Is a council surplus a profit? Understanding Hobart's books

As an accountant and an elected member, I find it extraordinary that maintaining a sound financial position can become controversial.

A council surplus is not “profit”. Council is not a private company and ratepayers are not shareholders. But nor should council behave as though every dollar must be spent before 30 June simply to avoid showing funds left on the books. That is not compassion. It is poor financial control.

The proper question is not whether a surplus exists. The proper question is what kind of surplus it is.

In local government, the important measure is not just the headline surplus. The key test is the underlying result: are ordinary, recurrent revenues covering ordinary, recurrent expenses? That distinction matters because a headline surplus can be affected by capital grants, asset contributions, timing differences or one-off income. The underlying surplus asks the harder accounting question: can council fund its normal operations from its normal income?

That is basic discipline.

Australian accounting standards are built around concepts such as accrual accounting, going concern, recognition of liabilities, asset consumption and depreciation. These are not political ideas. They are the foundations of responsible financial reporting.

For a council, depreciation is particularly important. Roads, footpaths, stormwater systems, buildings, parks, plant and public facilities all wear out. A city can look acceptable on the surface while its assets quietly deteriorate underneath. If council does not generate enough operating capacity to renew assets, the bill does not disappear. It is simply pushed onto future ratepayers.

That is not prudent. It is deferred failure.

Tasmanian councils are also required to plan beyond a single budget year. Long-term financial management plans and long-term asset management plans exist for a reason. They force councils to look past the politics of tonight’s meeting and ask whether the organisation remains sustainable over the next decade.

That is especially important for Hobart.

We are not managing a low-risk enterprise. We are managing a capital city with ageing infrastructure, steep terrain, heritage assets, stormwater pressures, public facilities, and real exposure to fire and flood risk. In recent years, councils have also faced volatile costs in construction, materials, labour, fuel, insurance and project delivery.

Any elected member who understands infrastructure budgets knows how quickly a project estimate can move.

A council with no financial buffer has limited choices: borrow more, delay works, cut services, run down assets, or increase rates sharply later. None of those options protects ratepayers.

That is why a responsible surplus matters.

It gives council working capacity. It supports asset renewal, reserves, emergency response, grant co-contributions, debt reduction and risk management. It allows council to absorb cost shocks without turning every unexpected event into a financial crisis.

But a surplus must be disciplined.

It should never be treated as a slush fund. It should never excuse overcharging. It should never hide poor service delivery. A good surplus is reasonable, transparent and linked to long-term financial and asset planning. A bad surplus is money collected without clear purpose.

This is where the conduct of the chamber becomes vital.

Good financial management is not just a spreadsheet exercise. It depends on elected members understanding the difference between recurrent and capital funding, respecting proper process, reading the financial indicators, and resisting the temptation to turn public money into political theatre.

A functioning city requires a functioning chamber.

As an accountant, my view is straightforward: recurrent income should cover recurrent expenses, with sufficient margin to renew assets, manage liabilities, fund risk and prepare for the unexpected. That is not extravagance. It is stewardship.

A surplus is not the prize.

A sustainable city is the prize.

And if we cannot defend sound financial management in a council chamber, then we are not merely arguing about numbers. We are arguing about whether we are prepared to govern responsibly.