35) DEPRECIATION AND DEBT CHARGES

Transcription

1 35) DEPRECIATION AND DEBT CHARGES Key Points of ACT Argument A Working Party of the Commonwealth Grants Commission and Treasury officers was established to review the depreciation and debt charges assessments developed in the 1999 Review. The Group was tasked with providing advice to the Commission on options to allow the recurrent impact of capital on State needs to be represented more appropriately in the 2004 Review outcomes. Depreciation and Debt Charges Working Party The Depreciation and Debt Charges working party was disbanded on 17 May 2002 following initial investigations in to the current assessment. All States will have the opportunity to raise any issues arising from a discussion paper to be issued in advance at the Commission s Heads of Treasuries Conference in October The ACT does not discuss the options in this submission. Instead, the Territory proposes to review the Commission discussion paper in advance of the Conference. Background Debt Charges This category comprises expenditure on underwriting and floating government loans and interest payments for those functions within the scope of the Commission's standard budget. Administrative costs associated with public debt management are excluded The ACT s position relative to the States, based on the 1999 Review methodology and using the latest available data is illustrated below. This sees the ACT being assessed by the Commission as having negative needs in this category. ACT Main Submission to the 2004 Review 713

2 STANDARDISED, ACTUAL & AUSTRALIAN AVERAGE EXPENDITURE: DEBT CHARGES, $pc NSW Vic Qld WA SA Tas ACT NT Aust. Avg. Standardised Actual Standardised expenditure is the amount that the Commission deems the ACT is required to spend if it is to provide an average level of service. Actual expenditure is the actual funding spent by the ACT on this category in A category structure is provided in the following table and illustrates the major components of the current assessment. DEBT CHARGES: SUMMARY OF THE CGC 1999 REVIEW METHODOLOGY Capital expenditure minus Standardised Depreciation minus Actual capital grants received minus Standard other capital receipts minus Recurrent budget result Standardised net borrowings Standardised net borrowings multiplied by Interest rate disability Adjusted standardised net borrowings Adjusted standardised net borrowings divided by Standard net borrowings Category disability factor Category disability factor multiplied by ACT phase in adjustment Re-scaled category disability factor This assessment is different to all other expenditure assessments as it does not follow the form of assessing disabilities through general methods ACT Main Submission to the 2004 Review 714

3 such as scale affected expenditure. Instead this assessment uses a range of Australian Bureau of Statistics data to determine a category factor. Depreciation This category comprises expenditure on the provision of all State services included in the standard budget except those involved with the restoration of road pavements. It seeks to provide a measure for the loss in value of State capital stock for each assessment year, and the effect this has on the recurrent budget of each State The ACT s position relative to the States, based on the 1999 Review methodology and using the latest available data is illustrated below. This sees the ACT being assessed by the Commission as having negative needs in this category. STANDARDISED, ACTUAL & AUSTRALIAN AVERAGE EXPENDITURE: DEPRECIATION, $pc Aust. Avg. 0 NSW Vic Qld WA SA Tas ACT NT Standardised Actual Standardised expenditure is the amount that the Commission deems the ACT is required to spend if it is to provide an average level of service. Actual expenditure is the actual funding spent by the ACT on this category in A category structure is provided in the following table and illustrates the major components of the current assessment, together with comments on how the ACT is affected by the application of the different factors. ACT Main Submission to the 2004 Review 715

4 DEPRECIATION: SUMMARY OF THE CGC 1999 REVIEW METHODOLOGY Component factors assessed Buildings (wgt 34.10%) Population concentration Other construction (wgt 22.79%) Population concentration Plant and equipment (wgt 18.09%) Dispersion Population concentration ACT position The ACT is assessed as having negative needs due mainly to the population concentration and socio-demographic composition of the Territory. The ACT is assessed as having negative needs in this component, due to the more urbanised and concentrated nature of the Territory. Similar to the other construction component, the ACT is assessed as having negative needs in this component, due to the more urbanised and concentrated nature of the Territory. Housing (wgt 9.43%) Physical environment factor for public housing Urban Transit construction (wgt 7.43%) Capital requirement factors Urban Transit plant and equipment (wgt 7.78%) Capital requirement factors for urban transit The ACT is assessed as having lower than average needs due mainly to the high average ACT incomes and lower levels of Aboriginals residing in the ACT as assessed in the socio-demographic composition factor. The ACT is assessed as having negative needs in this category, due to absence of substantial rail transport systems within the Territory. The ACT is assessed as having positive needs in this category, as a result of the more capital-intensive nature of services associated with the more urbanised Territory. Isolation (wgt 0.38%) SUMMARY: Overall, the negative needs for the ACT in this category derives from the Territory s more urbanised concentration and lack of significant rail transit infrastructure. ACT Main Submission to the 2004 Review 716

5 Depreciation and Debt Charges Working Party The Depreciation and Debt Charges Working Party, established in 2000, was tasked to: review the Depreciation and Debt charges assessments developed in the 1999 Review; re-examine the 1999 Review approach to interest earnings, repairs and maintenance of the capital stock, and lease costs; and provide advice to the Commission on options to allow the recurrent impact on States needs to be more appropriately represented in the 2004 Review With the support of the States, the working party was disbanded on 17 May At that stage the working party had five proposed assessment options that ranged from retaining the current methodology to an economic costs approach Many issues had been raised through the working party, with the following table summarising the major issues that remain unresolved. Depreciation Issues: - the appropriateness of the assessing the effect of climate on the life of assets; - whether recurrent expenditure disabilities can be used in assessing capital expenditure disabilities; - whether capital grants should be included or excluded; and - the use of Government Financial Statistics (GFS) data in assessing depreciation. Debt Charges Issues: - whether the assessment should equalise the capacity of States to hold assets; - ensuring that interest costs are not assessed for capital purchased with grants; - whether interest costs and receipts should be considered separately or netted ; and - the treatment of receipts from asset sales. Other Issues: - use of private-sector capital - the opportunities for States to engage in this practice; - whether an assessment to allow States the capacity to maintain net assets per capita; and - whether an assessment for repairs and maintenance of capital stock is required. ACT Main Submission to the 2004 Review 717

6 The Commission has advised that States will have the opportunity to comment on these options at the Commission s Heads of Treasuries Conference planned for October Rather than address depreciation and debt charges issues in this submission, the ACT will utilise the October conference and any subsequent opportunities to advise the Commission of issues arising from the Depreciation and Debt Charges categories. ACT Main Submission to the 2004 Review 718