Australian Bureau of Statistics
6523.0 - Household Income and Income Distribution, Australia, 2003-04
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 04/08/2005
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ABOUT THIS PUBLICATION
Changes in the SIH which are likely to have impacted on the data in this issue include:
Where the impacts of the above changes have, or are likely to have, impact on the assessment of changes over time, these breaks in series are discussed in the summary of findings, including the quantification of the impacts where possible.
EFFECTS OF ROUNDING
Where figures have been rounded, discrepancies may occur between sums of the component items and totals. Published percentages are calculated prior to rounding of the figures and therefore some discrepancy may exist between these percentages and those that could be calculated from the rounded figures.
For further information about these and related statistics, contact the National Information and Referral Service on 1300 135 070 or Jan Gatenby on Canberra (02) 6252 6174.
SUMMARY OF FINDINGS
The economic wellbeing of individuals is largely determined by their command over economic resources. People's income and reserves of wealth provide access to many of the goods and services consumed in daily life. This publication provides indicators of the level and distribution of after tax (disposable) household cash income and wealth, after adjusting for household size and composition.
The estimates of disposable income in this publication are derived from the gross cash income data collected in the Survey of Income and Housing (SIH), after deducting estimates of income tax liability and the Medicare levy. Gross cash income is defined as regular and recurring cash receipts from wages and salaries, profit/loss from own unincorporated business, investment income in the form of interest, rent and dividends, private transfers in the form of superannuation, child support, other transfers from other households, and cash transfers from government pensions and allowances. The restriction to cash incomes is one of practical measurement and is assessed to provide a reasonable, broad picture of the level and distribution of income. However, readers are advised that the relative mix of cash and non-cash incomes across subpopulations will be different, and can change over time.
While income is usually received by individuals, it is normally shared between partners in a couple relationship and with dependent children. To a lesser degree, there may be sharing with other members of the household. 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. The income measures shown in this publication therefore relate to household income. However, larger households normally require a greater level of income to maintain the same material standard of living as smaller households, and the needs of adults are normally greater than the needs of children. The income estimates are therefore adjusted by equivalence factors to standardise the income estimates with respect to household size and composition while taking into account the economies of scale that arise from the sharing of dwellings. The equivalised disposable income estimate for any household in this publication is expressed as the amount of disposable cash income that a single person household would require to maintain the same standard of living as the household in question, regardless of the size or composition of the latter.
Appendix 3 provides a more detailed explanation of equivalised disposable household income. It shows the differences in income measures when calculated from data at different stages in progression from gross household income, through disposable household income, to person weighted equivalised disposable household income.
Some of the key income results from the 2003–04 SIH are:
Some of the key net worth results from the 2003–04 SIH are:
METHODOLOGICAL CHANGES AND INCOME MEASURES
The changes in methodology between 2002–03 and 2003–04, listed in the Notes to this publication, have impacted on the comparison of the 2003–04 results with those for earlier cycles. While not all impacts can be quantified, the potential significance of the impacts on various sources of income are discussed below.
For wages and salaries, no obvious impacts were detected. Average wages and salaries in the 2003–04 results are 4.8% higher than in 2002–03, in line with the increase in average total weekly earnings reported in ABS business surveys. For selected distributional measures of gross wage and salary income (the Gini and the quintile income shares) the distributions in the two years are very similar.
For government pensions and allowances, no obvious impacts were detected. For 2003–04, the coverage of survey reported benefits compared to the benefits and allowances paid by government was slightly above the longer term average in cycles from the mid to late 1990s, but within one standard error of that average. Therefore, while a benefit benchmark had been introduced for the 1999–00 and 2000–01 cycles (when coverage fell significantly), no benchmark was used in either 2002–03 or 2003–04.
