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6523.0 - Household Income and Income Distribution, Australia, 2005-06  
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 02/08/2007   
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EXPLANATORY NOTES


INTRODUCTION

1 This publication presents a summary of the findings from the 2005-06 Survey of Income and Housing (SIH). The survey collected detailed information about the income, assets, liabilities and household characteristics of persons aged 15 years and over resident in private dwellings throughout Australia.


2 The Survey of Income and Housing, Australia: User Guide, 2005-06 (cat. no. 6553.0), expected to be released in August 2007, will assist users in evaluating and interpreting results from this survey.


3 The SIH was conducted continuously from 1994-95 to 1997-98, and then in 1999-2000, 2000-01, 2002-03, 2003-04 and 2005-06. The 2005-06 SIH collected information from a sample of approximately 10,000 households over the period July 2005 to June 2006. Future cycles of the SIH will be conducted every two years.


4 Previous surveys of household income were conducted by the Australian Bureau of Statistics (ABS) in 1979, 1982, 1986 and 1990. These surveys were generally conducted over a two-month period, compared to a twelve-month period for the SIH. The SIH also included improvements to the survey weighting and estimation procedures, changes to the population in scope and changes to interviewing methods.



Changes in this issue

5 The 2005-06 SIH was run as a stand alone survey, whereas the 2003-04 SIH was integrated with the Household Expenditure Survey (HES). This may have had an impact on response bias. The HES and SIH will be integrated each time the HES is run, with the next HES scheduled for 2009-10.


6 The 2005-06 SIH survey content was largely a repeat of that used in the 2003-04 SIH, with some minor wording changes.


7 Changes in this issue are:

  • the inclusion of all salary sacrificed amounts in wages and salaries estimates for 2003-04 and 2005-06. In previous issues estimates have included only some salary sacrificed amounts. Some of the 2003-04 income estimates included in this issue have therefore been revised to include additional salary sacrificed amounts (in Tables 1 to 3 and A3). See Appendix 4 for more information.
  • the use of more detailed age benchmarks when determining the weights to be allocated to each unit in 2005-06 estimates. For further information refer to paragraph 52 of the Explanatory Notes.
  • minor errors in a few numbers appearing in the previous issue for Tables 1, 2 and 3 for the years 1994-95 to 1997-98 have been corrected.


CONCEPTS AND DEFINITIONS

8 The concepts and definitions relating to statistics of income and net worth are described in the following section. Other definitions are included in the glossary.



Person and household data

9 A major determinant of economic wellbeing for most people is the level of income they and other family members in the same household receive.


10 While income is usually received by individuals, it is normally shared between partners in a couple relationship and with dependent children. To a lesser extent, it may be shared with other children, other relatives and possibly other people living in the same household, for example through the provision of free or cheap accommodation. This is particularly likely to be the case for children other than dependants and other relatives with low levels of income of their own. Even when there is no transfer of income between members of a household, nor provision of free or cheap accommodation, members are still likely to benefit from the economies of scale that arise from the sharing of dwellings.


11 Household characteristics, including household income, are therefore the main information required for analysing income distribution. However, it is the number of people who belong to households with particular characteristics, rather than the number of households with those characteristics, that is of primary interest in measuring income distribution and leads to the preference for the equal representation of those persons in such analysis. For example, if the person is used as the unit of analysis rather than the household, then the representation in the income distribution of each person in a household comprising four persons is the same as that for each person in a household comprising two persons. In contrast, if the household were to be used as the unit of analysis, each person in the four person household would only have half the representation of each person in the two person household.


12 In this publication, the income distribution measures are all calculated with respect to persons, including children. Such measures are sometimes known as person weighted estimates. They are described in more detail in Appendix 1. Nevertheless, as most of the relevant characteristics of persons relate to their household circumstances, Tables 6 to 16 primarily describe the households to which people belong.



Income

13 Income refers to regular and recurring cash receipts from employment, investments and transfers from government, private institutions and other households. This differs from the household income definition used in the Australian System of National Accounts (ASNA). A detailed comparison of 1997-98 SIH and ASNA estimates was published as an appendix to the 1997-98 issue of this publication. Comparison of SIH data from 1994-95 to 2005-06 with ASNA data indicated that the relationship between the two estimates had not changed significantly over that period.


