Business & Economy
Taxing times: the impact of policy changes to personal finance
Policy changes and the analysis of subsequent impact on individuals and households have come a long way since the early 90s.
In 1994, the National Centre for Social and Economic Modelling (NATSEM) at the University of Canberra was contracted by the Commonwealth Government to evaluate the impact of policy changes, which brought about the first version of NATSEM’s Static Incomes Model (STINMOD).
Microsimulation models such as STINMOD apply Government tax and transfer rules to data at individual and household levels. This allows Government Tax and Transfer policies to be simulated based on empirical data, incorporating complex interactions between different policies that are usually difficult to assess.
STINMOD is continuously updated in line with changes to the Commonwealth Tax and Transfer system to ensure accuracy and relevance as an analytic tool, and to help policymakers understand who the ‘winners and losers’ of policy changes could potentially be before implementing reforms.
NATSEM and Treasury cooperated on the development of STINMOD since the beginning. Inspired by the STINMOD platform and tapping into the skills acquired during the process, the Commonwealth decided in 2015 to develop its customised Microsimulation model for Treasury.
This marked the dawn of a new era for the NATSEM team that set about developing an advanced model incorporating changes not possible before and making use of new technology that could support an extended scope of analytical applications.
STINMOD+ is the successor of the original model. It incorporates new modelling techniques and is a vast improvement on its predecessor. The evolution of the model has taken the complexity of policy change, which can be daunting to some, and formulated it into a handy, easy to use tool – the Family Impact Model.
"The vision for the new program was to make it accessible to households and the media in Australia to assist with policy analysis and review; and to determine its impact on a household’s income," said Dr Jinjing Li, Associate Professor at NATSEM.
The Family Impact Model removes the debate around averages and helps estimate the tax liability and welfare payment that a family could be eligible for given their personal circumstances. It translates policy into personal impact.
An advantage of the model is that it provides the short-term effects of policy change by estimating the 'day after' impact, such as the immediate impact of a decision to change working hours after a tax change.
"It will also serve as a useful tool for non-government organisations and lobby groups to estimate the impact of policy on funding frameworks," Jinjing added.
STINMOD+ is researcher-friendly and used by NATSEM for an array of research projects. An additional benefit is that PhD students have access to the model for their specific research purposes.
"Broader applications are always at the forefront of the team’s thinking, making STINMOD+ an ongoing development project," Jinjing added.
"Currently it is best suited to advanced policy analysis, but we are always looking for opportunities to expand the offering to encompass additional analytical and research applications."
Jinjing cautions, however, that STINMOD+ should not be used to estimate long-term policy changes that are likely to stimulate broader economic change at this stage.
"STINMOD+ has facilitated easier integration of other models developed by NATSEM and will serve the Centre well in any future model developments," said Jinjing.
Already, STINMOD+ has been effectively integrated with NATSEM’s Spatial MSM model, which enables a user to look at policy impact on a suburb, city or state.
NATSEM is exploring the viability of introducing a STINMOD+ subscription to cover the costs of the model’s ongoing maintenance and development.
"The 'easy part' of development is done but the ongoing maintenance of working out and fixing system 'bugs' is an important task. Funding essentially determines the extent to which STINMOD+ can function, and NATSEM’s ability to enhance its offering. It remains a challenge, but one that we will not shy away from," concluded Jinjing.
The STINMOD+ Family Impact Model is available at https://stinmod.canberra.edu.au/stinmod/family_impact
Words by Andy Visser and images courtesy of Adobe Stock