1                This working paper describes the assessment for Housing 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 Housing User Charges category comprises rents collected for public housing.  Interest earnings relating to financial investment activities of housing authorities are offset against debt charges. 

3                Table 1 shows the average user charges for the last six financial years.  In 2005‑06 average user charges revenue for this category was $91.35 per capita.  User charges accounted for 59.84 per cent of average expenses associated with the Housing category.

Table 1            Housing, average expenses and user charges, 2000‑01 to 2005‑06

ASSESSMENT METHOD

Description of the assessment

4                The Housing User Charges assessment for the 2007 Update is the same as for the 2006 Update. It consisted of a socio‑demographic composition factor, analogous to those used for the public housing components of the Housing expenses category (see Volume 4 of the 2007 Update Working Papers), that determined the assessed number of public housing dwellings per State, taking into account State differences in population composition by Indigeneity, income, age and location. 
 

5                Weights were applied to reflect the capacity to raise revenue from different income groups:

·                a market rent adjustment was applied to low income groups to reflect the fact that higher market rent increased the likelihood of low income households requiring public housing; and

·                a revenue weight was applied to low income households to reflect the proportion of market rent they paid.

Assessment structure

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

Table 2            Housing User Charges, assessment structure for the 2007 update, 2005‑06

Component	Component weight	Factors	Basis of calculation
	%
User charges	100.00	User charges factor	Takes account of differences in the numbers of households in each State likely to be in public housing based on their Indigeneity, household income, age and location status characteristics, with weights to capture the capacity to raise revenue from different income groups.

Calculating the category factor

7                Table 3 shows the calculation of the category factor for 2005‑06.

Table 3            Housing User Charges, derivation of category factor for the 2007 Update, 2005‑06

Note:    Component factor rebased so that the average is 1.00000.  Category factor = (A)

8                The category factor was calculated as follows: 

category factor

=

user charges factor

RESULTS FOR 2005‑06

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

10            Table 4 shows actual, average and assessed user charges per capita and the assessed revenue raising capacity ratio for the assessment in 2005‑06.  A State's assessed revenue raising capacity ratio is the ratio of its assessed user charges per capita to average user charges per capita.  A State's capacity to raise revenue from public housing is reduced if it has a lower demand for public housing and also if tenants have lower incomes and therefore a lower capacity to pay user charges.  Demand is influenced by income, location, Indigenous status and affordability of private rental properties.  The assessed revenue raising capacity ratios are equivalent to the category factors shown in Table 3. 

Table 4            Housing User Charges, assessment results, 2005‑06

Note:    ACT user charges may include municipal user charges. 

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

11            Figure 1 illustrates the per capita assessed, actual and average user charges for Housing User Charges for 2005‑06. 

Figure 1          Housing User Charges, revenue per capita — assessed, actual and average, 2005‑06

CONTRIBUTION TO GST REVENUE DISTRIBUTION

12            Table 5 shows the category's contribution to the distribution of GST revenue and Health Care Grants (hereafter described as GST revenue) implied by the 2007 Update assessment.

Table 5            Housing User Charges, contribution of assessment to GST revenue distribution, 2007 Update

Differences from an equal per capita assessment

13            Table 5 shows that, compared with an equal per capita (EPC) assessment, the 2007 Update redistributed $71.0 million away from Queensland, Western Australia, South Australia, Tasmania and the Northern Territory to New South Wales, Victoria and the ACT.  The only driver of this assessment was the user charges factor.  The factor reflected differences in the numbers of households in each State likely to be in public housing based on their Indigeneity, household income, age and location status characteristics, and the capacity of tenants from different income groups to pay rent.   

14            In line with the socio‑demographic composition factors used in the Housing expenses category assessment, the category factors reflected the following on a State by State basis:

·                New South Wales and the ACT — Their positive GST revenue redistributions were primarily due to their lower than average demand for public housing, because of lower proportions of people in remote areas and people on low incomes, for whom the use of public housing is higher. These effects were partially offset by the higher costs of renting privately compared with other States, increasing the need for public housing.  However, as this adjustment was discounted by 75 per cent, the effect of the adjustment was not large[1].

