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6527.0 - Household Expenditure Survey, Australia: User Guide, 1998-99  
Latest ISSUE Released at 11:30 AM (CANBERRA TIME) 15/11/2001   
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Contents >> Chapter 2. Concepts and definitions

Households
Expenditure
Income
Difference between income and expenditure

The concepts and definitions of income, expenditure and households in the HES are described in the following section. A glossary providing definitions of words and expressions used in describing this survey and its data is found at the end of this publication.


HOUSEHOLDS

The household is the basic unit of analysis in the HES. It consists of a person or group of people living together and having common provision for food and other essentials of living.

Households therefore have the following characteristics:

  • they may consist of one or more related or unrelated persons or groups of persons such as families;
  • they must live wholly within one physical dwelling. A group of people who make common provision for food and other essentials of living but live in two separate dwellings are in two separate households;
  • lodgers, who receive accommodation only (not meals) are treated as a separate household; and
  • boarders, who receive accommodation and meals, are treated as part of the household.

The household is adopted as the basic unit of analysis because it is assumed that sharing of the use of goods and services occurs at this level. If smaller units, say persons, are adopted, then it is difficult to know how to attribute to individual household members the use of shared items such as food, accommodation and household goods.


EXPENDITURE

The HES produces estimates of average household expenditure on goods and services and selected other payments for the 1998-99 financial year.

Measurement of expenditure

Expenditure can be measured according to the following approaches:
  • the acquisitions approach - in which the full cost payable by the household of acquiring a good or service within a given period is collected. The full cost is collected regardless of whether the household actually paid for or consumed the good or service within the period;
  • the payments approach - in which the payments made by the household within a given period are collected. Payments include payments on outright purchases, deposits and loans for goods and services regardless of whether the goods and services were acquired or consumed during the period;
  • the consumption approach - in which an indicator of consumption is collected and a dollar value is derived. Consumption values are collected according to the use of a good or service during the given period regardless of whether the good or service was acquired or paid for during the period.
The HES has primarily adopted an acquisitions approach. This is identical to the payments and consumption approach for many items such as perishable foods, which are acquired, paid for and completely used in the HES recall and reporting periods. For these items, average expenditures of individual households reflect expenditure on acquisitions, payments and consumption.

For other items such as durable items and items purchased on credit which are not fully consumed or paid for during the recall or reporting period, the situation is different. Estimates for individual households will vary according to the approach adopted. For groups of households, however, the estimates will ‘average out’ so that the estimates for groups of households can be said to be indicative of payments and consumption as well as acquisitions.

For example, the 1998-99 HES collects expenditure on acquisitions of washing machines over three months. Say that we have a group of 1,000 households, and on average, 96% of them have washing machines. Of those who have washing machines, on average, over ten years, they fully consume their machine, acquire a new one and pay $700 for the machine in five equal instalments of $140.
  • Using the acquisitions approach - the number of households expected to report expenditure over a three month period is equal to 96% of 1,000 (i.e. 960) households divided by the number of three month periods in ten years (i.e. 40) which equals 24 households. Each of these households would have spent $700 so aggregate expenditure would be equal to 24 multiplied by $700 which equals $16,800 every three months. This is divided by the number of weeks in three months (13) and by the number of households in the sample (1,000), to give average household expenditure of $1.29 per week.
  • Using the payments approach - the number of households expected to report expenditure over a three month period is equal to five times 96% of 1,000 households (since payments are made five times by each household) divided by the number of three month periods in ten years which equals 120 households. The payment of each of these households is equal to the total cost of the machine ($700) divided by the number of payments (5) which equals $140. Aggregate expenditure is equal to 120 households multiplied by $140 which equals $16,800 every three months. This is divided by the number of weeks in three months (13) and by the number of households in the sample (1,000), to give average household expenditure of $1.29 per week.
  • Using the consumption approach - 96% of 1,000 households would report their ownership in the three month period. The value of consumption is assumed to be equal to the cost of using the washing machine over three months (which is equal to $700 divided by the number of three month periods in ten years, which equals $17.50). Aggregate expenditure is equal to 960 households multiplied by $17.50 which equals $16,800 every three months. This is divided by the number of weeks in three months (13) and by the number of households in the sample (1,000), to give average household expenditure of $1.29 per week.
HES expenditure estimates will be the same, and hence reflect acquisitions, payments and consumption, if the group is sufficiently large. Groups can be considered to be sufficiently large if RSEs for the expenditure estimates are less than 25% (see appendix 1 for details).

