1                This working paper describes the user charges assessment for public safety user charges and provides information on its impact on the GST revenue distribution for the 2007 Update.  The assessment method is discussed in Volume 3 of the 2004 Review Working Papers.

Description of the category

2                The Public Safety User Charges category comprised revenues associated with fire insurance levies and other user charges.  Fire insurance levies included statutory contributions for fire brigades, from insurance companies and local government authorities.  Other user charges included installation of smoke alarms, false alarm charges and fines. 

3                Table 1 shows the average user charges for Public Safety for the last six financial years.  In 2005‑06, the average user charges of $66.04 per capita represented 75.70 per cent of category average expenses.

Table 1            Public safety average user charges, 2000-01 to 2005‑06

Assessment Method

Description of the assessment

4                The Public Safety User Charges assessment for the 2007 Update was carried out using two components: fire insurance levies and other user charges.

5                The fire insurance levies component was assessed on the basis of premium revenues associated with insurance and the other user charges component was assessed equal per capita (EPC).

Assessment structure

6                Table 2 summarises the assessment structure for the 2007 Update.

Table 2            Public safety user charges, assessment structure for the 2007 Update, 2005‑06

7                Component weights for the fire insurance levies and other user charges components reflected the contribution of the relevant revenues to the category.  During the 2004 Review, on the basis of ABS-Government Finance Statistics (GFS) data, the Commission revised the component weights.  The weights have not been updated between reviews because the changes were not considered to be material.

Calculating the category factor

8                Table 3 summarises the components, component weights and factors assessed for this category for the last year of the 2007 Update.  It shows the calculation of the category factor for 2005‑06.

Table 3            Public safety user charges, derivation of category factor, 2007 Update, 2005-06

(a)        Component factor rebased so that the average is 1.00000

(b)        Category factor = (A + B)

9                The category factor was calculated as follows:

10           

11            In each case, the contributions to the category factor were calculated as the user charges component weight (the percentages in the table) multiplied by the component factor (the bracketed terms in the formulas).  Each contribution to the category factor was then scaled to ensure that the sum of assessed user charges equalled the sum of actual user charges.

Results for 2005-06

12            Table 4 shows actual, average and assessed user charges per capita and revenue capacity ratios for 2005‑06.  The assessed revenue raising capacity ratio is equivalent to the category factor shown in Table 3.

13            Table 9 at the end of this working paper summarises the results of the assessment.  It shows the average, actual and assessed user charges for each State for all years of the 2007 Update.

Table 4            Public safety user charges, assessment results, 2005-06

(a)        The capacity to raise revenue ratio is the ratio of assessed to average user charges.

14            Figure 1 illustrates the per capita assessed, actual and average revenue for public safety user charges for 2005‑06.

Figure 1          Public safety user charges, revenue per capita — assessed, actual and average, 2005-06

Contribution to GST Revenue Distribution

15            Table 5 shows the category's contribution to the distribution of GST revenue and Health Care Grants (hereafter described as GST revenue).  It also shows the contribution of each factor and component to the GST revenue distribution. 

Table 5            Public safety user charges, contribution of assessment to GST revenue distribution, 2007 Update

Note:   The redistribution due to the component factors includes the effect of interactions between factors.  Therefore, the component factor figure may not equal the sum of its factors' redistribution.

Differences from an equal per capita assessment

16            The premium revenue factor is the only disability of the category. 

17            The category factors reflected the following on a State by State basis:

·                New South Wales and Victoria — their negative GST revenue redistributions were primarily due to their large capacity to raise levies from insurers.  This capacity was assessed using data for premiums for fire and industrial special risk and house owners policies provided by the Australian Prudential Regulatory Authority (APRA); and

·                Other States — all other States had lower abilities to raise revenue because of their lower capacities to raise revenue from levies on insurers.

Changes since the 2006 Update

Effect of assessment on the distribution of GST revenue

18            Table 6 shows the redistribution of GST revenue resulting from the assessments in the 2006 Update and the 2007 Update.  It also shows the sources of changes.

19            Changes in the distribution of GST revenue between the 2006 Update and the 2007 Update were brought about because the Commission: 

·                used revised financial data in the average user charges and other revised data in factor calculations for the years 2000-01 to 2004‑05; and

·                replaced 2000-01 average user charges and factors with those of 2005‑06 to move forward the five-year period on which GST revenue distributions were based.  Moving the five-year period forward in this way ensures the assessments reflect recent trends in State priorities on the revenues raised and recent trends in State demographic, and economic circumstances on the relative capacity to raise those revenues.

Table 6            Public safety user charges, effect of assessment on GST revenue distribution, 2006 Update to 2007 Update

(a)        Assuming same pool and a constant population.

(b)       The total redistributed amount shows the change in the amount redistributed among the States between the 2006 Update and the 2007 Update.  It does not necessarily equal the difference in the total redistribution from EPC between the two inquiries.

20            Compared with an equal per capita assessment, the 2007 Update redistributed $117.7 million away from New South Wales and South Australia to the other States, $3 million more than in the 2006 Update.

21            Table 7 shows the changes in GST revenue attributable to changes in each factor, arising from both revisions over 2000-01 to 2004‑05 data and replacing 2000-01 data with 2005‑06 data.

22            The other user charges factor was assessed EPC and did not have any effect on redistribution.

Table 7            Public safety user charges, effect of assessment on GST revenue distribution by factor, 2006 Update to 2007 Update

Factor	NSW	Vic	Qld	WA	SA	Tas	ACT	NT	Total redist'd
	$m	$m	$m	$m	$m	$m	$m	$m	$m
Fire insurance levies
Fire insurance levies	-4.1	1.2	0.8	2.0	-0.8	0.5	0.2	0.1	4.9
Other user charges
Other user charges	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0

 

23            The main reasons for the changes in GST revenue distribution were as follows.

Changes due to revising average user charges and factors for years 2000-01 to 2004‑05

24            Revising average user charges.  The average user charges were revised up in 2004‑05 and this resulted in a small redistribution of GST revenue among the States.

25            Revising revenue data.  There were small upward revisions to the revenue bases of all States for the years 2003-04 and new data was used for 2004-05.

Changes in State circumstances — replacing 2000-01 with 2005-06 data

26            Table 8 shows the actual expenses and implied costs of service provision for 2000-01, the year that drops out of the assessment period and 2005‑06, the year that comes in, for the 2007 Update assessment. 

Table 8            Public safety user charges, actual and assessed user charges and capacity to raise revenue, 2000-01 and 2005‑06

Changes due to replacing revenue data and revenue bases for 2000-01 with 2005-06 data

27            Replacing revenue data.  All States had minor changes from replacement of 2000-01 average revenue with those for 2005-06.  The growth in average revenue of 27.39 per cent was less than the growth of 43.3 per cent in the pool.  This meant that the category become less important.  States (New South Wales and Victoria) with above average revenue raising capacity gained. 

28            Replacing revenue base data.  Lower than average per capita growth in estimated revenue from fire insurance levies for Victoria, Western Australia and Tasmania resulted in higher share of GST revenue for these States. The changes in estimated revenue are based on changes in household insurance premium.

 

This chapter was prepared by the Expense — Law and Order section of the Commonwealth Grants Commission.  If you have any questions about its content please contact Marc Boisseau on (02) 6229 8889 or marc.boisseau@cgc.gov.au.

 

 

Date: 19/2/07

Table 9            Assessment of user charges, Public safety user charges

Note:    Refer to Attachment A, Relative Fiscal Capacity of States for how these figures are compiled.