Hobart City Council: Audit paints grim picture of finances, says rate hikes, service cuts may be needed

An independent audit of the Hobart City Council’s finances has found that “substantial” rate hikes or service cuts could be necessary. Here’s why.

Michael Stretton, City of Hobart CEO. Picture: Nikki Davis-Jones

The Hobart City Council has been warned that it may need to “substantially” hike rates or cut services unless it improves its precarious financial position.

It comes as council staff prepare to launch industrial action after Australian Services Union (ASU) members overwhelmingly voted in favour of the measure amid negotiations over a new enterprise bargaining agreement.

The industrial action is expected to involve indefinite or periodic bans on the issuing of parking fines and picking up litter in the municipality.

In a financial sustainability audit undertaken by management consulting firm KPMG, obtained by the Mercury, the council’s financial strategy and governance are said to suffer from “significant gaps” and are described as “not fit for purpose”.

Sam Batchelor, Tasmanian co-ordinator of the Australian Services Union. Picture: Nikki Davis-Jones

Produced in April, the report says the organisation’s labour costs are increasing and creating “significant financial stress on the [council]” in the wake of the Covid pandemic, which battered local governments across the country.

“If no action is taken, the projected financial position of the council will continue to deteriorate and may necessitate a reduction of services to the community, a reduction of headcount, or a need to substantially increase council rates,” it said.

According to KPMG, the cost of labour at the council has grown by 25 per cent ($18m) since the 2021-22 financial year and has been attributed to an increase in average remuneration and a rise in the number of senior employees.

The report said a third of the council’s expenditure budget ($73m) was gobbled up by salaries and wages – a significantly higher proportion than at similar councils.

Directors and managers account for 45 full-time equivalent positions at the council, which is 7.5 per cent of the headcount and proportionally higher than the 3-4.5 per cent seen in equivalent local government organisations.

They also receive up to 17 per cent more in remuneration – or $25,000 more – than benchmarked councils in NSW and Victoria.

Hobart City Council staff are embarking on industrial action, which will likely include an indefinite or periodic ban on the issuing of parking infringements. Picture: Nikki Davis-Jones

Hobart City Council CEO Michael Stretton said the council was reviewing its management structure and financial strategy in response to the KPMG report, as well as implementing an “organisational realignment” that would “streamline operations and provide a modern fit-for-purpose organisation”.

“Our goal is to build a positive workplace culture and find ways to improve efficiency, reduce costs, and explore new sources of revenue,” he said.

Mr Stretton acknowledged the council’s relatively high proportion of directors and managers but said it was focused on remaining a “competitive” employer and attracting and retaining “top talent”.

“However, we also recognise the importance of financial sustainability and are carefully assessing areas where efficiencies can be achieved. Any potential changes will be made with the goal of balancing financial responsibility with the need to deliver the services our community expects,” he said.

The council has offered wage increases of 3 per cent for all staff in the first two years of a proposed new enterprise bargaining agreement, which the ASU has labelled “inadequate”.

Years three and four of the deal would provide pay rises at the level of the consumer price index (CPI), with a base of 2 per cent and a cap of 4 per cent.

ASU organiser Sam Batchelor accused the council’s directors and managers of “attacking underpaid workers”.

“The ASU has substantial numbers across all work areas who will be pursuing fair pay, conditions and job security,” she said.

Mr Stretton said the council respected the right of employees to launch industrial action but its “comprehensive offer” remained on the table.

“The city remains committed to supporting our staff while also ensuring financial sustainability,” he said.

Originally published as Hobart City Council: Audit paints grim picture of finances, says rate hikes, service cuts may be needed