Classification of expenditure

Expenditure is classified according to the Household Expenditure Classification (HEC) which is given in appendix 3.

The list shows the classification of goods and services, which is the primary focus of the HES. It also includes ‘selected other payments’ which comprise income tax, repayments on mortgage principal for the household’s place of residence, other housing costs of a capital nature such as internal renovations, and superannuation and life insurance.

Expenditure for private purposes

The HES provides estimates of expenditure on goods and services used for private purposes. It therefore excludes expenditure for business and other investment purposes. Operating expenses of unincorporated businesses are either not collected or are deducted from reported expenditure. If survey participants report business expenditure, it is picked up in questions in the household questionnaire or space provided in the diary, in which there is an opportunity to report amounts which ‘have been or will be charged to a business’. If amounts have been or are going to be charged to a business, then these are deducted from expenditure during processing.

Deduction of refunds and trade-ins

The HES measures net or ‘out of pocket’ private expenditure on durable goods, non-durable goods and services for private purposes. Estimates therefore do not refer to the full costs of goods and services used but only the costs payable by the household for goods and services used.

In the case of a refund which is received or expected, the amount of the refund is deducted from expenditure to produce a net figure. For expenditure on visits to general practitioners, for example, Medicare and private health insurance refunds are deducted.

In the case of trade-ins, these amounts are also deducted from expenditure to produce a net figure. For example, if the cost of a motor vehicle is partially financed by a trade-in of another, the amount of the trade-in is deducted from the cost for the acquired vehicle.

In the case of the sale of land, houses and motor vehicles, the sale price net of outstanding loans is deducted from expenditure and in the case of houses and motor vehicles, amounts of successful insurance claims are deducted from expenditure. Deductions are made even if there is no expenditure on that item by the household. Sales and claims made in the recall period for items which are not replaced during that period are included to compensate for sales and claims made outside the recall period for items replaced during the recall period.

Where trade-ins, sales and insurance claims exceed the costs of acquisitions of the same expenditure item, expenditure is recorded as negative. For example, if someone sells a luxury motor vehicle and buys a less costly model, the amount of expenditure recorded in the HES would be negative.

Expenditure in-kind

HES estimates of expenditure include the full retail value of employer-subsidised goods and services for food, alcohol, tobacco, clothing and footwear, and other items collected in the dairy (see table A2.1 to identify items collected in diary). Employer subsidies for other items, such as the use of vehicles, housing costs, electricity and telephone services, are not included because data collected on employer subsidies (or income in-kind) cannot be fully reconciled with data collected on business refunds.

Other in-kind expenditures, such as the consumption of vegetables grown by the household or provided by another household (not in return for labour) are excluded.

Timing of expenditure

The total period covered by expenditure estimates is a function of the recall or reporting period at the time of interview and the timing of interviewing. For the 1998-99 HES, interviewing was conducted throughout the 1998-99 financial year. For most types of expenditure, data were taken from diaries in which survey participants recorded their expenditure over a two week period, beginning the day after interview. Diary derived estimates therefore refer almost entirely to expenditure during the 1998-99 financial year.

Estimates for infrequently purchased or more expensive items are derived from the household questionnaire (see explanation in Data Collection section in chapter 3) which collects expenditure information for goods and services on a recall basis. These less frequently occurring items are collected over periods longer than the two week diary reporting period so that sufficient numbers of households report expenditure to enable the calculation of reliable expenditure estimates. For example, in 1998-99, survey participants were asked to recall how much they spent on motor vehicle registration over the last 12 months. Recall periods differ between items, ranging from the household’s last payment (which may be as short as the last week) for rent payments to two years for house purchases.

