Local Government and Economic Development

Tabled: 8 March 2018

Audit overview

Victoria is home to a quarter of Australia's population and contributes around 22 per cent to the country's economy. Economic prosperity is important on both a national and local scale, enabling communities to improve their quality of life.

A number of Victorian councils, particularly non-metropolitan councils, have experienced a decline in their economic growth over the past 10 years.

Every community has unique local conditions that affect its development and influence its decisions to facilitate economic development. Local economic development aims to build up the economic capacity of an area to improve the quality of life for residents. Local economic development involves government, business and community sector partners working collectively to create better conditions for economic growth and job creation.

A wide range of variables influence economic development in municipalities. Many of these are beyond the direct control or influence of local governments, such as Commonwealth and state support, international market trends and global economic conditions.

However, local governments can play an important role in facilitating better conditions for economic development within their municipalities. Councils' roles include devising long-term economic development strategies, and developing partnership networks that enable economic development.

In this audit, we assessed whether councils' economic development activities help to improve the economic viability and sustainability of their municipalities. Our focus was on regional and rural councils because they face greater challenges to economic development compared to metropolitan councils. Specifically, we assessed whether councils' actions to improve economic viability and sustainability are strategic and achieve their intended outcomes. The councils we audited were Bass Coast Shire Council (Bass Coast), Corangamite Shire Council (Corangamite), Loddon Shire Council (Loddon), Melton City Council (Melton) and Southern Grampians Shire Council (Southern Grampians).

We also examined the roles of Regional Development Victoria (RDV)—a statutory agency within the Department of Economic Development, Jobs, Transport and Resources (DEDJTR)—and Local Government Victoria (LGV)—part of the Department of Environment, Land, Water and Planning (DELWP) —to assist councils to facilitate local economic development.


In response to recent reviews, councils have taken effective steps towards developing well-aligned economic strategies that complement the government's regional priorities. The audited councils effectively identify and pursue their comparative advantages to facilitate economic development.

However, they frequently fall short of realising their intended economic development outcomes, often due to the following systemic issues:

  • Other agencies, such as those providing utility infrastructure and roads, have competing or conflicting priorities when it comes to land use planning.
  • Rural and smaller councils in particular lack the resources and relevant skills to access available grants, which they depend on to fund their economic development activities.
  • Four-year council plans are at odds with the longer-term view needed for economic development strategies, resulting in poorly aligned and changing priorities.
  • There is a lack of targets or benchmarks against which to gauge progress, and poor links between project reporting and outcome monitoring.


Creating the conditions for local economic development

Given the importance of economic development, all the audited councils identified it as a strategic objective in their 2013–17 council plans.

Economic development strategies

All the audited councils' economic development strategies incorporate some better practice elements of long-term planning. They all have economic development teams of various sizes. These teams were also generally responsible for related activities like tourism, events and agriculture.

Each council's strategy referenced or aligned with state and regional economic development priorities. Four of the five audited councils outsourced the preparation of their economic development strategies because they lacked the resources or skills required for the economic assessment aspect of the strategy. Bass Coast developed an effective strategy in-house, which reflects the council's focus on economic development, despite it being a relatively small council.

Economic assessments and access to information

Economic development strategies are built on assessments of the local economy, including its strengths, weaknesses, opportunities and challenges.

Robust data collection and analysis are essential for economic assessments. Councils could use better data in their economic assessments, especially at the municipality level. For example, councils rely on the Australian Business Register (ABR) to measure business activity. However, councils report that the ABR data can be a poor indicator of business activity as the data includes shelf companies and superannuation funds that are not trading entities. LGV is working with the Economic Development Australia Victorian State Practitioners Network to identify better data sources and indicators to measure councils' economic development performance. Councils' economic assessments also contained limited analysis of their performance against other councils.

Although RDV's data portal provides a wide range of information, the audited councils preferred using other data sources. This was partly due to their lack of awareness, but also because some of this data is available to councils through other sources. However, RDV and councils need to work towards using consistent information across the Victorian local government sector.

Stakeholder engagement

All audited councils developed effective strategic partnerships with relevant stakeholders, which is essential for local economic development.

Councils identified potential partners and consulted with local businesses and representative bodies as part of planning for their economic development strategy. They also identified collaboration with stakeholders as a strategic action in their economic development strategies. For example, Loddon included actions to collaborate with neighbouring councils to develop a settlement strategy to capitalise on growth in a neighbouring council.

The nine recently formed regional partnerships should provide additional avenues for councils to engage with strategic partners. At the time of this audit, it was too early to assess the effectiveness of these partnerships. Assessing the effectiveness of these partnerships in supporting economic development activities will help stakeholders understand whether the partnerships are achieving their intended objectives.

Barriers to economic development

Strategic land use planning is a critical foundation for local economic development. Currently, obtaining planning approvals can be complex. At times, this has significantly delayed councils' economic development initiatives, limiting their ability to facilitate local economic development.

In 2016, the Victorian Red Tape Commissioner reported to the Treasurer of Victoria on administrative problems in the planning approval process. Some of these problems present significant barriers to local economic development. Councils and referral authorities—such as utility providers—often fail to meet statutory time lines which increases time and effort required to facilitate economic development activities.

The audited councils also reported that lengthy and onerous planning approval processes hinder economic development and deter investors from committing to developments. One factor contributing to these delays was that domestic planning applications—for example, building a shed in a backyard—and economically significant local projects are subject to the same planning processes.

