03 Sep 2009

Getting ready for new enterprise powers for local governments in Queensland

The Queensland Department of Infrastructure and Planning recently released the draft Local Government (Beneficial Enterprises and Business Activities) Regulation 2009 for public comment. Councils and other parties interested in the new enterprise powers regime have until 14 September 2009 to make submissions to the Department on its terms.

We previously reported on the new Local Government Act 2009 and its "principles-based" approach to regulation. In this Alert, we'll compare the proposed enterprise powers framework under the new Act with the current enterprise powers regime to assess whether this key aspect has been improved for councils.

Current framework

Chapter 6, Part 4 of the 1993 Act governs local government enterprise powers, including those exercised by Brisbane City Council ("enterprise" is defined to include any business, undertaking and activity). A local government is empowered to engage in or help an enterprise (either alone or with another entity) if the enterprise concerns a matter that, in the local government's opinion, is directed to benefiting, and can reasonably be expected to benefit, its area or part of its area. Financial benefit is only one aspect in determining overall benefit to a local government area.

There are a number of ways in which a local government may currently exercise an enterprise power including by forming a company limited by shares that is not listed on the stock exchange (a "permissible company") or by forming a partnership or an association of persons. A local government may also be a member of, and take part in the management of, one of these ventures, acquire and dispose of shares in a permissible company or commercially exploit its property rights.

The current enterprise provisions are difficult to apply in practice because of their "in again - out again" approach. That is, the framework under the 1993 Act currently:

  • declares certain core government services and activities as being exempt;
  • declares an otherwise exempt enterprise to be nevertheless regulated by the enterprise provisions if the enterprise is undertaken as a joint venture with someone else; and
  • then goes on to exempt the activity from the ambit of the enterprise framework where the joint venture is undertaken with another specified government entity or the local government is authorised to conduct the enterprise under another Act.

Proposed new framework

The proposed new framework retains many of the characteristics of the current regime including:

  • the power of a local government to conduct a beneficial enterprise;
  • the ways in which a beneficial enterprise may be conducted;
  • the requirement that a local government pass a resolution in order to conduct a beneficial enterprise; and
  • the requirement that a local government establish a register of beneficial enterprises.

There are however a number of changes designed to simplify the regime including:

  • that the conduct of beneficial enterprises generally is governed by the local government principles and the financial sustainability criteria;
  • a business unit of a local government is now excluded from the ambit of the enterprise powers;
  • the definition of "enterprise" and the express examples of what would constitute a "beneficial enterprise" have been removed;
  • the requirement to consult with, and have regard to the advice of, professional advisers prior to conducting a beneficial enterprise has been removed;
  • there is a new requirement that in conducting a beneficial enterprise the local government must apply sound financial principles (which is not defined in the 2009 Act) and comply with the Local Government Acts;
  • the exempt enterprises regime has been omitted; and
  • many of the current restrictions and limits on local government enterprise powers have been removed except where a beneficial enterprise is to be conducted with the private sector (defined as an entity that is not the Commonwealth or a State, a State authority or a local government).

The restrictions on beneficial enterprises conducted with the private sector include restrictions with respect to the:

  • identification of the amount that is to be invested as a capital expenditure in the local government's budget;
  • extent to which amounts identified in a local government's budget identified for, but not committed to, a beneficial enterprise may be carried forward and held; and
  • investment in a beneficial enterprise of an amount that is equal to or more than 10 percent of a local government's own source revenue (which is double that currently prescribed).

Accordingly, if a local government wishes to invest in a beneficial enterprise with the private sector and the amount to be committed to the enterprise:

  • has not been identified as a capital expenditure in the local government's budget; or
  • is equal to or more than 10 percent of a local government's own source revenue,

the local government must first get the approval of the Chief Executive of the Department.

Overall, therefore, the proposed new framework appears to go a long way towards removing the complexity of the current regime while still maintaining various safeguards and restrictions on the exercise of the enterprise powers by local governments.

However, in striving for a "principles-based" approach to regulation and by removing much of the prescription from the current enterprise powers regime, there is a risk that the new framework may pose practical challenges for local governments. Accordingly, only time will tell whether the new enterprise powers framework is a real improvement on the current regime.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.