Table A3.1 (in appendix 3) indicates the items collected in the household questionnaire and their associated recall periods. In general, longer periods are used for items which are expensive, are acquired infrequently or are acquired at irregular intervals. Shorter periods are used for items which are purchased more frequently or are less significant and therefore not well remembered.

The use of different recall periods means that estimates for different expenditure items, in some cases, refer to different periods. The estimates of average expenditure on motor vehicle registration, for example, cover the 12 months prior to the beginning of interviewing to the end of interviewing (i.e. July 1997 to June 1999). For house purchases, the period is two years prior to the beginning of interviewing to the end of interviewing (i.e. July 1996 to June 1999). Household questionnaire derived estimates therefore refer to varying periods prior to the 1998-99 financial year as well as during the 1998-99 financial year.

Studies which use HES data tend to assume that all expenditure estimates refer only to the common reference period of July 1998 to June 1999. This is generally true for diary derived estimates but is a valid assumption for estimates derived from the household questionnaire only if expenditure prior to the 1998-99 financial year was the same as during the 1998-99 financial year.

For household questionnaire estimates, if the volumes or prices of purchases were lower during the period prior to the 1998-99 financial year, then average expenditure over the preceding period plus the 1998-99 financial year will be less than average expenditure over the 1998-99 financial year only. Similarly, if prices or volumes were higher during the preceding period, the HES estimate will over-estimate average expenditure in the 1998-99 financial year. The longer the preceding period (which is equal to the length of the recall period), the greater the likelihood of discrepancy. In cases where expenditure is expected to have changed, researchers may wish to acknowledge or adjust for these differences.

Weekly household expenditure

Estimates of weekly expenditure do not refer to any given week but are weekly equivalents. They are derived by dividing reported expenditure for all members of the household by the number of weeks in the relevant recall or reporting period. For household questionnaire items, recall periods vary from the last two years to the last three months, and for some items the last payment is reported (see appendix 3 for details). For diary items, the reporting period is two weeks.


INCOME

Although the HES is primarily a survey of household expenditure, information is also collected on household income because:
  • The HES aims not only to produce data on expenditure itself but to explain variations in expenditure levels and patterns. The level of household income is a major determinant of expenditure. Income is therefore a major classification variable used in the tabulation and presentation of HES results.
  • Income levels and sources can be used to identify groups of special interest. Income is used to identify those receiving government pensions or benefits, those earning low or high incomes, and those receiving wages and salaries or other types of income.

The income data collected in the HES relates to usual cash income, that is gross receipts of recurring and usually regular cash flows. The resulting income estimates are a reasonable proxy for weekly cash income and can be used in their own right in income distribution studies.

Usual cash income

Usual cash income refers to income which is most frequently received over a given period rather than the income which is actually received. This is a better explanatory variable for average expenditure because it excludes variations in income which are unlikely to result in variations in expenditure. Week to week variations in actual or average income are unlikely to affect average expenditure because the financial obligations which drive expenditure are fairly stable.

Receipts which are excluded

Receipts which are not recurring and usually regular or are not cash flows are excluded from the HES. Examples include:
  • capital transfers received such as: inheritances and legacies; non-recurring gifts from other households; capital repayment of loans from other households; maturity payments received on life insurance policies; and lump sum compensation for injuries.
  • capital gains and losses, such as profit from buying and selling shares unless as a business.
  • receipts from running down assets (excluding receipts from pension funds), such as withdrawals from savings and loans and credit obtained.
  • most income in-kind, such as: the value of home produced goods unless received from own business; and non-monetary gifts from other households.

Sources of income

Income is collected according to source. Main sources of income include employee income, own business income, government pensions and allowances and other income (including property income such as rent, interest and dividends and other transfer income such as regular recurring receipts from superannuation and child support). A detailed list of the types of income for which HES estimates are available is given in appendix 2.

