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The true story - part 2



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ATTACHMENT B

Peter Costello D eputy L eader of the O pposition S hadow T re a s u re r

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MEDIA RELEASE^ ... —D

THB TRUE STORY - PART 2

Mr Willis's release of today is a political sham.

First, lie invents an expenditure commitment then he alleges that it creates a "funding hole".

His new allegation of today is total invention. He says the Coalition has a secret plan to pay an additional $3 billion to the States over three years.

Earlier in the week Labor was alleging a heartless plan by the Coalition to cut government services. Apparently now it has, in fact^ .a secret plan to boost them with expenditure increases to the States!

The Coalition's position on Commonwealth-State Relations is quite clear. The Premiers have requested a fixed percentage of revenue to facilitate better planning and give certainty. We will negotiate this through the Council of Australian Governments. The formula would have to be an averaged one. The formula to be adopted is one that will guarantee current services and be revenue-neutral. We will

not adopt a formula that will haVe the effect of increased outlays for the Commonwealth over the life of the next Parliament

No-one could misinterpret this. It is wilful deceit to claim otherwise.

The rest of the release is a repeat of the Beazley allegations of 16 February, already replied to in my release of 16 February.

However, there has been some concession by the Government and these will be replied to overnight

1 note again for the record, Labor has not responded to the $1.2 billion hole in the funding of its health policy - not offset by any savings. Further, Labor persists in relying on the 100 people owing $8 million for funding its promises (on its own costings) in 1997-8, that is before it factors in further promises to date (Cape York $40 million, Arts $38 million, Queensland Universities $20 million) and further

promises it still intends to make.

End Release: 19 February, 1996 Contact Anthony Smith (03) 9822 4422 or (AH) 018 324 009

P arliam en t H ouse. C an b erra. A.C.T. 2 6 0 0

LSI a a v w v / O O l j V U ^ i U U l i L d

ATTACHMENT C

Peter Costello, Shadow Treasurer

Extension Of Migrant Waiting Period From 6 Months To 2 Years

You have asked Access Economics to assess the plausibility of the Coalition's claimed savings arising from the extension of the minimum period for which most migrants m ust wait before becoming eligible for social security benefits.

The proposed policy change is to extend the waiting period from 6 months to 2 years for most m igrants to Australia. The savings claimed by the Coalition (in current dollars, not constant prices) are as follows ($ million):

1996-97 1997-98 1998-99 Total

84 252 280 616

Basis for Assessment

(i) No Change In Behaviour

In the absence of a detailed breakdown of current and likely average DSS payments per eligible m igrant, our first cut at this exercise is based on the following assumptions:

(i) Start date: Migrants arriving in Australia from 1 April 1996.

(ii) The average value of benefits otherwise payable to migrants who have been in Australia between 6 months and 2 years has been adjusted, relative to 1993­ 92 levels, for actual and forecast CPI changes between 1991-92 and 1998-99. Access Economics’ CPI forecasts from its latest Five Year Business Outlook

have been used as necessary.

(iii) Immigration rates have been assumed to be those actually recorded up to and including the September quarter 1995, and beyond th a t we have assumed that the rate recorded for the September quarter 1995 is maintained.

(iv) The average social security benefit per migrant who has been in Australia for between 6 months and two years has been based on the 1990-91 estimate of $399 million provided in the 1991 D epartm ent of Finance briefing paper adjusted for (a) inflation in 1991-92, (b) changes in eligible m igrant numbers between 1990-91 and 1991-92, and (c) an adjustm ent to the $399 million in an

attem pt to net off th a t part payable to hum anitarian/refugee m igrants who had been in Australia for less than six months. The ratio of the Department of Finance full-year estim ate of $250 million (1991-92 dollars) in savings contained in its 1991 briefing paper to the "adjusted" $399 million is assumed

to represent the non-hum anitarian proportion of total social security payments paid to migrants who have been in Australia between 6 months and 2 years. It is this proportion that is assumed to be affected by this proposal.

In other words, we have effectively assumed th a t the earlier D epartm ent of Finance costing of this proposal was correct, and have adjusted th a t costing for (i) the start date, (ii) the effect of inflation on benefit payments over time, and (iii) the

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somewhat lower immigration rate currently applying relative to the rate in the early 1990s.

Before allowing for changes in behaviour (and on this see Sections (ii) and (iii) below), these assumptions generate the following stream of expenditure savings (current dollar terms) relative to the current policy ($ million):

1996-97 1997-98 1998-99 Total

59.2 212.9 250.3 522.4

(ii) Allowing For Changes In Behaviour

In our opinion, the abovemontioned estimates understate the likely savings from this measure because it is likely that migrants will react to it. For any given rate of immigration, we assume that a smaller proportion will be on social security benefits in response to the proposed m easure w ithin the 6 months to 2 years period after their arrival, and this reaction will reduce numbers beyond th at time as well. (We assume th at total migrant numbers will not change as a result of the proposed policy - given th at entry is rationed anyway - unless there is an explicit decision to lower or raise total migrant numbers.)

