The traditional model of local authority funding has been through a combination of central and local resources; General Purpose Grants and other Grants and Subsidies provided by Government are complemented by commercial rates and user charges and fees raised locally by the local authority. General Purpose Grant allocations, predominantly financed by Motor Tax revenues, have been structured so that each authority has sufficient resources, either from central grants or from its local income base, to provide a reasonable level of day to day services to its customers. There has been an unavoidable reduction in Local Government Fund General Purpose Grant allocations to local authorities, from €832.7 million in 2009 to €640.9 million in 2013, a reduction which has obviously occurred in the context of reduced spending across the public sector.
The Household Charge, introduced in 2012, has made an important contribution to the Local Government Fund. The €131m revenue raised by the Charge so far has funded vital local services and has been a valuable precursor to the introduction of the Local Property Tax.
The local government funding model will change considerably in 2014. Under the Finance (Local Property Tax) Act 2012, commencing in 2014 the Minister for Finance will pay into the Local Government Fund an amount equivalent to the Local Property Tax paid into the Central Fund during that year; this revenue will be allocated to local authorities from the Fund. In addition, the establishment of Irish Water and its financial relationship with the local government sector will have a significant impact on local authority financing.
I expect the Local Property Tax to have multiple benefits, including a more sustainable and resilient system of funding for local authorities and therefore a sounder financial footing for the provision of essential local services; greater local scope for financial decision making concerning service provision - in particular, the inclusion of the local variation mechanism from 2015 will further increase the autonomy of local authorities; and, a strengthening of democracy at local level with a more active relationship between local authorities and local electorates. A stronger democratic relationship and clearer lines of accountability can only have a beneficial impact on service provision from the perspective of the service user.
An important purpose of the changes to the funding of the local authorities has been to place the local government sector on a more sustainable financial footing. The concept of financial sustainability should not solely be considered in terms of national recovery from our current economic circumstances over the short to medium term; longer term viability and the connection with the citizen are also important elements. I am satisfied that the changes which are currently underway will deliver a model of funding which is sustainable in the broadest sense.
