7. Implications for Setting the CPV
7.1 There is considerable uncertainty about the costs that will be incurred by the Commonwealth through the access to health and welfare services by CPV migrants. The initial assumptions adopted here are based on per capita costs for the Australian population as a whole, with adjustments where there is reason to believe that differences are likely. The choice of future expenditure growth rates is subject to even greater uncertainty as this cannot be known for the population as a whole over such a long period, let alone for the particular subgroups being modelled here.
7.2 It therefore needs to be recognised that the models are producing estimates of outcomes that are likely to be of the right magnitude but are not precise calculations of future expenditure. The sensitivity analysis shows that the projected costs can vary quite significantly with relatively small changes in assumptions that fall well within the range of what could be considered reasonable.
7.3 As such, it can be argued that the Government should not be targeting a very specific percentage in setting the second visa application charge for the CPV. Rather it may be appropriate to take a view that if the charge is found to be within, say, 1 percentage points of the target value there is no need to make an ad hoc adjustment.
7.4 The estimated value of the second visa application charge based on the current charge rates is $104m and this does not change with the different scenarios. As a percentage of the estimated cost to the Commonwealth of $884m, this represents 11.8% of the total cost under the base scenario and between 10.7% and 13.1% of the total cost under the various other scenarios. It can, therefore, be considered to be broadly in line with the Government’s target of 12% cost recovery.
7.5 The current exercise also provides a new set of weights for use in the calculation of the Contributory Parent Visa Composite Index (CPVCI). The following table compares the weights used in the existing index and revised weightings that derived from the current calculations. Note that aged care was not separately identified when we originally undertook this exercise because the AIHW included aged care as part of health expenditure at that time. In the most recent AIHW publications (for 2005-06), aged care is included as welfare expenditure.
| Component | CPVCI Weighting | Revised Weighting | |
|---|---|---|---|
| Health | ) ) ) |
60% |
59% |
| Aged Care | 9% | ||
| Income Support | 35% | 31% | |
| Other | 5% | 1% |
7.6 It can be seen that the combined weighting of health and aged care expenditure has increased significantly since the last report. This is to be expected as health expenditure has grown much more quickly than the other components over the period the CPVCI has operated. An important reason for the current exercise was to reset the CPVCI weightings to address this known feature of recent experience. It highlights the need to undertake periodic reviews of the model assumptions in order to incorporate the latest available information.
7.7 It would be expected that health costs will continue to increase in importance over coming years. In setting the weightings for future CPVCI calculations, it is therefore reasonable to make some allowance for this growth. Accordingly, in deriving the CPVCI for 2008-09, we weighted health costs at 60% (rather than the 59% figure based on the model outputs), aged care at 9%, income support at 30% and other costs at 1%.
7.8 This gave a CPVCI for 2008/09 of 3.7%, compared to 3.6% under the weighting that has been used for calculating the CPVCI in previous years. (Note that this is much less than the increases in recent years because the growth in health costs over 2004-05 to 2005-06 were relatively low at 3.4%, compared with an average increase of 7.3% over the three years prior to 2004-05. Note also that the difference between the results under the old and new weightings would be much greater with a higher health inflation result.)
7.9 Applying this index means that revenue from the second visa application charge amounts to 12.2% of the total cost to the Commonwealth under the base scenario assumptions.
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