There is a need to understand how leadership affects the well‐being of local government employees working under conditions of prolonged austerity‐driven reforms. A total of 118 Australian local government employees were surveyed. The analysis involved hierarchical regression using the PROCESS macro in SPSS, which identified the total, direct, and bootstrapped bias‐corrected indirect effects. The findings suggest that managers demonstrated some leadership behaviours required to lead staff positively; however, authentic leadership behaviours need to be strengthened to ensure they can lead an under‐resourced, under‐staffed sector of government. These findings are consistent with recent findings from the Australian Local Government Association analysis of gaps in the skill profile of local government. Authentic leadership and PsyCap capabilities are known to increase sector capability, especially to achieve higher outcomes in a time when austerity is still driving policy. Local government is not sustainable without effective leadership that can navigate austerity‐led policies with agility based on constructive feedback to ensure a productive workplace that enhances employee well‐being.