This report estimates the levels and patterns of government expenditure on services relating to Indigenous Australians to contribute to a better understanding of its adequacy, effectiveness and efficiency of government.

This first Indigenous Expenditure Report was released on 28 February 2011. It contains estimates of the levels and patterns of government expenditure on services relating to Indigenous Australians in 2008-09.

The Indigenous Expenditure Report itself makes no assessment of the adequacy of government expenditure. However, the estimates in the report, when combined with other information (such as levels of Indigenous disadvantage) can contribute to a better understanding of the adequacy, effectiveness and efficiency of government expenditure on services to Indigenous Australians.

The Report was prepared for the Council of Australian Governments (COAG) under the auspices of the Ministerial Council for Federal Financial Relations. It was overseen by the Indigenous Expenditure Report Steering Committee, comprising representatives from all Australian, State and Territory Government Treasuries and specialist data agencies, and supported by a Secretariat from the Productivity Commission.

Following the release of the first Report, COAG agreed to transfer responsibility for future editions of the Report to the Steering Committee for the Review of Government Service Provision. The former IER Steering Committee will continue as a working group providing expert advice to the new Steering Committee.

Key findings of the report include:

• Significant gaps in outcomes persist between Indigenous and non-Indigenous Australians, across a number of areas including health, educational attainment and economic participation.

• However, there is limited information available on the levels and patterns of expenditure relating to Indigenous Australians, to support government commitments to overcome Indigenous disadvantage. This report represents a first step toward estimating this expenditure.

• This report presents the considered and collective estimates of the jurisdictions, but many data quality and methodological challenges remain to be resolved in future reports. Estimated total Indigenous expenditure comprises three components: – expenditure on services that are targeted to Indigenous Australians, which can be identified directly, and is highly reliable (23 per cent of total Indigenous expenditure) – expenditure estimated on the basis of direct use of services (such as the number of Indigenous students attending school), which is conceptually robust but can be affected by data limitations (54 per cent of total Indigenous expenditure) – expenditure estimated on the basis of the share of Indigenous Australians in the community (such as defence or the operation of parliaments), which is still conceptually robust, but involves a weaker conceptual link between individual Indigenous Australians and the cost of providing services (23 per cent of total Indigenous expenditure). However, this expenditure is not a focus of the report.

• Expenditure on services related to Indigenous Australians can be expected to be greater than for non-Indigenous Australians, given their significant relative disadvantage, more intensive use of services, and greater cost of provision (because of factors such as higher representation of the Indigenous population in remote areas).

• Total Indigenous expenditure in 2008-09 is estimated to be $21.9 billion or 5.3 per cent of total general government expenditure. Indigenous Australians make up 2.5 per cent of the population.

• Estimated expenditure per head of population was $40 228 for Indigenous Australians, compared with $18 351 for non-Indigenous Australians (a ratio of 2.2:1). The difference reflects the combined effect of: – more intensive use of mainstream services — reflecting the greater level of disadvantage of Indigenous Australians — accounted for 53.8 per cent ($11 762) of the difference – provision of Indigenous specific services — complementing, or as a substitute for, mainstream services — accounted for 42.6 per cent ($9309) of the difference – differences in the cost of providing mainstream services accounted for 3.7 per cent ($807) of the difference. Further research into the size and sources of cost differences is a key priority for future reports.

• When combined with other information, the estimates in this report have the potential to contribute to a better understanding of the adequacy, effectiveness and efficiency of government expenditure and services relating to Indigenous Australians.