For investment income, the change in 2003–04 to ask about current income, rather than imputing the income on a "no change" assumption from reported income for the previous financial year, has been significant. In the 2002–03 results, the imputed total current investment income estimate was $16.2 billion. This simple imputation methodology, which had been used since the mid 1990s as the practical approximation to measuring current investment income, did not always result in year to year movements that were consistent with the related property income series in the household income account of the Australian National Accounts. This was particularly so for the current income imputed estimates for 2003–03. In 2003–04, respondents reported investment income amounts earned in 2002–03 at $19.8 billion, and current income in 2003–04 at $22.3 billion. The year on year movement between the current and previous year investment incomes reported in 2003–04 is broadly in line with the related national accounts series. The difference between the imputed amount for 2002–03 and the subsequently reported amount for that year contributes about $9 to the increase between the results for 2002–03 and 2003–04 in average gross weekly household incomes.
The change in methodology to capture reported current income was expected to produce a one-off break in the level of the household income series. It is also expected to provide a significant improvement in the future investment income and total income series. However, from the testing that has been undertaken, it is not obvious that the change in methodology has significantly affected income distribution measures. For the Gini and the quintile income shares, the change in gross household income distributions by excluding investment income is very similar for 2002–03 and 2003–04. Increasing the 2002–03 imputed investment income amounts by the ratio of reported to imputed incomes results in very little change to the selected income distribution measures for 2002–03.
As for investment income, for income from own unincorporated business ('business income') there was a change in 2003–04 to ask about current income, rather than imputing the income on a "no change" assumption from reported income for the previous financial year. In the 2002–03 results, the imputed total current business income estimate was $33.2 billion. This did not reflect the decline in the related national accounts series for mixed income of households (adjusted to deduct depreciation and interest payments). In 2003–04, respondents reported business income amounts earned in 2002–03 at $28.0 billion, and current income in 2003–04 at $31.2 billion. The year on year movement between the current and previous year business incomes reported in 2003–04 is broadly in line with the related national accounts series. The difference between the imputed amount for 2002–03 and the subsequently reported amount for that year contributes about -$13 to the change between the results for 2002–03 and 2003–04 in average gross weekly household incomes.
Together the improved methodology for both investment income and own unincorporated business income largely offset each other in mean income terms when comparing 2003–04 to 2002–03.
Income from superannuation, annuities or allocated 'private' pensions (other than government benefits such as the age pension) is higher in 2003–04 than in 2002–03. These amounts have been recorded in previous survey cycles as current income amounts, and no explicit change in methodology affects the reporting of these values. However, it is possible that changes in non-response have impacted on the series, or that the reporting of superannuation assets in conjunction with income has improved the quality of reporting. The increase in gross weekly household incomes from superannuation etc. of about $7 between 2002–03 and 2003–04 is statistically significant (about 3 standard errors). It is also likely that the reported superannuation assets are an underestimate of the total value of these assets and it may be that the superannuation income series, although higher than previously reported, is still a somewhat conservative measure.
In 2003–04, average (mean) equivalised disposable household income for all persons living in private dwellings (i.e., the income that a single person household would require to maintain the same standard of living as the average person living in all private dwellings in Australia) was $549 per week (table 1). There were approximately 19.6 million people living in these dwellings.
In real terms, before taking account of the breaks in series between 2002–03 and 2003–04, average equivalised disposable household income in 2003–04 ($549) was 5% higher than in 2002–03 ($522) and 21% higher than in 1994–95 ($455). Between 2002–03 and 2003–04, the $27 increase in real mean income in part reflects the one-off payments to families and carers announced in the May 2004 Australian government budget. About $2.2 billion was payable to families in 2003–04 under this initiative which, on average, increased gross weekly household incomes by about $6, and equivalised disposable household incomes by a little over $4 per week. Increases in real incomes between the 2 years also reflects higher average wages and salaries (up 4.8% in 2003–04).
The increase in real average equivalised disposable household income from 2002–03 has been muted somewhat by the net impacts of the imputation in 2002–03 for own unincorporated business and investment income (discussed above) which overstated the combined incomes from these sources.
For low income people (represented by the 20% of people with household income between the bottom 10% and bottom 30% of incomes), average equivalised disposable household income in 2003–04 grew by 9% ($24 per week), compared to 7% for middle income people and 3% for high income people. About $7 (or more than one quarter) of the increase for the low income people resulted from the introduction of the one-off payments to families and carers in 2003–04. The net impact of these one-off payments on the real mean equivalised disposable household incomes of high income households was less than $1 per week. Over the period from 1994–95, there was a 22% increase in the real mean incomes of both low income people and middle income people and 19% for high income people.
