Why the Inner West Council demerger process won’t lead to a split

Inner West Council’s years-long demerger case is taking place under an “unconstitutional” law that would not allow a return of the three former local government areas of Marrickville, Leichhardt and Ashfield, even if recommended by the agency reviewing the proposal.

More than two years after 62 per cent of residents voted in favour of a demerger in a plebiscite, the process to determine whether the split should proceed is now unlikely to lead to change because the Minns government has legal advice that a key section of the Local Government Act inserted by Labor while in opposition is invalid.

Local Government Minister Ron Hoenig has received legal advice against demergers.Credit: Dion Georgopoulos

But despite the Local Government Minister Ron Hoenig telling another council in October that their demerger would not go ahead because of the same issue, the NSW Boundaries Commission has continued holding public hearings into the proposed Inner West demerger.

Last year Hoenig told Cootamundra-Gundagai Council he could not proceed with their demerger — which was recommended by the commission and agreed to by the former Coalition government before the last election — because of advice the current Local Government Act did not “provide a legal pathway” to a formal split.

Instead, he told the council it would have to go through another round of hearings under a separate section of the act to execute the demerger.

In November, Hoenig told budget estimates that the section of the act, 218CC, is “unconstitutional”, according to legal advice he had received.

King Street in Newtown. The Inner West Council takes in the former Marrickville, Leichhardt and Ashfield councils. Credit: Christopher Pearce

The section of the bill – which was inserted into the act by Labor from opposition – was faulty, he said, because it did not provide a mechanism for the minister to approve a de-amalgamation after receiving a recommendation from the commission.

“I’m stuck with a provision that has been accepted … whereby nobody knows what it means, nobody knows whether it imposes any liability on the state, and it doesn’t provide for a mechanism of being able to proceed with a demerger,” he said.

Despite that, the commission has proceeded to consider the Inner West demerger proposal. In December, it held public hearings into the matter. It also commissioned Deloitte to conduct an analysis of the demerger business case.

Inner West Mayor Darcy Byrne said he had not been made aware of any issues with the demerger process, but said it had already been significantly drawn out and the council was “eager for their inquiry to be concluded and a recommendation made to the government”.

Inner West Council Mayor Darcy Byrne.Credit: Dominic Lorrimer

“The prolonged uncertainty about the future of the council has a negative impact on our organisation and the community wants to know what their future is too,” he said.

The former government was aware of the problem in the legislation and then minister Wendy Tuckerman had intended to pass an amendment to the act if the Coalition was re-elected in March.

But Hoenig has resisted legislative change. In budget estimates in November, he told the Greens MP Amanda Cohn that an amendment to the act “is not as simple as you think it is”. He did not think it would pass through parliament because Labor is in minority government.

“If you can do that, Dr Cohn, tell me and I’ll work on it immediately ... see if you can get the rest of the crossbench to agree with you,” he said.

Cohn has since introduced a private members bill, which would amend the act and give councils a right to demerger plebiscites. She said she had secured enough support from the crossbench to pass the legislation if the government supported it.

Greens MP Amanda Cohn has moved a private members’ bill to amend the act.Credit: Dominic Lorrimer

“It is not fair to put impacted communities through the hard work of boundaries commission hearings when the outcome is uncertain,” she said. “The minister could choose a straightforward path to de-amalgamation through legislative change.”

While the Inner West case remains uncertain, many regional councils are increasingly agitating for demergers.

Steeped in debt and facing communities who remain resentful over the mergers and significant rate rises that have followed, some councils say the marriages are not working and are lobbying for the Minns government to intervene and break them up.

Next week, councillors from Cootamundra-Gundagai, Snowy Valleys, Federation, Hilltops and Snowy Monaro will hold a forum to discuss the impact of the mergers on their “financial sustainability”. All five councils are struggling to stay above water, and all but one — Hilltops — has sought and received large rate increases from the Independent Pricing and Regulatory Tribunal in the past two years.

In some cases, the councils are considering asking for more. Despite being granted a permanent 35.9 per cent rate increase in 2022, Snowy Valleys Council’s financial state remains so perilous that it will next month hold an extraordinary meeting to discuss applying for another 40 per cent bump.

Charlie Sheahan, the mayor of Cootamundra-Gundagai, said the animosity between the two areas had become so intense that it was affecting the mental health of staff. In its 2022 report following the demerger proposal, the Boundaries Commission quoted a council worker who said, “every time I know I have to go to the Cootamundra office to work, I just feel like driving into a tree.” Sheahan told the Herald council staff were sometimes refused service in local cafés.

“Instead of creating efficiencies like it was supposed to, in many cases the mergers result in huge financial deficits creating the need for large rating increases because you’re talking about different communities isolated by large distances operating in an adversarial environment,” he said.

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