·                Victoria — It had the largest positive GST revenue redistribution, reflecting its lesser assessed revenue raising capacity per capita, on account of the combination of its significantly lower than average demand (because of a lower proportion of Indigenous people and lower proportion of people living in remote areas) compared with most other States. 

·                Queenslandand Western Australia — Their negative GST revenue redistributions reflected their above average demand for public housing dwellings (because of high proportions of people in high use groups such as those in remote areas and Indigenous people).

·                South Australia— Its negative GST revenue distribution reflected its higher than average proportion of people on low incomes and people living in remote areas, who have a greater demand for public housing.

·                Tasmania— Tasmania's redistribution mainly reflected its higher than average proportions of Indigenous people and people on low incomes.

·                Northern Territory — The Northern Territory had much higher than average proportions of people in remote areas and of Indigenous people, for whom the use of public housing is higher. 

Changes since the 2006 Update

Effect of assessment on the distribution of GST revenue

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

16            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 category averages and other revised data in factor calculations for the years 2000‑01 to 2004‑05; and

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

Table 6            Housing 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.

17            Compared with the 2006 assessment, the 2007 Update assessment redistributed $3.1 million from New South Wales, Victoria, Queensland, Tasmania and the ACT to Western Australia, South Australia and the Northern Territory.  The main reasons for the changes in GST revenue distribution were as follows.

Changes due to revising category average and factors for years 2000‑01 to 2004‑05

18            Revising average user charges.  Table 7 shows that there were only small revisions to average user charges over 2000‑01 to 2004‑05. 

 Table 7           Housing User Charges, average user charges used in the 2006 and 2007 Updates

            

19            Revising category factors.  Revising the category factors has resulted in a $1.7 million redistribution to New South Wales and Western Australia and away from Victoria, Queensland and Tasmania.  User charges are based on a calculation of the level of demand for public housing based on socio‑demographic composition, with weights applied to reflect the capacity to raise user charges from different income groups.  The redistribution has resulted from revisions to data on the proportion of income units receiving Commonwealth Rent Assistance (CRA) spending more than 30 per cent of their incomes in rent — used as an indicator of housing affordability amongst low income households and hence of the demand for public housing and therefore of the capacity to raise user charges.  The Productivity Commission has published a revised time series on this proportion for the period 2000 to 2006.  The largest (per capita) redistributions have been to Western Australia and the Northern Territory and away from Tasmania.

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

20            Table 8 shows the actual revenue and implied revenue raising capacity 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            Housing User Charges, actual and assessed revenue raising capacity,
2000‑01 and 2005‑06

Note:   ACT user charges may include municipal user charges. 

21            Replacing average revenues.  Between 2000‑01 and 2005‑06, average per capita user charges increased by 14.6 per cent.  This is less than the increase in the per capita GST pool of 43.3 per cent.  The category therefore became less important to the calculation of relativities, resulting in a lesser redistribution of GST revenue.  This change decreased the GST revenue shares of the States assessed to have a lower than average capacity to raise user charges (New South Wales, Victoria and the ACT) and increased the shares of the other States.

22            Replacing category factors.  For Western Australia, South Australia, Tasmania and the Northern Territory, the 2005‑06 revenue raising capacity ratios were lower than their 2000‑01 ratios.  Replacing the category factors therefore increased their shares of GST revenue.  For New South Wales and the ACT, the ratios were higher, and so replacing the category factors reduced their GST shares, while for the other States the ratios were little changed.  The modest changes were due to changes in the proportion of income units receiving CRA who pay more than 30 per cent of their income in rent. 

This Working Paper was prepared by the Expense — Health and Welfare section of the Commonwealth Grants Commission.  If you have any questions about its content please contact Anthony Nichols on (02) 6229 8858 or Anthony.nichols@cgc.gov.au.

    Date: 23/2/07

Table 9 - Assessments, Housing User Charges

Note:   ACT user charges may include municipal user charges.  Refer to Attachment A, 2007 Update, RFCS for how State actual figures are compiled.