S1. CHANGES IN MEAN REAL EQUIVALISED DISPOSABLE HOUSEHOLD INCOME(a)
Households with different income levels tend to differ with respect to other characteristics, as shown in (table 6). and summarised in the following table. Wages and salaries were the principal source of income (PSI) for households with middle and high income levels in 2003–04, while government pensions and allowances dominated for low income households. However, low income households had the highest incidence of full ownership of their home, reflecting the high proportion of elderly people in the low income category.
S2. HOUSEHOLD CHARACTERISTICS 2003–04, By income group
Middle income households contained more people on average than high income households (2.8 compared to 2.5) but contained considerably fewer employed persons (1.5 compared to 1.9). In part, this reflects the different age profiles of the two groups. Table 6 shows that middle income households (shown as the third quintile) had an average of 0.8 persons under the age of 18 and 0.2 aged 65 and over, compared to 0.4 and 0.1 respectively for high income households. Low income households (shown as second and third deciles) had an average of 0.5 employed persons, and housed an average of 2.5 persons. Of these, 1.1 were 18 to 64 years, with 0.7 under 18 years and 0.6 persons aged 65 years and over.
The characteristics of Australian households are changing over time. Table 3 shows that the average number of persons per household declined from 2.69 to 2.53, or about 6%, between 1994–95 and 2003–04, with about half the decline being in the under 18 age group. The proportion of lone person households, couple only households and households comprising one parent with dependent children all increased. Each principal source of income retained its relative importance between 1994–95 and 2003–04, with about 57.5% of households primarily dependent on wages and salaries. The proportion of households reliant on government pensions and allowances was 27.7% in 2003–04, up from 26.6% in 2002–03 but down from 28.4% in 1994–95. Home ownership remained relatively stable at around 70% of households throughout this period, but an increasing proportion of owners had a mortgage.
Life cycle stages
The range of income levels across the population partly reflects the different life cycle stages that people have reached. A typical life cycle includes childhood, early adulthood, and the forming and maturing of families, as illustrated in table 12. Other family situations and household compositions are shown in table 11. The following table compares households in different life cycle stages.
Of the groups included in the table, the group with the highest mean equivalised income was younger couples without children. Their mean equivalised disposable household income was $821 per week, with the average number of employed persons in the household being 1.8. For couples with dependent children only, and with the eldest child being under five, their mean equivalised disposable household income was $557 per week. Compared with younger couples without children, this lower income reflects a 12% lower after tax income, principally reflecting the lower average number of employed persons in these households (1.5) and the larger average household size (3.4 persons) over which incomes are shared. Average incomes were higher for households with non-dependent children, reflecting higher proportions of employed persons in these households, but were lower again for households comprising older couples and lone persons, where the numbers of employed persons were substantially lower.
People aged 65 and over had the lowest mean incomes, with lone persons' incomes at $350 per week, somewhat lower than older couple only household incomes at $396 per week. Elderly lone persons were more likely than elderly couples to have government pensions and allowances as their principal source of income (77% compared to 68%), while couples were more likely to fully own their home (85% compared to 74%).
Households comprising one parent with dependent children had a mean income of $391 per week, similar to that of elderly couples ($396 per week), but only 11% of the one parent households fully owned their home and therefore a substantially greater proportion had to make mortgage or rental payments from their income. Of these households, 54% had government pensions and allowances as their principal source of income. On average they had 0.8 employed persons in the household.
States and territories
There are considerable differences in the average levels of income between the states and territories (see table 16). However, not all the differences are large enough to be regarded as statistically significant at the 95% confidence level (see Appendix 4). Tasmania's mean weekly income was 13% below the national mean income level and Queensland was 5% below. In table 16 the Australian Capital Territory and the Northern Territory are shown to have the highest mean incomes (22% and 17% above the national average respectively). The high income levels reflect in part the younger age profile of the ACT and NT. However, it also reflects the exclusion from the results of households in collection districts in the NT defined as very remote or Indigenous Communities which, if included, would be likely to significantly reduce the mean incomes in that territory. The NT estimates of equivalised disposable income are subject to large relative standard errors and should be used with caution. New South Wales also recorded a mean income 4% above the national mean.
