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2010 REVIEW
METHOD CHANGES SINCE THE DRAFT REPORT
STAFF INFORMATION PAPER 2010/01-S
FEBRUARY 2010
Paper issued:
26 February 2010
Commission contact:
Malcolm Nicholas
Phone: 02 6229 8886
Email: [email protected]
CONTENTS
Page
INTRODUCTION
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METHOD CHANGES BY CATEGORY AND MAJOR DISABILITY
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i
CHANGES IN ASSESSMENT METHODS SINCE
THE DRAFT REPORT
INTRODUCTION
1
This paper lists the method changes the Commission has made since the draft report circulated
in July 2009.
2
Most changes have been made in the light of arguments made by States in submissions
responding to the draft report and the results of further analysis done by the Commission. This
includes replacing placeholder assessments for land revenue, water subsidies in the Services to
communities category and interstate travel costs. Other changes have been made to better
reflect State circumstances as shown in data for 2008-09, including the results of final
materiality testing. A few changes were made to improve the consistency of methods and
judgments across the categories.
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In addition to the method changes identified in this paper, the Commission has changed the
data used in the assessments to include data for 2008-09, delete data for 2005-06 and include
revised data for 2006-07 and 2007-08.
METHOD CHANGES BY CATEGORY AND MAJOR DISABILITY
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Table 1 summarises the method changes in each category.
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Table 1
Method changes since the draft report
Category
Method changes
Payroll tax
We have:

made separate estimates of the taxable proportion of public and private sector
compensation of employees, instead of using an average proportion;

replaced Commission estimates of compensation of employees of higher
education institutions with estimates derived from ABS data.
Land tax
We have changed from using Valuers-General data to measure the revenue base with
a place-holder value distribution adjustment to using data from State Revenue Offices
dissected by value range and a 25% discount of the resulting needs.
Stamp duty on
conveyances
We have:
Motor taxes

changed from dissecting the data into three broad value ranges to using
$100 000 ranges up to $1.5 million, plus an over $1.5 million range; and

changed the treatment of refunds from an accrual to a cash basis by deducting
refunds from revenue in the year the refunds are made and making a
commensurate deduction to the revenue base for that year.
We have:

not dissected heavy vehicles into components for heavy rigid trucks and
articulated trucks because the dissection was not material; and

ceased to adjust the data on light vehicle registrations to exclude diplomatic
vehicles because it was not material.
Mining revenue
We have changed the grouping of minerals from energy and non-energy minerals to
high royalty minerals (oil and gas, export coal, bauxite and lump iron ore) and low
royalty minerals (heat coal, iron ore fines and all other minerals). The component for
grants in lieu of royalties on offshore oil and gas was unchanged.
Insurance tax and
Other revenue
There were no method changes between the draft and final reports.
Schools education
We have:
Post-secondary
education

changed the method of applying the consultant’s post-compulsory student
shares by adjusting the shares for census undercounts;

changed the definition of low socio-economic status from the SEIFA Index of
Advantage and Disadvantage to the SEIFA Index of Disadvantage to be
consistent with the index used in other assessments;

included pre-compulsory cross-border students in the cross-border allowance
for the ACT because cross-border use is material;

deleted the specific CALD cost weight but included an aggregate CALD
allowance (covering schools and health) in the Other expenses category; and

as foreshadowed in the draft report, we increased the compulsory age range
from 6 to 14 years to 6 to 15 years for 2008-09.
We have:

as foreshadowed in the draft report, broadened the user group from 15 to 59
year old people to 15 to 64 year olds;

calculated year specific use rates instead of an average use rate for the entire
review period; and

revised the cost weight for low English fluency from 5% to 6%.
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Category
Method changes
Admitted patients
We have:
Community health
Welfare and housing
Services to
communities

revised the calculation of State socio-economic profiles and where people live
using CD based population data, instead of the SLA based data used in the
draft report, because SES is an important driver in the allocation of expenses
and the distribution of population between States by SES is best captured using
CD based geography;

used three bands for classifying SES, in which low SES is defined as people
living in areas in the bottom quintile, middle SES is the middle three quintiles
and high SES is the top quintile because this grouping achieves a better result
on balance — in the draft report, low SES people were those living in areas in
the bottom two quintiles, middle SES was the middle quintile and high SES
was the top two quintiles;

classified the Northern Territory’s highly accessible and accessible populations
as moderately accessible, to recognise that Darwin is similar to a moderately
accessible town in terms of the size of its private health sector;

disaggregated remote populations into remote and very remote, because this
makes a material difference to the GST distribution; and

finalised the weight to apply to remote and very remote populations for the
assessment of non-hospital, non-land ambulance patient transport, at 20.
We have:

corrected errors in the draft report calculations relating to the treatment of
people with no SES classification and rescaling, as advised to States on
5 August 2009;

excluded MBS non-service items relating to incentive payments from
Commonwealth funded expenses because these payments did not reduce the
need for State services;

discounted the non-State expenses included in the subtraction model by 12.5%,
because of a low level of uncertainty about whether some non-State services
were comparable with State or State-like services; and

revised the treatment of the NPP for the purchase of essential vaccines, to
ensure it does not have an impact on States’ fiscal capacities.
We have:

