Hi TT
I've recently bought an excellent book on the subject "Aviation Law in Australia" by Ronald I C Bartsch
http://www.thomson.com.au/catalogue/shopexd.asp?id=273
There is not much comment on the role of local councils with the exception of a paragraph regarding environmental regulation where the opinion is that local government and councils have shown a lack of foresight on land use issues. Issues of noise and incompatible nature of adjacent land usage arise. Perhaps this is how bans on airborne advertising arise?
In brief, the author provides an overview of the application of aviation law in Australia by examining the regulatory framework:
"In Airlines of NSW Case (No 2) it was held that the Commonwealth Parliament has authority to legislate with respect to matters concerning air safety and operational issues, not only for international and interstate civil aviation, but also with respect to intrastate operations. The States, however, because of federal constitutional limitations, retain authority to regulate certain commercial and financial aspects of intrastste services. Those States that choose to continue to 'regulate' intrastate commercial aviation do so predominantly by the granting of specific route licences."
"...in Australia the federal Department of Transport and Regional Services (DoTARS) is responsible for the administration of most aviation related legislation."
"...at the State level, legislation impinging on aviation varies from State to State and, in some instances, because of constitutional limitations, the Commonwealth is reliant upon the enactment of consistent State legislation to provide for uniform coverage."
Hope this helps with what you're looking for.