5 Adjusting for cost differentials An overview of the Steering Committee’s approach to prorating mainstream expenditure between services to Aboriginal and Torres Strait Islander and nonIndigenous Australians is provided in chapter 2. Service use measures are used to identify the Aboriginal and Torres Strait Islander share of expenditure: Aboriginal and Torres Strait = × Service mainstream Islander share of mainstream use [1] expenditure expenditure measure The approach in equation [1] is extended to recognise that the service use measure might need to be adjusted for: the degree to which the Aboriginal and Torres Strait Indigenous under-identification — Islander status of service users is not correctly identified or recorded in data collections to account for the fact that the average cost of providing Indigenous cost differential — a government service to Aboriginal and Torres Strait Islander Australians may be more/less than the cost of providing the same service to nonIndigenous Australians. This chapter focuses on the concepts, sources and methods used to adjust measures of service use to reflect the difference in the cost of providing services to Aboriginal and Torres Strait Islander and nonIndigenous Australians for each expenditure category. An overview of the concepts is provided in section 5.1. Section 5.2 discusses the data sources and estimation methods for the Indigenous Expenditure Report. Section 5.3 contains frequently asked questions on appropriate use of cost differentials. 5.1 Cost differential concepts An Indigenous cost differential factor is defined as measure of the relative cost of ‘a providing mainstream services to an Aboriginal and Torres Strait Islander person compared to the cost of providing the same service to a nonIndigenous person’. The provision of services to Aboriginal and Torres Strait Islander Australians might be more costly on average, than providing the same services to nonIndigenous Australians, due to: Aboriginal and Torres Strait Islander Australians often access a usage patterns — different range of services from government agencies than nonIndigenous Australians,
5 Adjusting for cost differentials An overview of the Steering Committee’s approach to prorating mainstream expenditure between services to Aboriginal and Torres Strait Islander and nonIndigenous Australians is provided in chapter 2. Service use measures are used to identify the Aboriginal and Torres Strait Islander share of expenditure: Aboriginal and Torres Strait Islander share of mainstream expenditure = mainstream expenditure × Service use measure [1] The approach in equation [1] is extended to recognise that the service use measure might need to be adjusted for: Indigenous under-identification — the degree to which the Aboriginal and Torres Strait Islander status of service users is not correctly identified or recorded in data collections Indigenous cost differential — to account for the fact that the average cost of providing a government service to Aboriginal and Torres Strait Islander Australians may be more/less than the cost of providing the same service to nonIndigenous Australians. This chapter focuses on the concepts, sources and methods used to adjust measures of service use to reflect the difference in the cost of providing services to Aboriginal and Torres Strait Islander and nonIndigenous Australians for each expenditure category. An overview of the concepts is provided in section 5.1. Section 5.2 discusses the data sources and estimation methods for the Indigenous Expenditure Report. Section 5.3 contains frequently asked questions on appropriate use of cost differentials. 5.1 Cost differential concepts An Indigenous cost differential factor is defined as ‘a measure of the relative cost of providing mainstream services to an Aboriginal and Torres Strait Islander person compared to the cost of providing the same service to a nonIndigenous person’. The provision of services to Aboriginal and Torres Strait Islander Australians might be more costly on average, than providing the same services to nonIndigenous Australians, due to: usage patterns — Aboriginal and Torres Strait Islander Australians often access a different range of services from government agencies than nonIndigenous Australians,
ier-2017-service-use-measure-definitions-manual.docx