14 Sources from which income may be received include:

  • wages and salaries (whether from an employer or own incorporated business), including income provided as part of a salary sacrifice arrangement
  • profit/loss from own unincorporated business (including partnerships)
  • investment income (interest, rent, dividends, royalties)
  • government pensions and allowances
  • private cash transfers (e.g. superannuation, regular workers' compensation, income from annuities, child support, and other transfers from other households).

15 Receipts which are excluded from income because they are not regular or recurring cash payments include:
  • income in kind including employee benefits such as the provision of a house or a car and employer contributions to pension and superannuation funds, except when provided as part of a salary sacrifice arrangement
  • capital transfers such as inheritances and legacies, maturity payments on life insurance policies, lump sum compensation for injuries or other damage
  • capital gains and losses.

16 Receipts of family tax benefit are treated as income, regardless of whether they are received fortnightly or as a lump sum. The aged persons' savings bonus and self-funded retirees' supplementary bonus, paid as part of the introduction of The New Tax System in 2000-01, are regarded as capital transfers as they were designed to help retired people maintain the value of their savings and investments following the introduction of the GST. However, the one-off payment to seniors paid in 2000-01, the one-off payment to families paid in 2003-04 and the one-off payments to carers paid in 2003-04, 2004-05 and 2005-06 are included as income as they were primarily a supplement to existing income support payments. The maternity payment introduced in July 2004 is also included as income.



Gross income

17 Gross income is the sum of the income from all sources before income tax and the Medicare levy have been deducted. Prior to 2005-06, family tax benefit paid through the tax system or as a lump sum was excluded from gross income for practical reasons. In 2005-06 these payments have been included in gross income.



Disposable income

18 Disposable income better represents the economic resources available to meet the needs of households. It is derived by deducting estimates of personal income tax and the Medicare levy from gross income.


19 Income tax and Medicare levy payments are estimated for all households using taxation criteria for 2005-06 and the income and other characteristics of household members reported in the survey.


20 Prior to 2005-06 the derivation of disposable income also included the addition of family tax benefit paid through the tax system or as a lump sum by Centrelink since for practical reasons it was not included in the gross income estimates.



Equivalised disposable income

21 Most analyses in this publication use equivalised disposable income rather than gross or disposable income since it enables comparison of the relative economic wellbeing of households of different size and composition. Equivalised disposable income is calculated by adjusting disposable income by the application of an equivalence scale. This adjustment reflects the requirement for a larger household to have a higher level of income to achieve the same standard of living as a smaller household. Where disposable income is negative, it is set to zero equivalised disposable income.


22 When household income is adjusted according to an equivalence scale, the equivalised income can be viewed as an indicator of the economic resources available to a standardised household. For a lone person household, it is equal to income received. For a household comprising more than one person, equivalised income is an indicator of the household income that would be required by a lone person household in order to enjoy the same level of economic wellbeing as the household in question.


23 For more information on equivalised income see Appendix 3.



Lowest income decile

24 While equivalised income generally provides a useful indicator of economic wellbeing, there are some circumstances which present particular difficulties. Some households report extremely low and even negative income in the survey, which places them well below the safety net of income support provided by social security pensions and allowances. Households may underreport their incomes in the survey at all income levels, including low income households. However, households can correctly report low levels of income if they incur losses in their unincorporated business or have negative returns from their other investments.


25 Studies of income and expenditure reported in HES surveys have shown that such households in the bottom income decile and with negative gross incomes tend to have expenditure levels that are comparable to those of households with higher income levels (and slightly above the average expenditures recorded for the fifth income decile). This suggests that these households have access to economic resources such as wealth, or that the instance of low or negative income is temporary, perhaps reflecting business or investment start up. Other households in the lowest income decile in past surveys had average incomes at about the level of the single pension rate, were predominantly single person households, and their principal source of income was largely government pensions and allowances. However, on average, these households also had expenditures above the average of the households in the second income decile, which is not inconsistent with the use of assets to maintain a higher standard of living than implied by their incomes alone.


