Executive Summary
The Department of Immigration and Citizenship (DIAC) has asked Australian Government Actuary (AGA) to review the model of costs associated with the Contributory Parent Visa (CPV) category which was developed in 2002. The original model was constructed at the time the introduction of the CPV was being considered and was used to inform discussion of the level of the second visa application charge and its subsequent indexation. The CPV category came into effect from 1 July 2003.
In the context of consideration of the CPV Composite Index (CPVCI) used to adjust the second visa application charge, we noted that there would be a need to periodically review the model in the light of emerging experience to ensure that the weightings for the various cost elements remained appropriate. This report presents the results of such a review.
The model used for the current report projects health, aged care pension and other costs over a 60 year period for a cohort of new entrants and discounts these costs to arrive at an estimate of the present value of Commonwealth costs. Assumptions have been updated based on available information from relevant sources and a range of parameters have been included in the model to allow the sensitivity of the cost estimates to be tested. The most significant change is in relation to the health inflation assumption where we have adopted age dependant inflation rates to reflect the recent experience of higher utilisation rates by older members of the community. This change has significantly increased the contribution of health costs to the estimate of total costs. In addition, we have used the demographic information available on those who have actually entered under the CPV since its introduction.
We have modelled six scenarios with slightly different assumptions in relation to health cost inflation and mortality. The estimated cost for a cohort of 3,500 new entrants under these scenarios varies between $792m to $970m or a per capita cost of between $232,000 and $284,000. The projected revenue from the second visa application charge represents between 10.7% and 13.1% of the total cost and thus is broadly in line with the relativities which applied at the time the visa was introduced (but note the differences between the original model and that used for the current report outlined in paragraph 4.5).
The weightings to be used in the CPVCI have changed, with health and welfare costs now representing almost 70% of the total rather than the 60% used in the original model. This has been offset by a lower estimate of costs associated with income support and other costs.
The considerable uncertainty associated with any long term projections should be borne in mind. This is particularly the case in relation to health expenditure where there have been major changes in the quantum and incidence of costs over recent years. It is important that assumptions incorporated in the model are subject to regular re to maintain the on‑going validity and credibility of the CPVCI.