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Discount rates

Damages for future economic loss are awarded in the form of a lump sum rather than an income stream. An integral component of valuing these lump sums is the discount rate used to bring future cash flows to present values. This article summarises the statutory discount rates prescribed under Australian jurisdictions.

Brief history

In Hawkins v Lindsley (1974) the High Court held that the Court of Appeal in New South Wales could not prescribe a discount rate to be followed by trial judges. Seven years later, in Todorovic v Waller (1981), it decided that it should prescribe a discount rate in the interests of predictability and securing uniformity and the following statement was issued.

"In an action for damages for personal injury, evidence as to the likely course of inflation, or of possible changes in rates of wages or prices, is inadmissible. Where there has been a loss of earning capacity which is likely to lead to financial loss in the future, or where the plaintiff's injuries will make it necessary to expend in the future money to provide medical or other services, or goods necessary for the plaintiff's health or comfort, the present value of the future loss ought to be quantified by adopting a discount rate of 3% in all cases, subject, of course, to any relevant statutory provisions. This rate is intended to make the appropriate allowance for inflation, for future changes in rates of wages generally or of prices, and for tax (either actual or notional) upon income from investment of the sum awarded. No further allowance should be made for these matters."

Although it was intended that the 3% rate should apply only so long as economic conditions remained unchanged and though there have been considerable economic changes since 1981, the court has not reviewed its ruling.

Legislatures in all states and in the Northern Territory have modified the effect of the discount rate decision in Todorovic v Waller. Some have done so for all accident types; others for some types only or have different rates for different types. The following section sets outs our understanding of the discount rates, as at August 2008, applicable under different circumstances.

Discount rates as at August 2008

Jurisdiction Workers' compensation Transport accidents Professional and public liability
New South Wales 5%1 5%2 5%3
Northern Territory n.a n.a4
5%5		 5%6
Queensland 5%7 5%8 5%9
South Australia 3%10 5%11 5%11
Tasmania 3%12 7%13 7%13
5%14
Victoria 3%15
n.a16
6%17		 6%18 5%19
3%20
Western Australia 6%21 6%21 6%21
  1. Workers Compensation Act 1987, section 151J applies to assessments on or after 1 February 1990
  2. Motor Vehicles (Third Party Insurance) Act 1942, section 35B applies to personal injuries and deaths where damages are payable out of the Transport Accidents Compensation Fund from 1 July 1984
    Motor Accidents Act 1988, section 71 applies to accidents occurring on or after 1 July 1987 and prior to 8 July 1999
    Motor Accidents Compensation Act 1999, section 127 applies to accidents occurring on or after 8 July 1999
    Transport Administration Act 1988, section 121 extends the Motor Accidents Compensation Act 1999 to public transport
  3. Health Care Liability Act 2001, section 11(2) applied to medical negligence cases commenced on or after 1 July 2001 but prior to 20 March 2002
    Civil Liability Act 2002, section 14(2)(b) applies to cases commenced on or after 20 March 2002
  4. Motor Accidents (Compensation) Act, section 5(1) abolishes award of damages to residents of the Northern Territory
  5. Motor Accidents (Compensation) Act, section 4(1) applies to injuries to a person who, at the time of the accident, was not a resident of the Territory
  6. Personal Injuries (Liabilities and Damages) Act 2002, section 22 applies to all assessments of damages on or after 1 May 2003
  7. Supreme Court Act 1995, section 16(1) (formerly Common Law Practice Act 1867 (Qld), section 5) applies to assessments of damage on or after 13 November 1981
  8. Motor Accident Insurance Act 1994, section 55B (repealed) applies to all assessments of damages on or after 1 October 2000 but prior to 9 April 2003
    Civil Liability Act 2003, section 57 applies to all assessments of breaches of duty on or after 9 April 2003
  9. Personal Injuries Proceedings Act 2002, section 52 applies to all assessments of breaches of duty on or after 18 June 2002 but prior to 9 April 2003
    Civil Liability Act 2003, section 57 applies to all assessments of breaches of duty on or after 9 April 2003
  10. Workers Rehabilitation and Compensation (General) Regulations 1999, section 13(1) applies to all assessments of damages on or after 1 December 1999.
    Workers Rehabilitation and Compensation Act 1986, section 42 states that such assessments of damages are performed only for redemption of liabilities by agreement. South Australia does not have common law settlements for workers compensation
  11. Civil Liability Act 2003, section 55 (formerly section 35A of the Wrongs Act 1936) in conjuction with the definition of prescribed discount rate in section 3 applies to accidents occuring on or after 8 February 1987
  12. We understand that the Common Law discount rate applies for Workers' Compensation matters in Tasmania.
  13. Common Law (Miscellaneous Actions) Act 1986, section 4(1) applies to causes of action occurring on or after 18 December 1986
  14. Civil Liability Act 2002, section 28A applies to causes of actions accrued on or after 15 December 2005
  15. Accident Compensation Act 1985, sections 135A(14) & 135C apply to "serious injuries" and deaths arising from employment prior to 12 November 1997
  16. Accident Compensation Act 1985, section 134A(1) applies to injuries arising from employment on or after 12 November 1997 but before 20 October 1999
  17. Accident Compensation Act 1985, section 134AB(32) applies to "serious injuries" arising from employment on or after 20 October 1999
  18. Transport Accident Act 1986, section 173 applies to injuries where damages are payable out of compulsory insurance funds prior to 1 January 1987
    Transport Accident Act 1986, section 93(13) applies to "serious injuries" arising from a transport accident on or after 1 January 1987
  19. Wrongs Acts 1958, section 28I(2) applies to assessments of breaches of duty arising on or after 23 October 2002
  20. Wrongs (Part VB) (Dust and Tobacco-Related Claims) Regulations 2006, section 3 excludes dust and tobacco related awards for damages from Part VB (and section 28) of the Wrongs Act 1958
  21. Law Reform (Miscellaneous Provisions) Act 1941, section 5(1) applies to all assessments of damages on or after 18 August 1986

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