26 It can therefore be reasonably concluded that many of the households included in the lowest income decile are unlikely to be suffering extremely low levels of economic wellbeing. Income distribution analysis may lead to inappropriate conclusions if such households are used as the basis for assessing low levels of economic wellbeing. For this reason, tables showing statistics classified by income quintile include a supplementary category comprising the second and third income deciles, which can be used as an alternative to the lowest income quintile. (For an explanation of quintiles and deciles, see Appendix 1.)


27 With the 2003-04 HES, analysis of households in the lowest income decile was improved through direct observation of the expenditure and net worth of these households. An examination of these low income households was presented in Appendix 4 of Household Wealth and Wealth Distribution, 2003-04 (cat. no 6554.0).



Final income

28 A more detailed analysis of 'final' income which looks at the impact of government social transfers in kind (ie non-cash benefits) and taxes on production requires detailed information on expenditure patterns which is not available in the SIH. For details of this type of 'final' income analysis see Government Benefits, Taxes and Household Income, Australia, 2003-04 (cat. no. 6537.0).



Weekly income

29 Income is collected using a number of different reporting periods, such as the whole financial year for own unincorporated business and investment income, and the usual payment for a period close to the time of interview for wages and salaries, other sources of private income and government pensions and allowances. The income reported is divided by the number of weeks in the reporting period. Estimates of weekly income in this publication do not therefore refer to a given week within the reference period of the survey.



Annual income

30 The tables in the main body of this publication refer to 'current' weekly income, that is, income being received at the time the data were collected from respondents. The survey also produces measures of 'annual' income that reflect total incomes for the previous financial year. Appendix 2 explains how current income differs from annual income, notes some of the advantages and disadvantages of the two types of measure and presents some 'annual' income estimates.



Net worth

31 Net worth, often referred to as wealth, is the value of a household's assets less the value of its liabilities. Assets can take many forms including:

  • produced tangible fixed assets that are used repeatedly and for more than one year, such as dwellings and their contents, vehicles, and machinery and equipment used in businesses owned by households
  • intangible fixed assets such as computer software and artistic originals
  • business inventories of goods
  • non-produced assets such as land
  • financial assets such as bank deposits, shares, superannuation account balances, and the outstanding value of loans made to other households or businesses.

32 Liabilities are primarily the value of loans outstanding including:
  • mortgages
  • study loans
  • investment loans
  • credit card debts
  • debt on other loans such as personal loans to purchase vehicles.

33 In the SIH, some asset and liability data is collected on a net basis rather than collecting for each component listed above. For example, if a survey respondent owns or part owns a business, they are asked how much they would receive if they sold their share of the business and paid off any outstanding debts.


34 While this publication provides some household net worth statistics, principally to aid income analysis, a more comprehensive range of household asset and liability information is expected to be released in October 2007 in Household Wealth and Wealth Distribution, 2005-06 (cat. no. 6554.0). While net worth data were collected in respect of 2003-04 and 2005-06, they are not being collected in the 2007-08 survey. The comprehensive wealth data will in future be collected only in years when the HES is conducted. The next HES is scheduled for 2009-10.



SURVEY METHODOLOGY

Scope

35 The survey collects information by personal interview from usual residents of private dwellings in urban and rural areas of Australia, covering about 98% of the people living in Australia. Private dwellings are houses, flats, home units, caravans, garages, tents and other structures that were used as places of residence at the time of interview. Long-stay caravan parks are also included. These are distinct from non-private dwellings which include hotels, boarding schools, boarding houses and institutions. Residents of non-private dwellings are excluded.


36 The survey also excludes:

  • households which contain members of non-Australian defence forces stationed in Australia
  • households which contain diplomatic personnel of overseas governments
  • households in collection districts defined as very remote - this has only a minor impact on aggregate estimates except in the Northern Territory where such households account for about 24% of the population.


Data collection

37 Information for each household was collected using:
  • a household level computer assisted interview questionnaire which collected information on household characteristics, assets and liabilities
  • an individual level computer assisted interview questionnaire which collected information on income and other personal characteristics from each usual resident aged 15 years and over.

38 Sample copies of the above documents are included in the Survey of Income and Housing, Australia: User Guide, 2005-06 (cat. no. 6553.0) to be released in August 2007.



