3.4 Price Indexation

The Department of Human Services (DHS), Department of Health (Health) and Department of Education and Early Childhood Development (DEECD) use price indexation mechanisms to ensure funding provided to organisations through service agreements keeps pace with predictable and one-off cost increases, principally wage and non-wage movements. These adjustments are known as price indexation, and are processed automatically by the departments at the beginning of each financial year.

The indices used are:

• NGO price index
• Health & Aged Care price index
• VECTAA (Victorian Early Childhood Teachers and Assistants Award) price index
• Acute Health/Mental Health - Health Service price index

The attached table shows the index used for each activity funded by the departments.

Indexation processing for 2010-11

Indexation for the NGO, Health & Aged Care and VECTAA price indices for 2010-11 (other than for Kindergarten Program) were processed mid July 2010. Increases are backdated to 1 July 2010 and paid with the August 2010 payment. Once processed, price indexation details are available via secure logon to the Funded Agency Channel and organisations were advised when processing is completed..

The DEECD ACFE, Take a Break and kindergarten program funding in the 2010-11 service agreement has the price index increase already included.

Hospitals can obtain details of the Acute Health/Mental Health - Health Service price index in the Victorian health services policy and funding guidelines.

NGO price index

The Victorian Government approved a 3.14 per cent price index each year for the three year service agreement period (1 July 2009 to 30 June 2012) for approximately 170 DHS, Health and DEECD funded activities covered by the NGO price index.

The NGO price index is guaranteed for the 2009-12 service agreement and applies predominantly to community service and housing service providers.

The indexation rate is based on the following formula:

• 85% of the index for wages in line with Government wages policy at the time (3.25%). It should be noted that Government wages policy is now 2.5%, but the guaranteed index will apply for three years based on previous wages policy.
• 15% of the index for operational cost increases, based on the the Departmental Funding Model (DFM) for CPI (2.5%).

NGO price index = (3.25% x 85%) + (2.5% x 15%) = 3.14% (rounded up)

Approval of the NGO price index by Government followed consultation with key bodies in the community services sector including the Victorian Council of Social Service (VCOSS), National Disability Services Vic, Youth Affairs Council Vic, MacKillop Family Services, VICSERV, Jesuit Social Services, Centre for Excellence in Child and Family Welfare, Berry Street, Anglicare and Action on Disability in Ethnic Communities.

The move to three year service agreements in 2003, and the introduction of standardised price indexation has resulted in greater funding certainty and the opportunity for improved planning and analysis by the sector. The three year price index has delivered improvements to cash flow and funded organisations now receive funding indexation increases at the beginning of each financial year.

Historical NGO price index rates

2003-04  2.40%
2004-05  2.60%
2005-06  2.50%
2006-07  2.60% plus 0.30% top-up (2.9% total)
2007-08  2.90%
2008-09  2.90%

Health and Aged Care price index

The Health and Aged Care price index applies to approximately 130 Health funded activities relating to Aged & Home Care, Primary & Dental Health, Public Health and Small Rural non-acute services. It has been set at the same rate as the NGO price index (3.14%).

VECTAA price index

The Victorian Early Childhood Teachers and Assistants Award (VECTAA) price index applies to four DEECD activities: Kindergarten Program, Early Childhood Intervention Services, Kindergarten Inclusion Support Services – LNSLN and Kindergarten Inclusion Support Services – PSFO. Indexation rates vary by activity and have been advised to all affected organisations.

Exceptional event arrangements

The price index may be supplemented by additional investments to address wage and other cost increases which present challenges to the delivery of services.

The Exceptional Events arrangements provide for supplementation in the event of wage related changes over and above the price index wage component (3.25% for the NGO and Health & Aged Care index).

The arrangement has been used previously to enable supplementary indexation increases to address the Australian Fair Pay Commissions minimum wage case, Australian Nurses Federation (ANF), Australian Medical Association (AMA) and Health Services Union Agreement #4 (HSUA4) wage decisions in excess of the wage component of the applicable index.

Capacity building funding

A capacity building fund totalling $6 million, paid as $2 million each year for three years is being provided to non-government organisations (NGOs) to assist in meeting the costs of infrastructure purchase, replacement or upgrade.

Capacity building grants from the fund will be calculated and paid as follows:

• Each NGO will receive their share of the $2 million fund as a non-recurrent grant in each year of their agreement. No application is necessary.
• The NGO must have a current service agreement at 1 July in the year of the grant and time of precessing.
• Each organisation's share is based on the organisation's proportion of NGO price indexed funding at 1 July in that year. The calculation does not include funding for other price indexed activities (e.g. Health & Aged Care price index, VECTAA price index).
• A minimum payment of $500 will be made to eligible NGOs.

In 2010-11, the capacity building grants will be paid on 1 November 2010. Organisations will be able to view the amount of their grant through secure log-on to the Funded Agency Channel website.