finalised the allocation of expenses to CDEP recipients for users of family and
child services and housing services;

made adjustments to the Victorian and South Australian data on users of
family and child services to provide a more complete picture of the use of
services by Indigenous people, especially those in remote areas; and

inflated the general location factor applied to housing expenses, to recognise
that this factor is applied to net, rather than gross, housing expenses, consistent
with the approach adopted for the Indigenous housing weight.
We have:

applied a regional cost location disability to water and electricity subsidies, and
community development expenses; and

replaced the placeholder assessment for water subsidies with an assessment
based on the population of small communities in poor water areas outside
highly accessible regions (see Chapter 15 of Volume 2 of the report).
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Category
Method changes
Justice services
We have:
Roads

applied a service delivery scale disability to magistrate court expenses because
submissions convinced us it affected those expenses; and

removed the cross-border allowance because data indicated there was no net
provision of justice services to residents of New South Wales by the ACT.
We have:

assessed separate traffic volume and heavy vehicle use disabilities for urban
and rural areas;

changed the dataset underpinning the traffic volume disability, by replacing
data on vehicle kilometres travelled (VKT) from the ABS Survey of Motor
Vehicle Use with VKT data compiled by the Bureau of Transport,
Infrastructure and Regional Economics;

changed the dataset underpinning the population used as a proxy for urban
road length by replacing the 2006 Census population with June estimated
resident population (ERP) which are updated annually;

separated bridge expenses from other roads expenses and assessed them on an
equal per capita basis;

removed roads depreciation expenses from the category;

used recurrent roads expenses to weight the disabilities in the Roads category
and roads capital expenditure to weight the roads related disabilities in the
Investment and Depreciation categories; and

confirmed the placeholder judgment that the cost of maintaining a kilometre of
unsealed roads is half that of a sealed road, after receiving further State data.
Transport services
We have changed the definition of non-urban population to include all population
outside State capitals (it was populations outside urban centres of 20 000 in the draft
report) to better reflect the service user population.
Services to industry
We have:

discounted the sector size and business count disability weights by
12.5 per cent instead of rounding them down as was done in the draft report;
and

broadened factor income for ‘Other industries’ to include all factor income less
that for the public administration and safety, ownership of dwellings and
agriculture, forestry and fishing industries — in the draft report we used the
sum of the factor income for the mining, electricity, gas and water,
manufacturing and construction industries.
Other expenses
We have included an allowance for CALD influences on schools and health services
in this category as a simple way of recognising that people born in non-English
speaking countries have some effects on the costs of providing those services.
Depreciation
The expenses have been reclassified from the individual service categories to a
separate depreciation expenses category. As foreshadowed in the draft report, the
infrastructure stock and cost disabilities have been applied to depreciation expenses.
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Category
Method changes
Investment
We have:
Net lending
Location cost
disabilities

reduced the size of the discount applied to capital stock disabilities in the
investment assessment from 50 per cent to 12.5 per cent to reflect our
assessment of the effect of disabilities which may not be relevant to the
quantity of infrastructure States require;

split the service delivery investment component into two components (road
investment and non-road investment) to better use available information;

undertaken separate assessments of rural and urban roads investment in the
road investment component because the distinction was material;

used NTC category F expense data to derive capital weights for combining
rural and urban roads disabilities to better use available information; and

assessed 50 per cent of the Commonwealth payments for the construction of
national network roads on an actual per capita (APC) basis because we
consider part of the Commonwealth support for national network roads and the
consequent investment is influenced by Commonwealth considerations which
are not captured in our State based disability measures. The other 50 per cent
of the payment is assessed in the road investment component. In the draft
report 100 per cent of the payments were assessed APC.
We have:

discounted assessed net lending by 25 per cent to recognise uncertainties
relating to data quality and revaluation and rate of return disabilities; and

changed the treatment of payments for transport infrastructure to ensure they
affect the relativities, because they increase State net financial worth.
We have:

replaced the placeholder interstate airfares assessment with an interstate travel
assessment based on State provided data. We have assessed interstate airfares,
travel allowance and accommodation costs for State officers attending
meetings/conferences in other States. Further details of the assessment are
provided in Chapter 24, Location, of Volume 2 of the final report; and

calculated regional costs factors by applying the regional cost gradients to each
State’s assessed client base in each SARIA region, rather than to population as
in the draft report. For example, the client base for schools education services
is the cost weighted number of government school students.
Service delivery scale
We have calculated service delivery scale (SDS) factors by applying the staffing rate
to each State’s assessed client base in SDS and non-SDS areas, rather than to
population as in the draft report. Further details are provided in chapter 25, Service
Delivery Scale, of Volume 2 of the final report.
Cross-border
disabilities
We have removed the cross-border allowance in the Justice services category because
data indicated there was no net provision of justice services to residents of New South
Wales by the ACT.
Administrative scale,
national capital, native
title and land rights
disabilities
There were no method changes between the draft and final reports, but the removal of
the cross-border allowance for justice had flow-on effects for the police national
capital allowance.
Wider use of ERP data
We have based dissections of State populations by SARIA and SEIFA on ABS
estimated resident population data rather than proportions derived from the Census.
Indigenous population
We have better aligned estimated State Indigenous populations with estimated
resident populations for each assessment year.
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