations in eastern Mainland Australian States

Intergovernmental grant funding of local government is not only common in many multi-tiered countries, but often hypothecated on local government infrastructure maintenance and renewal. In Australia, the federal government has been providing grant funding for roads since 1973 through the different state Local Government Grant Commissions. The guiding principle for this distribution of grants has been to enhance horizontal equity in the provision of local government services to all Australians, regardless of where they reside. This objective has particular significance in a commodity based economy which relies on local government for the bulk of its road infrastructure. Moreover, several recent inquiries have suggested that a growing local infrastructure backlog is a problem with national economic ramifications. Against this background, this paper examines whether the grant allocation practices of the three states which account for the bulk of the Australian population and economic activity accord with intended horizontal fiscal equity principles underlying road grant allocations. We present evidence which demonstrates that a lack of consistency and transparency not only undermines equity goals, but also the financial sustainability of individual local authorities.