Sample design

39 The sample was designed to produce reliable estimates for broad aggregates for households resident in private dwellings aggregated for Australia, for each state and for the capital cities in each state and territory. More detailed estimates should be used with caution, especially for Tasmania, the Northern Territory and the Australian Capital Territory (see Appendix 5).


40 For the 2005-06 SIH, dwellings were selected through a stratified, multistage cluster design. Selections were distributed across a twelve month enumeration period so that the survey results would be representative of income patterns across the year. In the final quarter of enumeration, 25% of the selected dwellings were deselected from the sample. This reduced the overall number of dwellings selected to participate in the survey. This outcome will increase the standard error in the final quarter estimates and hence the standard error in the annualised estimates. This increase in standard error is included in the error estimation. The relative change in sample size across the enumeration quarters may also introduce some bias to the annualised estimates but this is expected to be much less than the standard error.



Non-responding households

41 Of the selected dwellings there were 12,311 in the scope of the survey. Of these, 2,350 did not respond at all to the questionnaire, or did not respond adequately. Such households included:

  • households affected by death or illness of a household member
  • households in which the significant person(s) in the household did not respond because they could not be contacted, had language problems or refused to participate
  • households in which the significant person(s) did not respond to key questions.


Partial response and imputation

42 Some other households did not supply all the required information but supplied sufficient information to be retained in the sample. Such partial response occurs when:
  • income or other data in a questionnaire are missing from one or more non-significant person's records because they are unable or unwilling to provide the data
  • all key questions are answered by the significant person(s) but other data are missing.

43 In these cases, the data provided are retained and the missing data are imputed by replacing each missing value with a value reported by another person (referred to as the donor).


44 Donor records are selected by finding fully responding persons with matching information on various characteristics (such as state, sex, age, labour force status and income) as the person with missing information. As far as possible, the imputed information is an appropriate proxy for the information that is missing. Depending on which values are to be imputed, donors are randomly chosen from the pool of individual records with complete information for the block of questions where the missing information occurs.


45 In previous SIH surveys, responses were also imputed when not every person aged 15 or over residing in the household responds, but the significant person(s) provide(s) answers to all key questions. In 2005-06 these households were regarded as non-responding.



Final sample

46 The final sample on which estimates were based, is composed of persons for which all necessary information is available. The information may have been wholly provided at the interview (fully-responding) or may have been completed through imputation for partially responding households. Of the selected dwellings, there were 12,311 in the scope of the survey, of which 9,961 (80.9%) were included as part of the final estimates. The final sample consists of those 9,961 households, comprising 19,212 persons aged 15 years old and over. The final sample includes 2,441 households which had at least one imputed value in either income or assets and liabilities. For 57% of these households only a single value was missing, and most of these were for superannuation assets or a minor source of income for the household.

SIH Final Sample: Number of households, 2005-06

Capital city
Balance of State
Total
Households
Persons(a)
Households
Persons(a)
Households
Persons(a)
no.
no.
no.
no.
no.
no.

NSW
1 415
2 879
948
1 807
2 363
4 686
Vic.
1 247
2 478
596
1 102
1 843
3 580
Qld
798
1 530
896
1 753
1 694
3 283
SA
1 037
1 934
295
534
1 332
2 468
WA
1 031
1 987
335
622
1 366
2 609
Tas.
337
641
440
787
777
1 428
NT
117
246
46
82
163
328
ACT
423
830
-
-
423
830
Aust.
6 405
12 525
3 556
6 687
9 961
19 212

- nil or rounded to zero (including null cells)
(a) Number of persons aged 15 years and over



Weighting

47 Weighting is the process of adjusting results from a sample survey to infer results for the total in scope population whether that be persons or households. To do this, a 'weight' is allocated to each sample unit e.g. a person or a household. The weight is a value which indicates how many population units are represented by the sample unit. The first step in calculating weights for each unit is to assign an initial weight, which is the inverse of the probability of being selected in the survey. For example, if the probability of a household being selected in the survey was 1 in 600, then the household would have an initial weight of 600 (that is, it represents 600 households).


