THE HEADLINE DIMENSIONS THE ECONOMY AND ECONOMIC RESOURCES
When measuring progress for the economy and economic resources, we consider five headline dimensions (although headline indicators are only available for four): National income; Economic hardship; National wealth; Housing (no headline indicator); and Productivity. The headline indicators available suggest some progress over the past decade.
This area of progress contains headline graphs and the following dimensions:
National income is a measure of Australia's capacity to acquire goods and services for consumption. It is a determinant of material living standards and is also important for other aspects of progress. There are many different ways of measuring income. The headline measure – real net national disposable income per capita – has a variety of features that make it an informative indicator of national progress.
Australia experienced significant real income growth during the past decade. Between 1995–96 and 2005–06, real net national disposable income per capita grew by 3.0% a year on average.
- It is a per capita measure. Total income could rise during periods of population growth, even though there may have been no improvement in Australians' average incomes.
- It is a real measure – it is adjusted to remove the effects of price change. Nominal or current price income could rise during periods of inflation, even though there may have been no increase in Australians' real capacity to buy goods and services.
- It takes account of income flows between Australia and overseas, and is adjusted for changes in the relative prices of our exports and imports (our 'terms of trade'). These international influences on Australia's income can increase or decrease Australians’ capacity to buy goods and services.
- It is a net measure – it takes account of the depreciation of machinery, buildings and other produced capital used in the production process. Hence, it reflects the income Australia can derive today while keeping intact the fixed capital needed to generate future income.
Society generally accepts that people have a right to enjoy some minimum material standard of living, that is, to consume a minimum standard of goods and services. Household income is the major source of economic resources for most households and therefore a key determinant of economic wellbeing. The headline indicator shows the growth in average real equivalised disposable household income of people in the low income group (see Endnote 6). Although it provides no information about the number of people who might have an unacceptable standard of living, it does indicate how the average income of people in the low income group is changing.
The headline indicator shows that people in the low income group experienced a trend of rising real incomes between 1995–96 and 2005–06. The average real equivalised disposable household income of the low income group is estimated to have risen by 31% over the period, although part of the increase may reflect improvements to the way income was collected from 2003–04. The same individuals were not necessarily in this income grouping for the entire period. But for those people who were, their rising incomes would on average have provided a capacity to increase their standard of living.
While some would interpret this increase in the real income of the low income group as progress, others would consider that it also needs to be weighed against changes in community standards. Although there is no direct measure of these, one approach is to compare changes with those of 'middle' Australians and so changes in the real income of people in the middle income group are also shown. The average real equivalised disposable household income of the middle income group was estimated to have risen by 34% between 1995–96 and 2005–06. (Note: This and the previous paragraph have been updated with data from the ABS Survey of Income and Housing 2005–06.)
The headline indicator considers low income which is commonly associated with economic hardship. However, some people have access to other economic resources such as wealth. Furthermore, economic hardship is a multidimensional issue that is often associated with problems such as lack of participation in work, substance abuse, poor health, low levels of education, inadequate housing, crime, social exclusion and a lack of opportunity for children.
National wealth and national income are very closely related. Along with the skills of the work force, a nation's wealth has a major effect on its capacity to generate income. Produced assets (such as machinery and equipment) are used in income-generating economic activity. Income, in turn, provides for saving that enables the accumulation of new wealth. The headline indicator, 'real national net worth per capita' exhibits features that make it an informative indicator of national progress.
Between June 1996 and June 2006, Australia’s real net worth per capita rose at an average annual rate of 1.0%. However, the headline indicator does not take account of everything that might be regarded as valuable. For example, it does not include: native forests and other natural assets not used for economic production; human capital (e.g. knowledge and skills); or social capital (e.g. social networks and trust).
- It is a net measure – it shows the amount by which Australia's assets exceed its liabilities to the rest of the world.
- It is a per capita measure – total wealth could rise if the population grew, even though there may have been no improvement in Australians' average wealth.
- It is a real measure – it is adjusted to remove the effects of price change.
Housing provides people with shelter, security and privacy. Having an adequate and appropriate place to live is fundamental to people's wellbeing, and there are many aspects to housing that affect the quality of people’s lives. Dwelling attributes, such as size, number of bedrooms, physical condition, location relative to amenities and services, and price, are all important in this regard and there is no one indicator that succinctly captures whether people's many needs and desires for suitable housing are being met.
Australians are continuing to invest significantly in the homes that they own. From June 1997 to June 2006, around $517 billion (in real terms) was invested in dwellings (excluding land) (see Endnote 9). The value of land and dwellings owned by the household sector at 30 June 2006 represented 59% of the value of all assets owned by the sector.
In 2003–04, while 3% of households across Australia required one or more extra bedrooms to accommodate their residents, 77% had one or more bedrooms spare (see Endnote 10). But poor or inadequate housing is currently a problem for some groups, especially for Aboriginal and Torres Strait Islander peoples living in remote areas.
A nation's productivity is the volume of goods and services it produces (its output) for a given volume of inputs (such as labour and capital). A nation that achieves productivity growth produces more goods and services from its labour, capital, land, energy and other resources. Much, but not all, of Australia's output growth can be accounted for by increases in the inputs to production. The amount by which output growth exceeds input growth is the productivity improvement. Productivity growth can generate higher income and benefits might also accrue in the form of lower consumer prices.
Productivity can be measured in a variety of ways. The most comprehensive Australian measure available at present is multifactor productivity for the market sector. Multifactor productivity represents that part of the growth in output that cannot be explained by growth in labour and capital inputs. During the decade 1995–96 to 2005–06, Australia experienced improved productivity growth, and multifactor productivity rose by 1.2% per year on average.