What is indexation?
Indexation is a standard process used by the Australian Government to adjust the value of programs for changes in the level of prices, living costs or wages in accordance with policy objectives.
The Wage Cost Indices (WCIs) are one indexation arrangement, which are used where 40 per cent or more of the cost of a program comes from labour costs. The WCIs consist of several weighted averages of movements in the Wage Price Index (less a productivity offset) and the Consumer Price Index, to reflect movements in labour and supplier costs respectively while maintaining an incentive for funding recipients to improve their efficiency over time.
When is indexation applied?
Indexation arrangements are applied to funding for a broad range of Government programs, especially those related to health and social welfare. Indexation arrangements are generally included in ongoing programs that extend across multiple financial years.
Where Government grant programs receive indexation that is linked to a WCI, the entity that administers the grant program is required to pass on indexation supplementation to grant recipients. The grant opportunity guidelines and grant agreement will indicate if a specific grant will receive indexation supplementation and how the indexation amount will be passed on to grant recipients.
However, not all programs (including grant programs) are indexed. For example, the Government may agree to provide a fixed amount of funding over a fixed number of years. Alternatively, the Government may provide discretionary funding that is not linked to the amount of services or goods provided but rather intended to provide some financial assistance to help meet the recipient’s objectives.
Where can I get more information?
Grant applicants and recipients should engage with the entity delivering the grant program to discuss indexation and payment arrangements for their grant. Entities can advise on:
- whether indexation is applied to grant funding
- if indexation is applied, what indexation factor (including WCI) is being applied
- the rate of indexation for the current/upcoming financial year: these figures are available when the Budget is released
- how indexation will be paid to the grant recipient
- when it will be paid to the grant recipient.
