This document summarizes the key points from a PhD presentation on water affordability and state water concessions in Australia. It finds that single parents, renters, and those living in flats or rural areas are most vulnerable to water affordability issues. It also finds both horizontal and vertical inequities in eligibility criteria and benefits across state water concession programs. Specifically, large households are disadvantaged and many poor households are not eligible for concessions. The targeting efficiency of "category-based" concessions is low, and significant savings could be achieved with a switch to need-based targeting.

1. Crawford School PhD Conference 2014 Water affordability and state water concessions in Australia This presentation is part of my PhD thesis ‘Utility affordability and State concession in Australia” (work in progress) 19 November 2014
(Noel) Wai Wah CHAN
Supervisor panel:
Prof. Quentin Grafton (Chair),
Dr Hoa Nguyen, Dr Karen Hussey,
Prof Michael Ward (advisor), Dr David Stanton (advisor)

2. 2
Background: Water consumption trends
Source: National Performance Report: Major urban utilities (WSAA 1995/96 – NWC2011/12)

3. 3
Water & sewerage expenditure (after adjusted with CPI) trends in major cities
Source: National Performance Report: Major urban utilities (WSAA 1995/96 – NWC2011/12)

4. Motivation of research

Lower income households have a disproportionally higher burden than average and high income households

lower average water consumption

mostly related to non-discretionary use

State water concessions: the major policy instruments for alleviating water affordability among eligible households

lump sum rebates or percentage discounts of water bills

insufficient empirical research on state water concession
Q1: Who are the vulnerable groups that need assistance?
Q2: Does the state water concession equitable and efficient?
4

5. 5
Section 1: Changing social functions in urban water sector
Framework to inject social aspirations into urban water pricing

6. 6
Note: TPT means two-part tariff; IBT means increasing block tariff; FC means fixed charge
Water and sewerage tariff structure and average water and sewage bill of major city in 2011-12
City
Water tariff structure
Sewerage tariff structure
Average water use (kL)1
Average W&S bill ($)
Fixed water charge ($)
Fixed sewerage charge ($)
Fixed charge component
Variable charge component
Sydney
TPT
FC
193
1090
145
540
63%
37%
Melbourne
IBT
(3 steps)
TPT
144
910
120
322
49%
51%
Canberra
IBT
(2 steps)
FC
180
1073
96
555
61%
39%
Brisbane
IBT
(3 steps)
FC
139
1013
167
476
63%
37%
Adelaide
TPT
FC
179
1148
235
325
49%
51%
Perth
IBT
(6 steps)
FC
250
1128
187
313
44%
56%
Darwin
TPT
FC
471
1417
197
616
57%
43%

7. 7
Section 2: Measuring water affordability & identifying households in affordability stress
•
Traditional burden ratio method (AR3)
Water is unaffordable if W&S expenditure-to-income ratio > 3% (OECD 2003, Fankhauser & Tepic 2007)
•
More fuel poverty and housing stress research consider both objective and subjective indicators (Price et al. 2002; Moore 2012; Hills 2011; Blamey 2012).
•
Households’ ability to pay to pay for water and other goods & services depends on water bill, residual income (i.e. after housing costs), and family composition (i.e. equivalised income)
•
ABS HES 2009-10 surveyed households with reported indicators of material hardships and financial stress

8. 8
BHCWAS
EQAHCWAS
AR3
Benchmark
% HH in BHCWAS
Benchmark
% HH in EQAHCWAS
% HH in AR3WAS
NSW
1.53
25%
2.54
18%
18%
Vic
1.34
26%
2.39
12%
12%
Qld
0.89
37%
1.46
35%
34%
SA
1.45
26%
2.32
13%
16%
WA
1.16
21%
1.80
12%
9%
Tas
1.08
44%
1.98
31%
34%
NT/ACT
2.17
16%
3.93
13%
14%
AUS
1.38
27%
2.33
19%
19%
Table 3: Average water burdens, before and after housing costs, among households with material hardships or financial stresses, 2009-1
Income variable
Poverty line
Benchmark
BHCWAS
Disposable household income
Bottom 40% in eq. disposable income
Derived by state, households in deprivation
EQAHCWAS
Equivalised disposable household income after housing costs
Bottom 40% in eq. disposable income after housing cost
AR3WAS
Disposable household income
Bottom 40% in eq. disposable income
3%

