The most important principle in the distribution of funds to local government is horizontal fiscal equalisation (HFE). This means that the Commission must ensure that the distribution of funds it recommends is sufficient to enable a municipality to function, by reasonable effort, at a standard not lower than the average standard of other municipalities within the State.

The Commission introduced a revised Equalisation Model for the 2005-06 base grant distribution that is being phased-in over a period of four years such that the revised model will be fully implemented in the 2008-09 distribution year.

The review of the Equalisation Model was in response to the 2001 report of the Commonwealth Grants Commission (CGC) entitled Review of the Operation of The Local Government (Financial Assistance) Act 1995. The CGC’s findings were aimed at ensuring that Local Government Grants Commissions more accurately and transparently achieve equalisation objectives.

Following a review of its former roads model, the Commission introduced a revised Roads Preservation Model (RPM) for the 2006-07 ILRF distribution. For the 2006-07 ILRF distribution the RPM is in its first year of a three-year phase-in, such that it will be fully implemented in the 2008-09 distribution year.

The revision of the previous roads model comprised a review of specific cost and performance standards in the model, an improvement in raw data inputs, and a re-specification of cost adjustors used in the model – including the deletion of some cost adjustors. The review of the model was progressed concurrently with the review of the CGC-related reforms to the Equalisation Model, but was independent of that review.

Current details of the Commission’s methodology can be found in the 2006-07 Annual Report.