Time To Get It Right: Indexation in Community Services

Indexation policy related to the Western Australian community services sector continues to undermine the financial health of the Western Australian community services sector and the sustainability of vital services provided, negatively impacting some of Western Australia’s most vulnerable people. This is the result of an indexation formula that has failed to adequately reflect the actual cost increases incurred by the sector over an extended period and, instead, captures aggregate economic conditions as defined by household spending and economy-wide wage pressures; both of which hold insufficient relevance to the community services sector and its particulars. In current policy, the appropriateness of the components used, namely the consumer price index (CPI) and the wages price index (WPI), has contributed to the under indexation of service contracts, constituting a notable period of underfunding which is becoming increasingly unmanageable by the sector. This sustained under resourcing has meant significant shortfalls in funding that compound year-by-year and are borne exclusively by community services organisations and their clients. Further, the issue has created significant challenges regarding the operation, finances and strategies undertaken by organisations over time. Inevitably, these challenges to sustainability among service providers fall to the most vulnerable people and communities primarily through reduce service availability.
This document reports on our research which examined a selection of alternative indexes identified to arrive at a more accurate set of components. To achieve this, a set of financial data from selected Western Australian community services organisations was collected and criteria were established to support the determination of appropriate indexation calculation alternatives. The selection criteria contained considerations of stability, accuracy and responsiveness, as well as intuitive reasoning which stemmed from the extensive work on the topic undertaken by the Centre for Public Value UWA to date . Finally, in recognising Western Australia’s diffused geography, a rural index adjustment was investigated using region-level price information.
Informed by the analysis of long-term index trends and weightings among a selection of appropriate alternative proxies, as well as the financial information provided by Western Australian community services organisations this report proposes the following indexation formula:

0.75(SCHADS+SGL)+0.25(NDI)+rural adjustment

 = change
SCHADS - Social, Community, Home Care and Disability Services Industry Award rate
SGL – superannuation guarantee of 0.5% until 2025
NDI – non-discretionary consumer price index component
Rural adjustment – additional indexing amount of  2.6% to account for disproportionate inflationary pressure in regional and rural service environments.
This formula is considered to incorporate the most accurate proxies for community service delivery cost structures that are available while balancing long-term stability and responsiveness to economic conditions over time.
That said, our primary recommendation remains for a purpose-built index that utilises data collected directly from contracted organisations. Without such an index, appropriateness must come from isolating proxies that ultimately do not reflect the true cost pressures and changes impacting community services. Considering the size, complexity and significance of the community service sector, a purpose-build index seems a reasonable request and the ABS already has the methodology and processes used to produce an appropriate Producer Price Index.