Australian Priority Investment Approach to Welfare

Overview

In 2015, the Department of Social Services (DSS) implemented the Australian Priority Investment Approach to Welfare (PIA), to support its objective of improving the wellbeing of individuals and families in Australian communities. PIA uses actuarial analysis to estimate Australia’s future lifetime welfare costs for the current population at the time of valuation, and the cost of future payments to various groups within the population. These actuarial valuations are produced annually. The Australian Government Actuary (AGA) has worked with DSS to produce these valuations since 2019.
The valuation is produced through a three-step process:

1. Analysis of past welfare data is undertaken to understand recent trends and behaviours in welfare use. Given the size and complexity of this data, machine learning algorithms such as Neural Networks are utilised, to uncover the complex patterns in the data.
2. A microsimulation of the entire Australian population as at the valuation date is then conducted. This simulation projects the future welfare use of Australians across the remainder of their life. The simulation uses the models and assumptions built from the analysis of welfare data, as well as assumptions about future demographic and economic changes.
3. The projected welfare costs produced by the simulation are then discounted to calculate a net present value of the lifetime cost. The lifetime cost provides a measure of the welfare system as a whole, and can be measured as the total cost of the population (the total lifetime cost), the cost for an average Australian (the average lifetime cost) or the average cost of a specific cohort (a cohort average lifetime cost).

The simulation provides a means to explore the dynamics of the welfare system and changes to that system, via the impact on the lifetime cost. By projecting the expected welfare experience of different subgroups of the population, insights are gained into the potential future outcomes for each subgroup. This allows a better understanding of the welfare system, both at the population level, as well as for subgroups within the population.
In addition, comparing the lifetime cost between valuation years provides information on changes in the system over time. Each valuation report provides an overview of changes to the system, and their impact on the lifetime cost, since the previous valuation.
More information about PIA, including past reports, can be found on the DSS website.