4. The Model
4.1 The original CPV cost model was constructed in Excel™. The current model uses a SAS™ platform, which we consider to be more robust since it minimises the risk of inadvertent changes introducing errors. It can also deal more readily with complex input parameters, such as the use of health inflation factors that differ with both age and time.
4.2 The model projects the health, pension, welfare and other costs for each individual over the 60 years following their entry, taking account of survival probabilities and using the various assumptions described above. By year 60, the cashflows are immaterial, being equivalent to around $80,000 per annum in present value terms for the entire intake. These cashflows are discounted and aggregated to arrive at a present value of the various costs.
4.3 For the purposes of the model, individuals are treated as part of a family unit and this allows marital status to be taken into account in calculating pension entitlements. Revenue from the first visa application charge which applies to the family unit can also be accurately modelled.
4.4 The model has been run separately for each of the intakes from 2004/05, 2005/06 and 2006/07 and the results averaged to give an estimate of costs for a typical entry group. The results for each year were very similar, with the variation from the mean being less than 0.5%. This was not surprising given the similarity of the intakes in the three years.
4.5 It is important to note that this model differs from the model used in 2002 in a number of ways:
- it is based on the age distributions of the actual intake cohorts;
- it does not include the costs associated with the additional places provided under the non-contributory parent visa stream;
- it separately identifies health and aged care expenditure;
- it uses health inflation factors which are specific to a single year of age and a particular projection year;
- it allows for future mortality improvement to be included for sensitivity analysis; and
- marital status is taken into account in determining pension entitlements.
4.6 In addition, all of the assumptions have been updated to reflect the most recently available information.
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