Employee income

Employee income was collected in the 1998-99 HES from each person aged 15 years and over who worked for an employer or in his/her own limited liability business. Publication estimates of employee income are the sum of usual weekly pay, average weekly receipts from leave loading and regular bonuses, and the average weekly value of selected in-kind income from employers.

Usual weekly pay covers wages and salaries, tips, commissions, piecework payments, penalty payments and shift allowances, remuneration for time not worked (e.g. sick and holiday pay) and workers’ compensation paid through the payroll.

To obtain usual pay, survey participants are asked to report the amount of their most recent pay and what period the pay covers. They are then asked if that pay is usual, and if not, they are asked to supply a usual amount and the period covered. Estimates are based on the last (actual) pay if that pay is usual, otherwise on the reported usual pay. Pays are divided by the number of weeks they cover to produce estimates of usual weekly income.

To obtain information on leave loading and regular bonuses, survey participants are asked if they received any leave loading or regular bonuses in the last 12 months. If they do, they are asked to report the amounts received. The amounts are divided by 52 weeks to obtain equivalent average weekly income which, due to the length of the recall period, is considered to be the same as usual income.

With the exception of subsidies for goods and services which cannot be distinguished from refunds, the difference between the full retail value of a good or service provided by an employer and the amount paid by the household member is added to the income of employees.

Own business income

Own business income was collected from all persons aged 15 years and over who were working as owners or partners in unincorporated enterprises. Own business income is the share of profit/loss of the enterprise accrued to the person. Profit/loss consists of the value of the gross output of the enterprise after the deduction of operating expenses and an allowance for depreciation of assets used in producing the output. Losses occur when operating expenses and depreciation are greater than gross receipts and are treated as negative incomes.

The HES collects own business income in the last financial year because records of own business income are rarely available for more current periods. Sometimes, particularly during the early stages of interviewing, households cannot provide information on the last financial year and instead, provide information on the financial year prior to the last financial year. In cases where the preceding financial year’s profit/loss is collected, it is assumed that this is representative of current income and is not indexed or updated in any other way. During processing, the amounts are divided by the number of weeks over which the business was operational during the financial year to obtain equivalent average weekly income which, due to the length of the recall period, is considered to be the same as usual income.

Property income

Property income was collected from all persons aged 15 years and over who report net receipts accrued in the recall period as a result of ownership of assets. It comprises returns from financial assets (interest, dividends), from non-financial assets (rent) and from royalties. Amounts of property income are collected for the last financial year. The amounts are divided by 52 weeks to obtain equivalent average weekly income which, due to the length of the recall period, is considered to be the same as usual income.

Interest is collected from deposits (including term deposits) with banks, building societies, credit unions and other financial institutions.

Rent comprises receipts from properties other than owner-occupied dwellings. It includes receipts from lodgers and others who were sub-letting part of the dwelling, but excludes receipts from boarders who were counted as members of the household. Analogous with own business income, rent is net of operating expenses such as repairs and maintenance and interest payments. It is also net of depreciation. Losses occur when operating expenses and depreciation are greater than gross receipts and are included in income estimates as negative incomes.

Dividends comprise income households or persons receive from investments in corporate equities, such as ownership of shares. Income includes imputation credits.

Royalties include receipts in return for the use of patented and copyright materials.

Cash transfer income

Cash transfer income was collected from all persons aged 15 years and over who reported they were currently receiving regular and recurring receipts other than those obtained from employee, own business or property income. It consists of government pensions and allowances, other pension and life assurance annuity benefits and other current cash transfers.

Government pensions and allowances are receipts paid by government to persons under social security and related government programs. They include pensions paid to aged persons, benefits paid to veterans and their survivors and study allowances for students.

Other pension and life assurance annuity benefits include regular superannuation, life insurance and annuity receipts.

Other current cash transfers include private scholarship or study allowances, workers’ compensation not paid through the payroll and child support payments (non-government).

The HES collects current transfer information by asking recipients what their last payment is and the period it covers. Assuming that transfer payments are fairly uniform, the last actual receipt is considered a good proxy for usual income. The receipt is divided by the period it covers to produce an estimate of average weekly income.