48 The initial weights are then calibrated to align with independent estimates of the population of interest, referred to as 'benchmarks'. Weights calibrated against population benchmarks ensure that the survey estimates conform to the independently estimated distribution of the population rather than to the distribution within the sample itself.


49 The SIH survey was benchmarked to the in scope estimated resident population (ERP) and the estimated number of households in the population.


50 Three types of benchmarks are used in the calibration of the final weights:

  • numbers of persons aged 15 and over
  • numbers of children under age 15
  • numbers of households.

51 Person benchmarks for persons aged 15 and over are estimates of the number of people in each state and territory by age and sex, the number of people in each state and the ACT by labour force status and the number of people in each state living in the capital city or the balance of the state.


52 The benchmark variables used are the same as those used in the 2003-04 SIH. The only change has been in the age groups which now consist of mainly 5 year groups instead of 10 year groups, and extending the benchmarking for older ages by splitting a broad category for those aged 65 years and over into three categories for 65-69 years, 70-74 years and 75 years and over. The expanded detail for age groups in SIH 2005-06 aims to improve estimates across all ages, but particularly for older people. The impact of this change on all other estimates not involving age is expected to be minimal.


53 A separate set of benchmarks is used for children under 15, since there are not individual person records for them in the survey. Information about children is recorded on household records, however, and benchmarks for the number of children aged 0-4 and aged 5-14 are used for each state and territory.


54 Numbers of households are calibrated to benchmarks for total Australia with respect to household composition (based on the number of adults (1, 2 or 3) and whether or not the household contains children).


55 The person and household benchmarks are based on estimates of numbers of persons and households in Australia. The benchmarks are adjusted to include persons and households residing in private dwellings only and therefore do not, and are not intended to, match estimates of the Australian resident population published in other ABS publications.



Estimation

56 Estimates produced from the survey are usually in the form of averages (e.g. average weekly income of couple households with dependent children), or counts (e.g. total number of households that own their dwelling or total number of persons living in households that own their own dwelling). For counts of households, the estimate was obtained by summing the weights for the responding households in the required group (e.g. those owning their own dwelling). For counts of persons, the household weights were multiplied by the number of persons in the household before summing. The SIH collects data on the number of people, including children, in each household but separate records with income and other detailed data were only collected for people 15 years and older. Therefore, counts of persons cannot be obtained by summing the weights of all persons.


57 Average income values are obtained in two different ways, depending on whether mean gross household income or mean equivalised disposable household income is being derived. Estimates of mean gross household income are calculated on a household weighted basis. They are obtained by multiplying the gross income of each household by the weight of the household, summing across all households and then dividing by the estimated number of households. For example, the mean gross household income of couple households with dependent children is the weighted sum of the gross income of each such household divided by the estimated number of those households. Estimates of mean equivalised disposable household income are calculated on a person weighted basis. They are obtained by multiplying the equivalised disposable income of each household by the number of people in the household (including children) and by the weight of the household, summing across all households and then dividing by the estimated number of people in the population group. Appendix 3 illustrates the differences between mean gross household income calculated on a household weighted basis and mean equivalised disposable household income calculated on a person weighted basis.



RELIABILITY OF ESTIMATES

58 The estimates provided in this publication are subject to two types of error, non-sampling and sampling error.



Non-sampling error

59 Non-sampling error can occur in any collection, whether the estimates are derived from a sample or from a complete collection such as a census. Sources of non-sampling error include non-response, errors in reporting by respondents or recording of answers by interviewers and errors in coding and processing the data.


60 Non-sampling errors are difficult to quantify in any collection. However, every effort is made to reduce non-sampling error to a minimum by careful design and testing of the questionnaire, training of interviewers and data entry staff and extensive editing and quality control procedures at all stages of data processing.


61 One of the main sources of non-sampling error is non-response by persons selected in the survey. Non-response occurs when people cannot or will not cooperate or cannot be contacted. Non-response can affect the reliability of results and can introduce a bias. The magnitude of any bias depends upon the level of non-response and the extent of the difference between the characteristics of those people who responded to the survey and those who did not.


