Concerns about the cost of living remain an important area of social policy. They feature in public debate about how services provided by governments and others are paid for.
In recent years, infrastructure charges and funding arrangements have often generated public and media discussion as to the affordability and fairness of such charges. Examples include:
■ extensive public and government discussion about the impact of electricity price rises;
■ decisions by some governments to place a cap on water charges as a means of dealing with cost of living pressures;
■ concerns that opening up east coast gas fields for export will drive up domestic gas prices, and associated calls for a domestic reservations policy;
■ some jurisdictions opposing the use of road tolls, partly on the grounds that tolls have an adverse impact on some households; and
■ nervousness among many governments about raising the possibility of some broader form of road user charging.
For some households, infrastructure-related charges represent a significant proportion of household spending. As a greater proportion of the Australian working population moves into retirement, it is likely that more Australians will move to lower fixed incomes. This could lead to increased financial pressures on households on fixed incomes, and in turn raise questions about the efficacy of user charging as a mechanism for funding infrastructure.
To examine the impact of increased infrastructure expenditure on households, the Audit considered three scenarios:
■ low growth - user charges increase in line with long-term historic trends (0.6 per cent per year real increase in charges);
■ medium growth - user charges increase at a moderate rate (1.8 per cent per year real increase); and
■ high growth - user charges grow at a high rate (3.5 per cent per year real increase).
Average weekly household expenditure on infrastructure-related charges is currently around $214 including fuel costs and costs for 'other motor vehicle services', or $122 per week excluding those costs. This is projected to increase to $240 by 2030 (in real terms) under the low growth scenario. Under the medium growth scenario, average weekly household infrastructure expenditure rises to $294 per week, and under the high growth scenario, it rises to $381 per week.
Under the medium and high growth scenarios the increase is expected to be driven primarily by higher user charges for energy and motor vehicle expenditure (in absolute terms) and water (in relative terms). These increases are expected to be higher in Sydney, Melbourne and Adelaide, due to relatively higher projected increases in water and energy user charges in those cities.
Increases in user charges will have flow-on impacts on public finance through state governments' concession arrangements. Concession payments could increase from $11 billion in 2015 to between $17 billion and $31 billion in 2031. In effect, a portion of the additional revenue derived from increased user charges would need to flow back into increased concession payments.
Most jurisdictions have an ombudsman or similar agency that assists households and users in managing service-related issues, including assisting people experiencing problems in paying charges. Typically, such agencies in the energy and water sectors handle billing and payment issues.
Table 4: Average weekly household infrastructure expenditure (2009-10 prices) - low growth scenario
| 2014 | 2031 | ||
Motor vehicle | $92 | 43% | $107 | 44% |
Public transport | $9 | 4% | $10 | 4% |
Energy | $52 | 24% | $71 | 30% |
Telecommunications | $49 | 23% | $33 | 14% |
Water | $12 | 5% | $19 | 8% |
Total | $214 | 100% | $240 | 100% |
Source: Ernest and Young (2014)
Annual and other reports released by the ombudsmen indicate that:
■ the great majority of complaints and payment problems are associated with the electricity and gas sectors. The proportion of complaints and payment problems in the water sector is relatively small; and
■ across the jurisdictions, some are seeing a rise in credit cases while others are experiencing a fall in case numbers.135
The issue is seen by various stakeholders as being of national importance. In 2013, the Australian Energy Ombudsmen, Energy Retailers Association of Australia and the Australian Council of Social Service sponsored a 'Roundtable' of interested organisations. The purpose of the Roundtable was to:
… discuss practical energy affordability solutions for Australian consumers, in particular: how we respond to the increasing need for assistance for customers in the context of the recent energy price rises; how we deal with the reality of customers on low incomes who cannot afford the energy they need; and how we keep customers on low incomes connected to essential services.136
The Roundtable presented a range of recommendations to the then Standing Council on Energy and Resources,137 the inter-governmental forum for energy and resources ministers. The recommendations covered areas of government assistance and concessions, billing arrangements, means of promoting energy efficiency, and consumer education. The NSW Energy and Water Ombudsman's annual report for 2013-14 indicates that energy affordability continues to be seen as a nation-wide issue, and that recommendations from the Roundtable are still being pursued.138
The affordability of infrastructure charges requires ongoing consideration by governments, both for equity and efficiency reasons.
On the one hand, governments face a significant funding challenge and need the private sector to invest in infrastructure. Private sector investment and well-regulated user charging assists in bringing service improvements and efficiencies to the delivery of infrastructure. However, the private sector will only invest if it can apply user charges that cover the full costs of operation (including the risks and a return on investment). This may cause some infrastructure charges to rise.
Independent of any shift in infrastructure funding arrangements from government funding to user charging, user charges may rise for other reasons. These include dealing with maintenance backlogs, and/or raising existing charges to the point where they more closely reflect the full cost of providing the service.
On the other hand, a proportion of the population is likely to struggle to pay higher charges. A large number of people will be moving into retirement. Many of these people will be on fixed and/or modest incomes.
The country needs a mechanism to deal with this conundrum (i.e. how to encourage a wider application of user charging for funding and efficiency reasons) while addressing the impacts on particular parts of the community. If this is not addressed, the case for pricing reform - and consequently the opportunity for the private sector to invest in and provide the infrastructure Australia requires - will be strongly contested.
Audit finding 38. Dealing equitably with the affordability of infrastructure services is an important consideration, as a matter of social policy. Unless affordability concerns are addressed, the necessary shift to greater application of user charging will struggle to gain community and political support. |
What stands out from the analysis outlined above is the need for governments to consider carefully how to deal with the distributional implications of rising infrastructure charges, particularly for those on low household incomes.
Where the burden on lower income households is considered unreasonable, governments should recognise that the tax and welfare systems are likely to be significantly more efficient in fairly catering for such burdens than adjustments at the individual infrastructure asset or utility level.
Audit finding 39. Households with incomes in the lowest 20 per cent are the most exposed to the monetary costs of inefficient economic infrastructure. Public policy settings need to assist Australians on low incomes to access the infrastructure services they need, in an equitable manner. |
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135. See for example Energy and Water Ombudsman Victoria (2015); Energy and Water Ombudsman Western Australia; and Energy and Water Ombudsman Queensland (2014). On the other hand, media reports suggest an increase in the number of customers having their energy services disconnected in Victoria. The Essential Services Commission has been asked by the Victorian Government to investigate arrangements where services are to be disconnected.
136. Australian Energy Ombudsmen, Energy Retailers Association of Australia and Australian Council of Social Service (2013)
137. Now known as the Council of Australian Governments Energy Council
138. Energy and Water Ombudsman NSW (2014)