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TABLE 8.4: HOUSING GROUP INDEX STRUCTURE
8.67 This subgroup covers rental payments for privately-owned dwellings as well as rental payments for government-owned dwellings. Rental payments for holiday homes are excluded as these are classified under the Domestic holiday travel and accommodation expenditure class of the Recreation group. Prices for a sample of rented dwellings within each capital city are collected every quarter, with the sample stratified according to geographical location, size of dwelling and wall type based on the most recent Census of Population and Housing.
8.68 Rental payments for privately-owned dwellings in the metropolitan areas of each capital city are obtained from real estate agents under a matched sample approach, i.e. prices are collected in respect of the same sample of private rental dwellings every quarter. Social security recipients who rent privately-owned dwellings can claim Commonwealth Rental Assistance (CRA), with the level of assistance determined according to each family’s circumstances and the amount of rent paid above their relevant rent threshold. In accordance with the indexation provisions of the Social Security Act 1991, rent thresholds and maximum assistance rates are updated in March and September each year in line with movements in the CPI. Rent price movements for households receiving CRA will reflect the timing of these updates. During other periods of the year rent price movements for households receiving CRA will align with broad price changes for private rent. CRA is a subsidy directly related to rent of privately-owned dwellings and so the conceptual treatment of subsidies outlined in Chapter 7 is met.
8.69 Government rents charged to pensioners and other welfare recipients are set as a proportion of income. As such incomes are known, rents for government housing are derived from information provided by the relevant housing authority . Consequently, price movements can be readily estimated. Occasionally, the proportion used to set rents is changed. Again this is public knowledge and so is readily available for use in estimating price movements.
8.70 Electricity, gas, water and sewerage charges are obtained quarterly from the energy authorities and local councils, and both concession and non-concession rates are priced. Connection fees, delivery and other related charges are included as part of the price of the utility service. Governments and councils occasionally impose levies on customers for these services as a means of raising money for some, possibly unrelated, service (e.g. ambulance levy, emergency services levy). As these levies are considered an inescapable cost of obtaining the original service they are counted as a part of the cost of the original service.
8.71 Prices for other household fuels (heating oil, firewood and bottled gas) are collected quarterly from retail outlets selling such products.
8.72 Pricing of house purchases is limited to transactions in newly constructed owner-occupied houses (refer to Chapter 6 for an explanation as to why only new dwellings are priced) and is conducted monthly. A sample of project home builders is approached to obtain prices for a number of specified types and models of project homes. The types of project homes selected are those most commonly constructed in each city. For marketing purposes, many builders provide bonus deals, which can involve upgrades to fittings, extra features or even extra rooms. These bonuses change frequently and due to this price volatility, new homes are priced monthly.
8.73 Extensions and renovations are also part of this expenditure class. However, no prices specifically relating to these activities are collected, as the costs are assumed to move similarly to new house building costs. Expenditure on these services is included in the weight for this expenditure class.
8.74 Property rates and charges are normally set on the basis of a rating year and so are priced only once a year. Examples of items priced are general rates, land taxes and garbage collection fees. Where concessional and non-concessional rates exist, both rates are priced. Although the procedure is to price rates once a year, local councils are contacted every quarter to confirm that changes have not been made to the rates and other charges set at the beginning of the rating year.
8.75 Prices for house repairs and maintenance work performed by tradespeople are not collected as prices for complete tasks, but are estimated using data from Labour Price Index, Australia (cat. no. 6345.0) and the price movements for various building materials.
8.76 In the case of house purchases, certain classes of home buyers are eligible for government subsidies directly related to the home purchase. Adjustments are made to the prices collected to reflect the different transaction prices paid by the different classes of home buyers.
8.77 Conceptually, when a change in the quality of a rented dwelling occurs (for example, a capital improvement such as a new garage being added) a price adjustment will be required to account for the quality change. Information to assist in making adjustments for these quality changes is obtained from the real estate agents who supply the price. Collecting information on quality changes for government-owned rented dwellings has not been feasible because the improvement in quality is usually not directly reflected in the rental charges. In practice, the effect of the quality changes is deemed to be minor and no quality adjustments are applied to government-owned rented dwellings.