Table 1 shows the effect on expenditure savings if, over and above the assumptions made in section (i) above, it is assumed th at the numbers receiving social security payments between 6 months and 2 years decline as people move into employment, or otherwise move off social security payments under the proposed policy and on the assumption that there is no such attrition under current policy.

In the case of a 10% attrition rate each quarter, for example, (the middle set of figures in Table 1) the cost savings increase to the following ($ million):

1996-97 1997-98 1998-99 Total

59.2 218.2 326.7 604.1

Note that there is no benefit from attrition in the first financial year because the incremental savings only accrue after the two-year waiting period is past, and arise because, after that time, fewer people are receiving social security benefits.

(iii) Allowing For Attrition Under The Current Policy

If we go further, and assume that there is also some natural attrition under current policy as well, and th at the rates of attrition discussed in Section (ii) are over and above that, then savings become somewhat larger, at least in the first year or two, after which they become somewhat smaller.

Table 2 presents a matrix of possible effects, with the first column replicating the results shown in Table 1.

For example, if we assume a "baseline" attrition rate of 10% per quarter, plus an incremental attrition rate of 10% per quarter, the estimated savings are as follows ($ million):

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TABLE 1

Savings generated by not allowing access to benefits for migrants in first two years after arrival

Policy starts 1 April 1996 Policy does not affect benefits for refugees & hum anitarian entry status migrants Bracketed param eter is the % of migrants each quarter who no longer get social security benefits after the policy change (due to finding work, for example)

(0) Saving ($m)

1996-97 $59.2

1997-98 $212.9

1998-99 $250.3

Total $522.4

(5)

1996-97 $59.2

1997-98 $216.0

1998-99 $294.5

Total $569.7

(10) 1996-97 $59.2

1997-98 $218.2

1998-99 $326.7

Total $604.1

(15) 1996-97 $59.2

1997-98 $219.9

1998-99 $349.8

Total $628.8

(20) 1996-97 $59.2

1997-98 $221.0

1998-99 $366.0

Total $646.2

(25) 1996-97 $59.2

1997-98 $221.8

1998-99 $377.2

Total $658.1

Savings generated by not allowing access to benefits for migrants in first two years after arrival

TABLE 2

Policy starts 1 April 19% Policy does not afTrct benefits for refugees At humanitarian entry status migrants Parameters (χ,ν): i is tbe % of migrants who no longer get social security benefits each quarter (due to finding employment, for example) y is the additional % of migrants who no longer get social security benefits each quarter due to policy change

(0,0) Saving ($m) (5.0) Saving ($m) (10,0) Saving ($m) (15,0) Saving (Sm)

1996-97 $59.2 1996-97 $64.9 1996-97 $71.0 1996-97 $77.5

1997-98 $212.9 1997-98 $216,3 1997-98 $219.8 1997-98 $223.2

1998-99 $250.3 1998-99 $250.5 1998-99 $250.8 1998-99 $251.0

Total $522.4 Total $531.7 Total $541.5 Total $551.7

(0,5) 1996-97 $59.2

(5.5) 1996-97 $64.9

(10.5) 1996-97 $71.0

(15,5) 1996-97 $77.5

1997-98 $216.0 1997-98 $219.0 1997-98 $222.1 1997-98 $225.1

1998-99 $294.5 1998-99 $286.3 1998-99 $279.3 1998-99 $273.4

Total S569.7 Total S570.2 Total S572.3 Total $576.0

(0,10) 1996-97 $59.2

(5.10) 1096-97 $64 9

(10,10) 1996-97 $71.0

(15.10) 1996-97 $77.5

1997-98 $218.2 1997-98 $220.9 1997-98 $223.7 1997-98 $226.5

1998-99 $326.7 1998-99 $312.0 1998-99 $299.4 1998-99 $288.8

Total $604.1 Total $597.8 Total $594.0 Total $592.7

(0,15) 1996-97 $59.2

(5,15) 1996-97 $64.9

(10,15) 1996-97 S71.0

(15,15) 19%-97 $77.5

1997-98 $219.9 1907-98 $222.3 1997-98 $224.8 1997-98 $227.3

1998-99 $349.8 1998-99 $330.0 1998-99 $313.1 1998-99 $299.1

Total $628.8 Total $617.1 Total $608.9 Total $603.9

(0.20) 1996-97 $59.2

(5,20) 1996-97 $64.9

(10,20) 1996-97 $71.0

(15,20) 1996-97 S77.5

1997-98 $ 2 2 1 0 1997-98

«··>->, η J>X. L* J . 4 , 1997-9S $225.6 1997-98 $227.9

1998-99 $366.0 1998-99 $342.4 1998-99 $322A 1998-99 S305.8

Total $646.2 Total $630.5 Total S618.9 Total $611.2

t x v v e s s e c o n o m i c s