62 The following methods were adopted to reduce the level and impact of non-response:

  • face-to-face interviews with respondents
  • the use of interviewers who could speak languages other than English, where necessary
  • follow-up of respondents if there was initially no response
  • imputation of missing values
  • ensuring that the weighted data is representative of the population (in terms of demographic characteristics) by aligning the estimates with population benchmarks.


Sampling error

63 The estimates are based on a sample of possible observations and are subject to sampling variability. The estimates may therefore differ from the figures that would have been produced if information had been collected for all households. A measure of the sampling error for a given estimate is provided by the standard error, which may be expressed as a percentage of the estimate (relative standard error). Further information on sampling error is given in Appendix 5.



ACKNOWLEDGMENT

64 ABS publications draw extensively on information provided freely by individuals, businesses, governments and other organisations. Their continued cooperation is very much appreciated: without it, the wide range of statistics published by the ABS would not be available. Information received by the ABS is treated in strict confidence as required by the Census and Statistics Act 1905.



STANDARD PRODUCTS

65 This publication provides a summary of the income related data available from the SIH. Additional tables (product number 6523.0.55.001) have been released on the ABS web site concurrently with this publication, including tables of counts relating to publication tables of proportions, as well as more detailed dissections, such as by age of persons in the household, and additional classifications.



SPECIAL DATA SERVICES

66 The ABS offers specialist consultancy services to assist clients with more complex statistical information needs. Clients may wish to have the unit record data analysed according to their own needs, or require tailored tables incorporating data items and populations as requested by them. Tables and other analytical outputs can be made available electronically or in printed form. However, as the level of detail or disaggregation increases with detailed requests, the number of contributors to data cells decreases. This may result in some requested information not being able to be released due to confidentiality or sampling variability constraints. All specialist consultancy services attract a service charge, and clients will be provided with a quote before information is supplied. For further information, contact ABS information consultants on 1300 135 070.



UNIT RECORD FILE

67 It is expected that a confidentialised unit record file (CURF) from the 2005-06 SIH will be released on CD-ROM in August 2007. It is also expected that a more detailed SIH CURF will be available through the ABS Remote Access Data Laboratory. A full range of up-to-date information about the availability of ABS CURFs and about applying for access to CURFs is available via the ABS web site <http://www.abs.gov.au> (see Services We Provide, Confidentialised Unit Record Files (CURFs)). Inquiries to the ABS CURF Management Unit should email: curf.management@abs.gov.au, or telephone (02) 6252 5853.



RELATED PUBLICATIONS

68 Users may wish to refer to the following ABS products which relate to income:

      Household Income and Income Distribution, Australia, Detailed Tables, cat. no. 6523.0.55.001
      Government Benefits, Taxes and Household Income, Australia, 2003-04, cat. no. 6537.0
      Household Expenditure Survey, Australia: Summary of Results, 2003-04, cat. no. 6530.0
      Household Expenditure Survey, Detailed Expenditure Items, 2003-04, cat. no. 6535.0.55.001
      Housing Occupancy and Costs, Australia, cat. no. 4130.0.55.001
      Labour Force, Australia, cat. no. 6202.0 - issued monthly
      Average Weekly Earnings, Australia, cat. no. 6302.0 - issued quarterly
      Measuring Wellbeing: Frameworks for Australian Social Statistics, 2001, cat. no. 4160.0
      Measures of Australia's Progress, 2006, cat. no.1370.0
      Information Paper: Experimental Estimates of Personal Income for Small Areas, Taxation and Income Support Data, 1995-96 to 2000-01, cat. no. 6524.0
      Household Wealth and Wealth Distribution, Australia, cat. no. 6554.0
      Information paper: Changes to ABS Measures of Employee Remuneration, Australia, 2006, cat. no. 6313.0

69 The SIH User Guide (cat. no. 6553.0) is expected to be released in August 2007.


70 Users may also wish to refer to the following non-ABS products which relate to income:

      Taxation Statistics 2004-05, A summary of taxation, superannuation and industry benchmark statistics (Australian Taxation Office)
      Statistical Paper No. 3: Income support customers: A statistical overview 2004. (Department of Families, Community Services and Indigenous Affairs)
      Household, Income and Labour Dynamics in Australia (HILDA) Survey, Annual Report 2006 (Melbourne Institute of Applied Economic and Social Research)

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