COUNCILS across New South Wales are now absorbing $1.5 billion in cost-shifting from State and Federal governments each year, according to a new report commissioned by Local Government NSW.

Cost shifting occurs when State and Federal governments force councils to assume responsibility for infrastructure, services and regulatory functions without providing sufficient funding to support the shift.

The LGNSW says there has been $11.3 billion shifted cumulatively over the past decade.

According to LGNSW, the top cost-shifts include forced rate exemptions, waste Levies, emergency services obligations and library funding.

Cost Shifting 2025: How State Costs Eat Council Rates was prepared by independent consultants Morrison Low.

It reveals the $1.5 billion burden on councils is an increase of about $140 million – 10 per cent – since the last report for the 2021-2022 financial year, when the total cost-shift was estimated at $1.36 billion.

LGNSW President Mayor Phyllis Miller said councils faced unprecedented financial strain and warned the practice of cost-shifting – overwhelmingly from the NSW Government – must end.

“Councils are at breaking point. The combination of relentless cost-shifting, rate-capping and inadequate State and Federal funding is eroding the sector’s financial sustainability,” Cr Miller said.

“Councils are having to foot the bill for State and Federal functions and services they didn’t design and aren’t funded to deliver.

“This includes the collection of the NSW Government’s Waste Levy and payment of the Emergency Services Levy, and the huge shortfall in funding for our beloved libraries.

LGNSW president Phyllis Miller says councils face unprecedented financial strain and warned the practice of cost-shifting must end.

There’s also the significant loss of income when councils aren’t allowed to charge rates on certain properties even though they are big users of council services.

“This means, on average, nearly $500 per ratepayer in New South Wales is being diverted from essential local priorities like roads, libraries, sporting facilities and community programs,” she said. “These are services our communities need, want and deserve, and they’re being severely compromised by councils needing to pick up the bill on behalf of the State.”

Multiple inquiries into the financial sustainability of councils at State and Federal levels over the past 18 months confirmed the severity of the situation. The November 2024 report of the NSW Parliamentary inquiry into the ability of councils to fund infrastructure and services called for the NSW Government to identify opportunities to reduce cost-shifting to local government.

Cr Miller called on the NSW Government to commit to genuine reform, including regulatory changes, proper budget support, and fair funding.

“As always, LGNSW stands ready to work with the State Government to finally put an end to cost shifting and ensure councils have the resources they need to serve their communities appropriately,” Cr Miller said.

Top cost-shifts

Forced rate exemptions: Where councils are required to exempt profit-driven, State-owned corporations and other organisations from paying rates, even though they use and benefit from local government services and infrastructure.

The waste levy: An invisible State Government tax collected through waste management fees.

Development assessment and regulatory functions: Including where the NSW Government sets fees well below the actual cost of these functions.

Emergency services obligations: Including the requirement that councils fund 11.7 per cent of the NSW Government’s Emergency Services Levy cost.

Library funding: The NSW Government originally committed to funding up to 50 per cent of libraries’ cost for many councils. It now funds just 6 per cent of total costs, leaving councils to make up the shortfall.

Full report here: Cost Shifting 2025: How State Costs Eat Council Rates