1. Introduction to STINMOD and Microsimulation Modelling in Australia Ben Phillips: Principal Research Fellow, NATSEM, 21 Feb 2015

2. 2 What are microsimulation models? ●Tools to simulate government programs, demographic and economic change, current or alternative situation ●Based on microdata ● Records of individual people or households ● Usually large – thousands of records ● Sample surveys or administrative data ●Allow detailed assessment of impact of change ● On individuals, or groups of individuals ● On whole population ● On government budgets

3. 3 What are microsimulation models? ●Used widely in USA, UK, Europe in policy development ●Started in Australia in mid-1980s ●Types of microsimulation models ● Static – day after impacts (STINMOD) ● Behavioral – incorporates modelled behaviour change (MITTS) ● Dynamic – the future (DYNAMOD, APPSIM) ● Spatial – small areas (SpatialMSM)

4. 4 Why microsimulation models? ●Every year, government introduces various changes to tax and transfer payment system ● Goods and services tax (2000) ● Welfare to work package (2006) ● Major cuts in income tax (2007, 2008, 2010) ● Increases in pension (2009) ● Carbon Price, lower personal income tax and higher benefits (2012) ● Budget 2014-15 (examples) ●Question: How do we ensure that the tax and transfer payment system is fair, or achieve the intended targets? ●The impact of these policies can be assessed by using microsimulation models on cost/revenue/distributional outcomes.

5. 5 Overview of STINMOD ●STINMOD (Static Income Model) is a static microsimulation model of Australian income tax and social security systems ●First release STINMOD 94; updated and released every year in 3 versions (source code, outyears, and Interface) ●Shows impact of policy changes ● Fiscal (revenue and expenditure) ● Distributional (winners and losers) ● Effective marginal tax rates

6. Reduce tax for low income, Increase tax for high income 6 ●First rate reduced from 19% to 15% and top rate up from 45% to 50%

7. Who wins and loses? 7

8. 8 STINMOD basefile ●Created from ABS microdata (Survey of Income and Housing – SIH and ABS Census sample file) ●Contains demographic and income information for members of the family ● Age, sex, marital status, study status, employment status, housing status ● Family type, number of children ● Income from private sources and the government

9. 9 STINMOD basefile How do we make survey data representative of the population we want to model? ●Income uprating ● All monetary variables need to be uprated ●Ageing / reweighting ● Adjust weights to take account of changes in the population ● Adjust weights to reflect number of people receiving various social security payments ●STINMOD 14 outyears: covers 2013-14 to 2017-18 ●Capable of modelling out to 2084

10. 10 STINMOD parameters datasets ●Parameter datasets ● Centrelink: pension rates, allowances, rent assistance, family assistance ● DVA: pension rates and rent assistance ● Medicare parameters ● Tax parameters: tax scale, tax offset, HECs repayments ● Childcare parameters: child care benefit, childcare tax rebate ●Parameters for future years are projected based on projected CPI, AWE (Average Weekly Earnings)

11. 11 STINMOD program modules ●Social security payments ● Age Pension ● Disability Support Pension ● Carer Payment ● Wife Pension ● Parenting Payment Single ● Pensioner Education Supplement ● Pharmaceutical Allowance ● Rent Assistance ● Widow Allowance

12. 12 STINMOD program modules ●Social security payments (continued) ● Newstart Allowance ● Mature Age Allowance ● Youth Allowance ● Parenting Payment Partnered ● Partner Allowance ● Sickness Allowance ● Special Benefit ● Telephone and utilities allowance

13. 13 STINMOD program modules ●Family payments ● Family Tax Benefit Parts A and B ● Maternity Payment ● Child Care Benefit and Childcare Rebate ● Veterans’ payments ● Service pension (age and invalidity) ● DVA disability pension ● War widow(er)’s pension ● Income support supplement ● DVA rent assistance

14. 14 STINMOD program modules ●Taxation ● Income tax ● Medicare levy ● More common tax offsets - low income, Senior Australian, pensioner/beneficiary, dependent spouse ● Imputation credits ● Child care tax rebate (hypothetical only) ● HECS repayments (hypothetical only) ● Education tax refund ● Now also included carbon tax, GST, production taxes, in-kind benefits (modelled)

15. 15 STINMOD Output: base and new ●Simulation output include all original variables in the basefiles and many new variables related to: ● Entitlement to: Allowances; Pensions; Family assistance; Child Care Benefit (hypothetical only) ● Liability for: Income tax; Medicare levy; HECS repayments (hypothetical only) ●From simulation output, various tables can be produced ●Gains or losses from policy changes between base and new simulation can be calculated

16. 16 Examples of uses of STINMOD ●Used by Federal Government departments for formulating budget policy ● Federal Treasury (Capita model – developed from STINMOD) ● Department of Social Services ● Department of Employment and Education ● Recent use example: Introducing Carbon Price package in Australia, Budget 2014-15. ● http://www.cleanenergyfuture.gov.au/wp- content/uploads/2012/06/CleanEnergyPlan-20120628- 3.pdf http://www.cleanenergyfuture.gov.au/wp- content/uploads/2012/06/CleanEnergyPlan-20120628- 3.pdf ● Page 37 to 51 – who wins, who loses. ● STINMOD/microsim modelling is best when designing a ‘package’ of reform.

17. Budget 2014-15 – distributional impact 17

18. Hypothetical Example 18

19. 19 ●Introduction of GST in 2000 ●Carbon Pricing in 2012 ●Welfare to work reforms 2006 ●Works best for costing programs where there are ‘new’ recipients or a package of policy changes are being made. ●Adding behavioural element is complicated but useful for describing relativities in magnitude and direction of policy outcomes.

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22. 2% increase in mortgage rates – SA3

23. 23 Summary ●STINMOD is complex model of Australia’s tax and transfer system. ●Heavily used by major government departments for policy modelling and policy costing. ●Most valuable for analysis of ‘distributional outcomes’ of policy and considering impacts of a ‘package’ of reform. ●These types of models became popular as more individual survey and administration data became available in 80s and computing power increased. ●Valuable tool for policy modelling – indispensible in Australia now.

24. www.natsem.canberra.edu.au