Murrindindi Shire Council has urged the Australian Government to act decisively to reform a local government funding system it says is no longer fit for purpose for rural communities.
Mayor Cr Damien Gallagher and Chief Executive Officer Livia Bonazzi appeared before the Federal Inquiry into Local Government Funding and Fiscal Sustainability this week, outlining the lived reality facing small rural councils and warning that the current system is placing essential local services and long-term community resilience at risk.
Council told the Inquiry that existing funding models fail to reflect the real costs, risks and responsibilities faced by rural municipalities, while relying heavily on revenue sources outside local government control.
Speaking to the Inquiry, Mayor Cr Damien Gallagher said councils like Murrindindi are being forced into increasingly difficult decisions.
"We're asking for a system that recognises what it actually costs to keep a place like Murrindindi running. We are talking about the basics - roads people can drive on and services communities rely on," Cr Gallagher said.
"Local options have been exhausted. What we are facing now are not efficiencies, they are heartbreaking compromises."
Council said these pressures are already being reflected in difficult budget decisions, including reduced investment in services and infrastructure renewal programs despite existing constraints and growing community need.
Residents are increasingly feeling the impact through higher rates, lower levels of service, and the consequences of deferred renewal of critical infrastructure.
CEO Livia Bonazzi said the challenges facing Murrindindi were not isolated, but the predictable outcome of longstanding structural issues in local government funding.
"This is not an anomaly. It is the inevitable result of a system that no longer matches the reality it is meant to fund," Ms Bonazzi said.
"Right now, rural councils are not just underfunded - they are structurally set up to fail."
Council also highlighted the inequity of current disaster recovery funding arrangements, pointing to the January 2026 bushfires as clear evidence of systemic failure.
Murrindindi Shire experienced approximately 48 per cent of the state's structural losses during the fires yet received only around 8 per cent of municipal recovery funding.
"We were on the frontline of this disaster, but we have been at the back of the queue for support," Ms Bonazzi said.
"When a funding system cannot respond proportionately to disaster impact, it is not fit for purpose.
"The shortfall does not disappear - it falls directly onto councils and communities."
The Inquiry heard that existing funding mechanisms actively disadvantage small rural councils, including:
- Financial Assistance Grants declining in real terms and not being distributed according to need
- The Minimum Grant principle prioritising population over fiscal capacity, geographic scale and disaster exposure
- Competitive grant programs requiring co-investment and resources many small councils simply do not have
Murrindindi Shire Council is calling on the Commonwealth Government to:
- Restore untied Financial Assistance Grants to one per cent of Commonwealth taxation revenue
- Reform funding distribution models to better reflect need, risk and cost
- Increase untied funding support for small rural councils
- Reform grant programs so funding follows need, not advocacy capacity or available cash reserves
Mayor Cr Gallagher said rural communities continue to step up and support one another but warned volunteer effort cannot continue to compensate for systemic underfunding.
"Across communities like Murrindindi, people are stepping up every day to support each other, often without funding," Cr Gallagher said.
"But resilience should not depend on volunteer effort filling systemic gaps left by government funding models."
Council warned that without meaningful reform, financial pressures on rural councils will continue to escalate, placing essential infrastructure, local services and long-term recovery at risk.
You can read Murrindindi Shire Council's 2026 submission to the Federal Inquiry into Local Government Funding and Fiscal Sustainability, including Council's 2024 submission, here: Parliament of Australia – Submission 242