Children’s income

Income of children aged less than 15 years was collected from the first parent or guardian interviewed. Only values of income which are readily accessible to the child or the parent or guardian are collected.

Timing of income

The total period covered by income estimates is a function of the recall period at the time of interview and the timing of interviews. Table 1 shows the length of the recall periods for different income items and, given that interviews were conducted over the 1998-99 financial year, shows the total period covered by the income estimates.
1 RECALL PERIODS AND TOTAL PERIODS COVERED BY 1998-99 INCOME ITEMS
Income data item
Recall period
Total period covered by estimates
Employee income
  • usual pay
last payapproximately July 1998 to June 1999
  • leave loading and regular bonuses
last 12 monthsJuly 1997 to June 1999
  • income in-kind
2 weeks after interview (due to being collected in the diary)July 1998 to June 1999
Own business incomelast financial year (or if this could not be provided, the financial year prior to the last financial year)July 1997 to June 1998
(or July 1996 to June 1997)
Property incomelast financial yearJuly 1997 to June 1998
Cash transfer incomelast paymentapproximately July 1998 to June 1999


Studies which use HES data tend to assume that all income estimates refer only to the common reference period of July 1998 to June 1999. This is at least approximately true for employee and cash transfer income. For own business and property income, it is a valid assumption only if income levels are constant between the last financial year and the 1998-99 financial year. In cases where income levels are expected to have changed, researchers may wish to acknowledge or adjust for these differences.


Weekly household income

Estimates of weekly income are derived by dividing the sum of each household members’ personal income plus childrens’ income by the number of weeks over which it is collected. Thus, estimates of weekly income do not refer to any given week but to usual weekly income.

Income tax

Instead of collecting information on income tax paid, the ABS models the amount of income tax (plus medicare levy) payable by households according to the taxation criteria for 1998-99 and using the income and characteristics of household members as reported in the survey.

Information collected in the HES on household characteristics is not sufficiently comprehensive to enable the calculation of exact amounts of tax payable, but the model provides good proxy estimates.


DIFFERENCE BETWEEN INCOME AND EXPENDITURE

The HES provides information about both the income and the expenditure of households, but it would be misleading to regard the difference between average weekly income and the sum of the items of average weekly expenditure as a measure of saving.

First, to be properly understood, the concept of household saving needs to be articulated along with the concept of household wealth (assets less liabilities), and all forms of income and expenditure need to be measured and classified consistently with these concepts. The HES does not attempt to do this. For example, the HES measure of income does not include capital gains or windfall gains such as inheritances. Rather, it focuses on the regular and recurring forms of income; expenditure on current consumption of goods and services; the major component of regular current transfers (income tax); and three major items of expenditure which can be regarded as investment expenditure (‘mortgage repayments-principal (selected dwelling)’, ‘other capital housing costs’ and ‘superannuation and life insurance’). The three items of investment expenditure are included in the HES because they are a significant regular commitment of many households which have to be financed from regular income.

Second, there are significant timing differences between the different components of income and expenditure collected:

  • expenditure does not cover all current payments because expenditure was collected on an acquisitions basis;
  • income does not cover all current receipts because it was collected on a usual receipts basis;
  • expenditure does not cover a common reference period. Expenditure estimates for different items refer to different periods;
  • income does not cover a common reference period. Income estimates for different sources of income refer to different periods.

The timing problem is likely to be greatest for households for which the major source of income is unincorporated business activity. Recorded income will relate to the previous financial year, while expenditure will mostly relate to a period within the current financial year. If business profitability is significantly different between the two years, then there may be a significant discrepancy between the recorded income and expenditure components which do not reflect the saving pattern of the household. While such differences will disappear to a certain extent through summing across households, there may still be an impact on aggregate estimates if, for example, all farmers had a bad season in one year and a good season in the following year. More importantly, there will be a definite impact on the quintile analysis of HES data.

HES income and expenditure estimates therefore do not balance for individual households or for groups of households and the difference between income and expenditure cannot be considered to be a measure of saving.

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