Mayor Damien Gallagher and chief executive Livia Bonazzi warned at a hearing of the Inquiry into Local Government Funding and Fiscal Sustainability that the current system was placing essential services and long-term community resilience at risk.
They told the inquiry that existing funding models failed to reflect the real costs, risks and responsibilities faced by rural municipalities.
Cr Gallagher said councils like Murrindindi were 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,” he told the inquiry.
“We are talking about the basics – roads people can drive on and services communities rely on.
“Local options have been exhausted. What we are facing now are not efficiencies, they are heartbreaking compromises.”
Council said these pressures were being reflected in difficult budget decisions, including reduced investment in services and infrastructure renewal programs, despite existing constraints and growing community need.
“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.”
The hearing also saw council highlighting what it says is inequity of current disaster recovery funding arrangements, with the January 2026 bushfires pointed to as evidence.
Murrindindi Shire experienced about 48 per cent of the state’s structural losses during the fires, but received about eight per cent of municipal recovery funding.
“We were on the front line 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 on to councils and communities.”
Council is now calling on the Federal Government to restore united Financial Assistance Grants to one per cent of Commonwealth taxation revenue and reform funding distribution models to better reflect need, risk and cost.
It is also calling for the increase in united funding support for small rural councils and the reform of grant programs so funding follows need, not advocacy or available cash reserves.
“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 could escalate, placing essential infrastructure, local services and long-term recovery at risk.
To read council’s full submission to the inquiry, visit tinyurl.com/5n8xpvnc
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