There are some fast-track processes available to shorten approval time frames, such as the VicSmart and Smart Planning program initiatives. However, it is too early to determine if these have improved the efficiency of approval processes.

Improving economic viability and sustainability

The long-term nature of an economic development strategy is at odds with the shorter four-year council plan. Councils' failure to address this conflict leads to changing economic development priorities and abandoned actions and initiatives.

Funding the local development actions

Common actions by audited councils to implement their local development strategies include:

  • financial support for business and tourism associations
  • festivals and other tourism support events
  • conferences and field days
  • workshops and training
  • marketing and promotional materials.

Lack of consistent data for economic development expenditure across audited councils meant we relied on the Victorian Grants Commission (VGC) data on business and economic services as a proxy. In 2015–16, Victorian councils spent $866 million delivering business and economic services, which includes economic development, tourism, and community development and planning. These services accounted for between 6 and 12 per cent of total council expenditure for most councils. This was in line with what the audited councils spent on these services.

Based on our site visits, interviews and discussions with councils and stakeholders, it is clear that economic development is high on councils' agenda and councils actively allocate resources towards it. However, without actual comparable data it is difficult to ascertain whether this expenditure is sufficient.

Accessing funding for economic development

As part of its 2014 election commitments, the Victorian Government committed $100 million through the Regional Infrastructure Fund (RIF) to regional cities and $70 million to rural councils. By December 2017, only $30 million of the rural council allocation was committed, with $24.3 million worth of projects in varying stages of approval.

For the four rural councils in this audit, RDV identified $8.5 million in grants for which councils had either not applied, or had applied but failed to meet the funding criteria as of December 2017. This was for 40 potential projects valued at more than $46.5 million. One audited council also advised lack of timely RDV feedback as a reason for inability to secure grants.

The lack of available and skilled staff within councils to develop high-quality business cases for grant applications means that rural councils often fail to secure available grants.

LGV works in partnership with the local government sector to improve business and governance practices. Considering LGV's sector-wide view of local governments, it should consider ways of providing further guidance to councils to improve their economic development activities including staff development in this area. Similarly, RDV's role in regional economic development means it is well placed to provide support and guidance to councils to improve their economic development activities.

Use of council powers

The Local Government Act 1989 (the Act) provides councils with specific powers to meet their mandate, including entrepreneurial powers and the power to declare special rates and charges.

The audited councils made limited use of these powers. They advised that they are reluctant to use incentive-based powers—to defer, waive or apply special rates and charges—particularly when the use of those powers may be perceived as promoting private, as opposed to public, interests.

However, these problems should not prevent councils from using their powers to facilitate economic development. We found some innovative examples of councils using their powers. For example, Corangamite advised that a $300 000 support fund it established to attract and expand businesses in the area contributed $9.2 million in direct and indirect benefits to the local economy.

Reviewing the economic development strategy

All the audited councils developed performance measures as part of their council plans or their economic development strategies. However, councils did not clearly align performance of economic development actions with identified strategic outcomes. For example, to achieve its strategic objective of developing new stakeholder relationships, a council may list an action to hold a business seminar. However, the council does not measure whether the seminar actually results in new stakeholder relationships. Actions not linked to strategic performance measures prevent councils measuring progress against their strategic economic development outcomes.

Some of the audited councils lack targets and benchmarks for their economic development outcomes. Although outcomes are not solely dependent on the actions taken by councils, a lack of targets makes it difficult to assess performance and adjust strategies. An exception was Loddon, which had clearly articulated targets for its economic development outcomes.


We recommend that Regional Development Victoria:

  1. improve its existing work with councils to assess the deficiencies in councils' funding grant applications and business cases, and provide support and training to develop the requisite skills (see Section 3.2)
  2. increase council awareness of the Regional Development Victoria information portal and include further information and guidance to support councils (see Section 2.5)
  3. assess the effectiveness of the newly established regional partnerships (see Section 2.4).

We recommend that Regional Development Victoria and Local Government Victoria work with councils to:

  1. identify their economic development guidance and training needs, and then provide or facilitate access to appropriate resources (see Section 3.2)
  2. identify and collect relevant information for planning and reporting on economic development—including completion of Local Government Victoria's ongoing work with the Economic Development Australia Victorian State Practitioners Network (see Section 2.5).

We recommend that local councils:

  1. regularly review alignment between economic development strategies and council plans to improve the continuity of longer term initiatives (see Section 3.4)
  2. develop comprehensive performance measures for economic development with clearly articulated targets and benchmarks (see Section 3.4)
  3. monitor and report on economic development outcomes and clearly link actions to intended outcomes (see Section 3.4).

Responses to recommendations

We have consulted with DELWP, DEDJTR, Bass Coast, Corangamite, Loddon, Melton and Southern Grampians, and we considered their views when reaching our audit conclusions. As required by section 16(3) of the Audit Act 1994, we gave a draft copy of this report to those agencies and asked for their submissions or comments. We also provided a copy of the report to the Department of Premier and Cabinet.

The following is a summary of those responses. The full responses are included in Appendix A.

DEDJTR, DELWP, Bass Coast, Corangamite and Southern Grampians accepted the recommendations and provided action plans noting their approach to addressing the recommendations.

Loddon broadly supports the recommendations, but also noted there are some limitations in its ability to respond to all the issues identified. Melton stated that it supports the recommendations. Melton also expressed the view that further examination of the issues facing metropolitan councils would improve the relevance of the audit's recommendations.

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