8.78 Significant maintenance tasks on rented dwellings (for instance, new carpet) are normally carried out infrequently. As a consequence, the resultant rent increases, due to the cost-recovery aspects of these activities, occur at irregular intervals rather than as a continuous series of small increases. Since the work was carried out to return the dwelling to its original relative standard and given no quality adjustments are made to the rents collected to take account of the slow deterioration in quality of the dwelling some large rent increases are accepted without any quality adjustment.
HOUSEHOLD FURNISHINGS, SUPPLIES AND SERVICES
8.79 Conceptually, the Household furnishings, supplies and services group covers expenditure on all goods and services used in the operation and regular use of dwellings. At the time of the 14th series review, the group accounted for approximately 8 per cent of the CPI basket of goods and services.
8.80 Table 8.5 shows the structure of the Household furnishings, supplies and services group. Examples of products priced and data sources are also shown in the table.
TABLE 8.5: HOUSEHOLD FURNISHINGS, SUPPLIES AND SERVICES GROUP INDEX STRUCTURE
8.81 All products covered by this group are priced quarterly. Large products (such as lounge suites, beds and refrigerators) are normally offered with an extra charge for home delivery. For CPI purposes, these delivery fees are included in the price of the article as, for most consumers, it can be considered an inescapable cost of purchasing these items.
8.82 Household services are often charged by the hour. This is not an appropriate pricing measure for CPI purposes, as it makes no allowance for improvements in efficiency in service provision. Respondents are requested to provide prices for completed typical jobs in order to overcome this problem. The chosen task is repriced for the same client every quarter. Prices for both casual and permanent clients are obtained.
8.83 Services present a problem in regards to repeated pricing of a constant quality of product. To meet CPI requirements, respondents are asked to select a property and to provide a costing for the provisions of a completed job for a popular service to that property. This overcomes problems with simple measures such as hourly rates (where for example, more experienced people can perform a given task more quickly).
8.84 Furniture also presents a problem in pricing to constant quality as, for example, the quality of construction may change but not be noticeable from a casual inspection. Fashion also plays a large part in new models without modifying the practical utility of the product to the consumer. Without a change in utility, changes in fashion do not result in prices being adjusted for quality changes.
8.85 Products like cleaning agents often have their formulas changed and, as a result, their prices change. If the change to formulas is driven by legislation (e.g. changes to poisons laws to improve child safety) then no adjustment to prices for quality is made unless there is a demonstrated change to the efficiency of the product to perform the service for which it was purchased. Similarly, if the change to the product is for the overall benefit of the community (e.g. biodegradable cleaning agents) then, again, no adjustment for quality is made.
8.86 The Health group includes all expenditure relating to health products and health services. This group accounted for nearly 5 per cent of the CPI basket in value at the time of the 14th series review.
8.87 Table 8.6 shows the structure of the Health group. Examples of products priced and the data sources are also shown in the table.
TABLE 8.6: HEALTH GROUP INDEX STRUCTURE
8.88 All products covered by this group (except health insurance) are priced quarterly. The bulk of prices collected for this group are adjusted to a subsidised basis e.g. gross price less Medicare rebate. Hospital charges for patients with private health insurance are not recorded as subsidised prices. In the Pharmaceuticals subgroup, medicines purchased under the Pharmaceutical Benefits Scheme (PBS) have subsidised prices recorded. While all other pharmaceutical products are priced on the basis of their actual (gross) prices.
8.89 Health insurance cover is priced monthly, and included under this subgroup because it directly relates to health services. Conceptually, the cost of the service of insurance should be netted from the premium and recorded with other non-life insurances in the Miscellaneous group. However, this is not practical due mainly to lack of information on the cost of this service.
Areas requiring special pricing procedures
8.90 Under the PBS, consumers pay a standard, subsidised price for medications until they reach a specified level of expenditure (the ‘safety net’ limit) during a calendar year. Once an individual consumer has reached this limit all further purchases of medications are at a greatly reduced, concessional price. Certain groups of consumers (e.g. age pensioners) do not have to satisfy the safety net provisions and are entitled to pay the concessional prices at all times. Therefore, concessional prices are part of the price sample and are used in index estimation. Price information for prescribed medications covered by the PBS is obtained from the Commonwealth Department of Health and Ageing (DHA). The prices are weighted according to the progressive number of drug prescriptions sold at concessional prices during the four quarters of the year. The ratio of concessional prices to non-concessional prices increases over the year, leading to a distinct seasonal pattern in price movements for PBS drugs.
