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Programme 1.7: Adjustment to the Military Rehabilitation and Compensation Acts Liability Provision – Income Support and Compensation

Objective

Programme 1.7 provides an updated actuarial assessment of the movement in the liability for income support and compensation under the Safety, Rehabilitation and Compensation Act 1988 (SRCA) and the Military Rehabilitation and Compensation Act 2004 (MRCA).

Overview

This programme represents the movement in the long-term liability based on the advice of the Australian Government Actuary. The movement is recognised as an expense in DVA’s financial statements. Due to the nature of the provision there can be significant adjustments between years. Movement for the liability for the past two years is shown in Table 17.

Expenses

Administered and Departmental expenses – Programme outcomes against Budget
  2013–14 PBS ($m) ESTIMATED ACTUAL 2013–14 ($m) OUTCOME 2013–14 ($m)
Administered 210.7 77.9 738.7
Departmental 0 0 0
Total resources 210.7 77.9 738.7

PBS = Portfolio Budget Statements

Report on performance

In 2013–14, the Department’s provision for military compensation has increased across Programmes 1.7 and 2.7, from $4.7 billion to $5.7 billion.

This provision recognises the present obligations that the Department has for veterans and current serving military personnel in relation to benefit payments that will occur in the future.

It is important to note that the provision has significant inherent uncertainty as it is estimating the cost (of both claims received and yet to be received) of providing personal benefits and health care to beneficiaries over the next 80 years. Allied to this, after a long period of predominantly peacetime service, the Australian Defence Force (ADF) has undertaken a range of extensive and intensive operations since 1999 that has seen significant numbers of soldiers, sailors and airmen and women deployed. These deployments of both permanent and reserve forces have exposed an increasing number of ADF personnel to risks of injury and death and the Government to an increasing liability for future costs of rehabilitation, health care and compensation.

Historically there have been significant changes to the estimate year on year and these are recognised as adjustments in the year the adjustment occurs. It is expected that adjustments will continue to be made on a year to year basis as claims are received and additional information about claims likely to be made improves.

Additionally, the increase that was recognised in 2013–14 has occurred due to a number of factors, including additional allowance for the emergence of deferred incapacity and permanent impairment claims and changes to the calculation methodology of the provision.

Table 17: Movement in SRCA and MRCA liability for 2012–13 and 2013–14
  2012–13 2013–14
  SRCA ($m) MRCA ($m) Total ($m) SRCA ($m) MRCA ($m) Total ($m)
Opening balance adjustment 236.0 43.7 279.7 80.1 402.0 482.1
Permanent impairment -23.8 35.5 11.7 -29.2 7.1 -22.1
Benefits for eligible dependants -11.8 3.8 -8.0 -12.6 2.6 -10.0
Income maintenance payments 0.0 201.5 201.5 0.0 136.2 136.2
Incapacity payments -38.3 0.0 -38.3 -48.3 0.0 -48.3
Medical exams -2.2 15.1 12.9 -2.6 3.5 0.9
Other -1.5 3.3 1.8 -2.0 1.8 -0.2
Interest rate -196.9 -421.7 -618.6 69.1 131.0 200.2
Total expenses -38.5 -118.8 -157.3 54.5 684.2 738.7
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