Would Bigger Councils Yield Scale Economies in the Greater Perth Metropolitan Region? A Critique of the 'Metropolitan Local Government Review' for Perth Local Government

Abstract

Forced amalgamation is a ubiquitous feature of Australian local government reform - compulsory council consolidation programs have occurred in all states and territories, with the sole exception of Western Australia. However, the Final Report of the Metropolitan Local Government - released in October 2012 - called for a reduction of about 60 per cent of the local authorities in the Greater Perth metropolitan area. The Western Australian Government responded by announcing that the number of Perth councils will fall from 30 to 14 from 1 July 2015. The Final Report recommended amalgamation on seven main counts, including scale economies. However, apart from citing work on Tasmania by commercial consultants Deloitte Access Economics (DAE) (2011), no econometric evidence was produced in support of claims on scale economies. This paper seeks to remedy this deficiency by estimating a number of econometric models on the impact of amalgamation on Perth local government. The results of our empirical modelling suggest that scale economies, cost savings and other pecuniary gains are largely illusory. Indeed, only two of the ten main local government functions provide evidence to suggest potential economies of scale.