The finances of Melbourne's inner-city councils are deteriorating fast enough that at least one mayor is using the word "bankrupt" without hesitation, and a former premier who reshaped Victorian local government once before thinks it may be time to do it again.
City of Yarra Mayor Stephen Jolly has emerged as the most vocal advocate for radical reform, proposing that the cities of Melbourne, Yarra and Port Phillip be consolidated into a single large municipality covering inner Melbourne. The trigger for his push is immediate and quantifiable: Yarra Council has been forced to absorb $10 million in services previously co-funded with the state government, a cost shift that Jolly says is unsustainable.
"We're being riddled like Swiss cheese with these increases in cost," Jolly told reporters. He framed the merger proposal not as an exercise in cutting services but as a way to broaden the capacity to deliver them. Without some form of agreement with the state, he warned, certain inner-city councils, including Yarra, could face insolvency within two years.
The financial distress is not confined to Yarra. Glen Eira Council, which covers the inner south-east suburbs of Bentleigh, Carnegie, Caulfield and Elsternwick, has taken the concrete step of applying to exceed the Victorian government's suggested rate cap of 2.75 per cent. The council is seeking approval to lift its residential rate cap to 5 per cent, citing modelling that shows this is the minimum increase needed to stabilise its position. Without action, Glen Eira projects its cash reserves will fall from $67.4 million to just $10.9 million by 2034-35. The application now sits before the Essential Services Commission for determination.
The merger debate draws an obvious historical comparison. In the early 1990s, Victoria's 210 councils were compressed to 78 under then-Premier Jeff Kennett, a sweeping restructure that merged municipalities including Brighton, Sandringham, Mordialloc and Moorabbin into what became Bayside Council, and consolidated six separate councils around Geelong into one. Kennett himself, speaking publicly this week, suggested the time has come for another round. He would like to see metropolitan Melbourne's current 30 councils reduced to just five.
The state government is not sympathetic, at least publicly. Premier Jacinta Allan pushed back on the suggestion that councils are in genuine distress, pointing to existing state funding support. "Local governments get a sizeable revenue support from the state government as well to deliver services into their local community," she said, adding that her expectation is councils concentrate on their core responsibilities.
That view finds some backing in the local government accountability community. Council Watch president Dean Hurlston argued that the problem is partly self-inflicted, with councils having expanded well beyond their traditional mandates. "What Victorians want councils to do is focus on a very defined, clear set of local priorities: your bins, your footpaths, your parks," Hurlston said. He contended that councils have taken on spending in areas ratepayers never asked them to cover, and that meaningful savings could be found before resorting to amalgamation or rate rises. The Victorian Electoral Commission and oversight bodies have long grappled with questions of council governance and accountability, and Hurlston's critique reflects a recurring concern about scope creep in local government.
There is, however, a genuine tension in that position. Councils are frequently called upon to fill gaps left by state and federal service delivery, particularly in health, housing support, and community services. The $10 million cost shift that Yarra is absorbing did not arise from the council volunteering for extra duties; it reflects a decision made above the local government level. Critics of the Premier's response argue that dismissing councils as fiscal complainers sidesteps the question of who authorised the cost transfer in the first place.
Research from the Infrastructure Victoria body and various urban planning academics has previously identified efficiency gains from amalgamation, though the evidence is mixed. Larger councils can achieve economies of scale in procurement and administration, but they can also become less responsive to local needs, particularly in diverse urban communities where one neighbourhood's priorities differ sharply from another's.
The rate cap system, introduced by the Andrews government and maintained since, was designed to protect ratepayers from councils using property levies as an easy revenue solution. Glen Eira's move to formally seek an exemption is the first such application, and it sets a precedent that other councils are likely watching closely. If the Essential Services Commission approves the increase, it may open a pathway that others follow. If it does not, the financial projections councils are presenting will require a different answer.
Where the debate lands is genuinely uncertain. Jolly's merger proposal deserves serious analysis rather than reflexive dismissal; the 1990s restructure, whatever one thinks of its political context, did produce lasting administrative consolidation that most planners now regard as net positive. At the same time, the state government's insistence that councils live within existing means is not inherently unreasonable if the alternative is simply shifting the cost burden onto renters and homeowners through higher rates. The honest answer is that both things can be true: some councils may be spending beyond their mandate, and the state may also be transferring costs it should be wearing itself. Untangling which problem is larger, and in which municipality, is the work that the debate has barely begun.