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Demographic and Social Change:
Implications for Education Funding.
Technical Appendix : Sources and Methods - Projections of
Social Expenditures
This technical appendix documents the sources and methods
used to develop projections of social expenditures, that is, projections
of education, health, welfare and labour market expenditures to the year
2020-21. A major part of this exercise involves examining the likely
impact of changing demographic patterns on education, health, welfare and
labour market expenditures. In addition, we also incorporate the impact of
changes in educational participation and trends in rising health costs in
developing projections of social expenditures.
Essentially the methodology assumes that the distribution
of social expenditures across demographic groups is constant over time
(based on the existing distribution in some base period) and that changes
in the demographic composition of the population, given a constant
distribution of social expenditures across demographic groups, dictates
changes in the pattern of social expenditures changes over time.
The inputs for developing projections of social
expenditures using the methodology described above are three fold. First,
we need estimates of per capita social expenditures across demographic
groups at the given base period. Second, we need a set of population
projections to measure potential changes in demographic patterns. Third,
we need projections of GDP and some assumption about whether social
expenditures increase in line with living standards to be able to sensibly
demonstrate relative pressures on social expenditures arising from the
ageing of the population. There are some broader comments about the
methodology that need to be made at the outset before the remainder of the
technical appendix turns to a description of the three inputs listed
above.
A major objective of the exercise is to explore the
pressures on social expenditures from the ageing population. An additional
point of focus is to identify pressures on government outlays. For this
reason, we are not only interested in movements in consumption and capital
expenditures, but also movements in benefit payments and grants. Benefits
and grants tend to be recorded in government accounts according to their
source of origin, for example, Youth Allowance payments are recorded as
social security and welfare payments. However, in the ABS’s National
Accounts, Youth Allowance payments are recorded on the expenditure side of
the accounts as consumption expenditures on food, clothing, housing and
the like. Therefore, in the analysis that follows, we have included
benefit payments and grants so that we can observe pressures on government
education, health, welfare and labour market expenditures.
We define social expenditures as those expenditures that
are likely to have a disproportionate impact on different age groups. For
example, educational participation is generally concentrated among younger
age groups whereas older age groups record higher per capita health
expenditures. If we take something like defence expenditures or general
economic outlays, it is difficult to imagine that these types of
expenditures have a disproportionate impact on different age groups.
Therefore for the purposes of this paper, we define social expenditures as
public and private education and health expenditures and, public social
security and welfare and labour market expenditures.
Information on Commonwealth, State and Local government
outlays for the relevant sectors was derived from ABS, Government Finance
Statistics, 5512.0 to ensure outlays by sector were derived on a
consistent basis. (There was one exception to this rule in that data on
Commonwealth higher education outlays were derived from administrative
sources owing to problems with the treatment of payments from the Higher
Education Contributions Scheme (HECS) Trust Fund in the ABS’s public
accounts. See below for a more detailed explanation of the treatment of
HECS payments.) Information on private expenditures in the education and
health sectors was derived from ABS, Expenditure on Education, 5510.0,
1995-96 and the Australian Institute of Health and Welfare’s, Health
Expenditure Bulletin, No. 13, July 1997, respectively.
The ABS, Government Finance Statistics, 5512.0, provides
information on government outlays by end purpose for education, health,
welfare and labour market outlays. Therefore we can calculate total
government expenditures in each of these sectors. However, it should be
noted at the outset that we are not able to accurately attribute
expenditures by source, that is, by Commonwealth or State and Local
government. Where Commonwealth government transfers to State and Local
governments are designated for a specific purpose, for example in primary
and secondary education, we attribute these to the Commonwealth government
in the relevant sector. We also deduct these transfers from State and
Local government expenditures in the relevant sector to avoid the problem
of double counting. However, the Commonwealth government also provides
general purpose grants to the States and Local governments. These payments
are not included in Commonwealth government expenditures shown in this
paper (they are recorded as other purpose payments, whereas only payments
for education, health, welfare and labour market purposes are presented in
this paper). However, they do appear in State and Local government
expenditures in the ABS data to the extent that they are recorded as
outlays by end purpose. That is, State and Local governments may choose to
spend some part of general purpose payments from the Commonwealth
government on schools, hospitals and the like. Therefore, while the
problem of double counting is avoided, ideally these expenditures should
be attributed to the Commonwealth government but are sourced as the State
and Local government in this paper. That is, while the overall level of
education, health, social security and welfare, and labour market
expenditures is correctly identified, their distribution between the
different levels of government can only be regarded as an approximation.
In general, this is likely to have the effect of underestimating
Commonwealth government expenditures and overestimating State and Local
government expenditures.
1995-96 was used as the base year for our analysis. While
the base year estimates for government outlays were derived from ABS,
Government Finance Statistics, 5512.0, 1996-97, we use information
gathered from forward estimates in the Commonwealth Budget papers for the
period 1996-97 to 2000-01 to form projections of Commonwealth expenditures
in the short to medium term. This is to ensure our projections of growth
in Commonwealth expenditures are consistent with those in the forward
estimates. We deflate the forward estimates by CPI forecasts (from Budget
papers) to derive projections of real Commonwealth expenditures. That is,
all expenditures are measured in 1995-96 base year prices.
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