8.91 Medicare rebates are reviewed once a year and the new levels of rebate are introduced on 1 November each year. Respondents provide gross prices for patients who are not bulk-billed and the corresponding net price is then calculated by the ABS. Information on bulk-billing ratios is obtained from the Health Insurance Commission (HIC).
Adjusting for quality
8.92 The quality of many health care products and services is subject to constant improvement and these improvements should be taken into account during pricing to maintain the concept of pricing to ‘constant quality’. Unfortunately, identifying quality change in health care services is often quite difficult in practice because there are very few observable measures for such services. Many of the quality improvements relate to psychological or physical benefits that would require complex methodologies to determine the effect of each quality change. For these reasons, prices collected for health care services are normally not adjusted for changes in quality unless the change is significant and there are reasonable means of quantifying the quality change.
8.93 A number of health services are subsidised under the Medicare rebate scheme (including Medicare plus) and these subsidies are factored in during the pricing of health care services. The general treatment of subsidies outlined in Chapter 7 is used to adjust the cost of the service to a subsidised price. Data relating to the amount of subsidies for health services is obtained from the DHA on a quarterly basis to enable the subsidised prices to be calculated. The medical expenses tax offset, which is available for taxpayers whose medical expenses exceed a prescribed level in an income year, is out of scope of the CPI and so does not affect the prices recorded for CPI purposes.
8.94 The Transportation group includes all expenses related to owning and operating private motor vehicles, and private travel by public transport within the capital cities. It does not cover public transport used for inter-city travel: this is covered in the Recreation group. The Transportation group accounted for approximately 15 per cent of the CPI basket in value at the time of the 14th series review.
8.95 Table 8.7 shows the structure of the Transportation group. Examples of products priced and the data sources are also shown in the table.
TABLE 8.7: TRANSPORTATION GROUP INDEX STRUCTURE
8.96 Prices for all goods and services in the Transportation group, except for motor cars and automotive fuel, are collected quarterly.
8.97 Prices of new cars are collected monthly. Cars included in the price sample cover a broad selection of Australian-made and imported two and four wheel drive models across a wide spectrum of price levels (refer to Chapter 7 for an explanation of why second-hand cars are not priced). All taxes and levies associated with the purchase of a car, other than vehicle registration and compulsory third party insurance, are included in the recorded price. Registration and compulsory third party insurance are included in the Other motoring charges expenditure class, while comprehensive and other motor vehicle insurances are included in Insurance services in the Miscellaneous group.
8.98 Automotive fuel prices are obtained as a sample of electronic funds transfer transactions conducted in each city. Prices from outlets across all regions within each city are obtained each day, including weekends and public holidays. Prices for unleaded petrol, premium unleaded petrol, diesel and LPG are recorded.
Areas requiring special pricing procedures
8.99 Motor cars are very seldom sold at the recommended retail (or list) price. There is usually some bonus deal (e.g. free air-conditioning, ‘ drive-away’ or a heavily discounted accessories package) associated with the sale or just simple haggling over the price. Since actual transaction prices are required for the CPI, field officers determine from discussions with car dealers an estimate of the average value of these deals.
8.100 To price public transport, fares for a sample of representative journeys are collected, in preference to prices of various ticket types or zones. For all routes, a mix of ticket types (e.g. single, periodical, concessional and multi-trip tickets) is priced.
8.101 Whenever any specification change is made to a vehicle that affects its motoring performance, economy, comfort level, safety or durability (i.e. a change which affects the quality of the vehicle), an adjustment is made to the car’s reported price to allow for that portion of the price change that can be attributed to the quality change. In practice, these price adjustments are made at the time of the change or the new model release.
8.102 Quality adjustments for motor vehicles are determined on the basis of consumer utility and measures are derived from a variety of sources, including:
8.103 Consistency of adjustment practices is maintained across vehicles and over time but allowance is made for changing community perceptions of utility.