Councils will spend $10 million to convince Australians to recognise local government in the constitution in a bid to guarantee their funding supply lines from Canberra.
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The first referendum since the doomed ballot on a republic in 1999 will be held on election day, September 14, Prime Minister Julia Gillard announced on Thursday.
It will ask voters whether they agree to the financial recognition of local government in the constitution, amending section 96, which deals with financial assistance to the states.
A ''yes'' vote would enable the federal government to continue to directly fund local government infrastructure and services, including the Roads to Recovery program, childcare centres, sports fields, swimming pools and libraries.
A successful High Court challenge to the national school chaplaincy program recently threw into doubt the Commonwealth's ability to continue to bypass states to deal directly with local government.
Speaking in Brisbane, Ms Gillard said the constitutional change would not affect the states' right to legislate for local government and claimed there was bipartisan support for getting a yes vote.
She said Opposition Leader Tony Abbott had indicated his support. Mr Abbott sent out Nationals senator Barnaby Joyce, who said the vote was needed but predicted it would fail because it had been steered by a ''chaotic government''.
''What I'm worried about is that we're going to fluff this. And when we fluff it, instead of going one step forward we go 10 steps backwards,'' Mr Joyce said.
A submission by the Australian Electoral Commission to an inquiry into whether a referendum was needed identified the dangers of a ''truncated timetable'' to convince voters. The commission said any referendum campaign that began after March 1 would allow insufficient time to test advertising concepts and open up the potential criticism that voters were not sufficiently informed by election day.
The Australian Local Government Association has had a marketing campaign and a $10 million war chest ready for months.
It faces having to fight against state governments. NSW Premier Barry O'Farrell said he did not support a referendum.
''We do not support local government getting a financial power in the federal constitution because that can fundamentally change the relationship that local government has,'' he said. ''Local government across Australia is set up by state parliaments, this financial recognition essentially changes the relationship, gives it a more direct relationship with the federal government. This country has a history of referenda going down.''
The Victorian government and Western Australia are also opposed, it is understood.
