The objective is to assess the effects of population ageing and decline over the period (2000- 2017) on the capacity and efficiency of local government operations in Tasmania. Tasmania's population has fallen from 474,000 in 1996 to 470,000 in 2001. Further declines are projected. A demographic analysis of local government areas (LGAs) finds that some will experience comparatively large depopulation, while others will make population gains. Tasmania's LGAs will experience a 5 percent loss total income loss which will have a modest impact on Tasmania wide employment, Output, Gross State Product and Wage income. Efficient population sizes for urban (76,274 persons) and rural (18,676 persons) LGAs are derived and the analysis of LGA population changes reveals that scale efficiency losses will increase substantially, strengthening the case for a further boundary review. Further related policy issues are discussed.