9. 9
BHCWAS
EQAHCWAS
AR3
Family type
Couple only
27%
17%
17%
Couple with children
19%
20%
12%
Single parent
41%
32%
32%
Lone person
40%
18%
30%
Tenancy type
Owner outright
37%
19%
20%
Purchasers
15%
13%
9%
Renters
31%
25%
28%
Dwelling type
Separate house
26%
19%
17%
Semi-detached house
30%
18%
21%
Flats
33%
21%
28%
Location
Capital city
24%
15%
15%
Non-capital city / rural
34%
26%
27%
Main income source
Wage/salary
11%
10%
8%
Pension/allowance
63%
39%
44%

10. 10
Section 3: Equity implications of State water concessions
•
Horizontal equity: people with similar circumstances should be treated equally
• Vertical equity: people with different circumstances should be treated differently

11. 11
•
Compare water concession benefits and discount from original W&S bill for households with average consumption across jurisdictions
Horizontal inequity in entitlement design

12. 12
Vertical inequity in entitlement design
•
Compare water concession benefits and discount from original W&S bill for households with different levels of water consumption

13. 13
Vertical inequity in eligibility criteria
Poor households with water bill
Non-poor households
Eligible to concession
Eligible to concession
Yes
No
Yes
No
NSW
34.4%
65.6%
29.0%
71.0%
Vic
37.8%
62.2%
25.1%
74.9%
Qld
25.9%
74.1%
21.7%
78.3%
SA
21.0%
79.0%
10.1%
89.9%
WA
54.2%
45.8%
34.2%
65.8%
TAS
52.8%
47.2%
46.3%
53.7%
NT/ACT
20.7%
79.4%
19.7%
80.3%
Australia
36.7%
63.3%
26.3%
73.7%
•
Using 2009-10 ABS HES data,
•
Poverty line is defined as 60% median eq. disposable household income
•
Households that are eligible for energy concession, and further adjusted with tenancy types in each state

14. 14
Vertical inequity in eligibility criteria
Renter
PCC/ DVA
HCC
CSHC
SSC
Other
Canberra
Y
Y
Y
Sydney
Y
Melbourne
Y
Y
Y
Adelaide
Y
Y
Y
Brisbane
Y
Perth
Y
Y
Y
Y
Darwin
Y
Y
Y
Y

15. 15
Section 4: Targeting efficiency of water concessions
•
2007 Victorian Household Utility Consumption Survey
•
Evaluate targeting outcome of ‘category-based’ concession towards households in low-income and high Consumption (LIHC)
•
LIHB households are those with pre-concession W&S burden exceeds 3% of disposable household income; and eq. disposable income below 40% of income distribution
Water burden ratio and Poverty status
LIHC Households
Non-LIHC households
State utility concession program
Received water concession
Success targeting
Inclusion error (leakage)
No water
concessions
Exclusion error
(under-coverage)
Success exclusion
Source: adapted from Dutrey (2007)

16. Targeting efficiency of Victorian water concessions
16

17. Original Beckerman’s model of poverty targeting expenditure efficiency 17
Modified Beckerman’s model of LIHB targeting of concession expenditure
Source: Beckerman (1979)

18. Targeting expenditure efficiency to Victorian LIHB households
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Unit
Amount
Total concession expenditure (O)
$
93,353,672
Successful targeting expenditure
$
24,000,000
Vertical expenditure efficiency (VEE)
%
25.7
Spill-over (S)
Excess benefits
$
6,244,204
Spillover Inefficiency
%
6.7
Inclusion Error (IE)
Inclusion error
$
69,400,000
Inclusion error inefficiency
%
74.3
Benefit inadequacy (BI)
Concession shortfalls
$
14,945,273
Concession shortfalls inefficiency
%
16.0
Optimal targeting expenditure (E)
$
45,143,149
Saving = (O-E)
$
48,210,524
Percentage saving from optimal targeting
%
51.6

19. Key findings & conclusions
•
An increasing concern of water and energy affordability in Australia
•
Australian urban water sectors apply a mixed method to address water affordability
•
Certain tariff design would improve the low-income households’ capacity to address affordability problem
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20. Key findings & conclusions
•
Single parents, renters, flat occupiers, rural households are more vulnerable to water affordability stress and hardship
•
Both horizontal and vertical inequity exists in current state water concession eligibility criteria and entitlements
•
Large-sized households are disadvantaged; and large proportion of poor households were not eligible to water concessions
•
‘Category-based’ concession has low target expenditure efficiency. Significant savings can be made from ‘need-based’ targeting design
20

21. Thank you.
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