There are also considerable differences between the equivalised disposable household incomes recorded in capital cities in Australia compared to those earned elsewhere. At the national level, mean incomes in the capital cities were 16% above those in the balance of state, and in New South Wales, Tasmania, Victoria and South Australia (separate information is not available for the ACT and NT) the capital city mean incomes were above those in the balance of state. The largest differences recorded were for NSW and Tasmania where the capital city incomes were 26% and 24% respectively, above the mean incomes across the rest of the state.
While the mean equivalised disposable household income of all households in Australia in 2003–04 was $549 per week, the median (i.e. the midpoint when all people are ranked in ascending order of income) was somewhat lower at $491 (shown as P50 in table 1). This difference reflects the typically asymmetric distribution of income where a relatively small number of people have relatively very high household incomes, and a large number of people have relatively lower household incomes, as illustrated in the following frequency distribution graph.
S4. DISTRIBUTION OF EQUIVALISED DISPOSABLE HOUSEHOLD INCOME, 2003–04
Percentile ratios are one measure of the spread of incomes across the population. P90 (i.e. the income level dividing the bottom 90% of the population from the top 10%) and P10 (i.e. dividing the bottom 10% of the population from the rest) are shown on the above graph. In 2003–04, P90 was $912 per week and P10 was $246 per week, giving a P90/P10 ratio of 3.70. Various percentile ratios for eight years are shown in the following table, and the changes in these ratios (discussed below) can provide a picture of changing income distribution over time.
Another measure of income distribution is provided by the income shares going to groups of people at different points in the income distribution. The following table shows that, in 2003–04, 10.9% of total equivalised disposable household income went to people in the 'low income' group (i.e. the 20% of the population in the 2nd and 3rd income deciles), with 37.4% going to the 'high income' group (i.e. the 20% of the population in the highest income quintile).
The Gini coefficient is a single statistic that lies between 0 and 1 and is a summary indicator of the degree of inequality, with values closer to 0 representing a lesser degree of inequality, and values closer to 1 representing greater inequality. For 2003–04, the Gini coefficient was 0.294. About one third of the decline in the Gini coefficient between 2002–03 and 2003–04 (down about 5%) results from the introduction of the new payment to families and carers. This real world effect also explains a significant proportion of the movement in the remaining indicators in the following table.
Some of the change in the indicators between 2002–03 and 2003–04 will reflect methodological improvements introduced in 2003–04 (discussed above), although it is not possible to quantify these impacts on the distributional measures shown in the following table. However, if the former method of imputing business and investment incomes based on reported previous year incomes had been continued for 2003–04, the Gini coefficient would have been about 1% higher.
While it is difficult to assess changes in income distribution over time due to the methodological improvements introduced with the 2003–04 survey, it appears that there has been no significant change in income inequality from the mid 1990s to 2003–04. If only the real impact of the one-off payments to families and carers were to be taken into account, the Gini coefficient for 2003–04 would be below the estimate for 2002–03, and not significantly different from the Gini coefficients for either 1994–95 or 1995–96. This pattern would also be reflected in the other selected indicators of income distribution.
Please refer to Appendix 1 for more information on analysing income distribution.
S5. SELECTED INCOME DISTRIBUTION INDICATORS, Equivalised disposable household income
The distribution of net worth across households is very unequal, partly reflecting the common pattern of people gradually accumulating wealth throughout their working life. In 2003–04 the poorest 20% of households account for only 1% of total household net worth, with an average net worth of $23,000 per household. The share of net worth increases with each higher net worth quintile, with 6% for the second quintile, 13% for the third quintile, 21% for the fourth quintile, while the wealthiest 20% of households in Australia account for 59% of total household net worth, with average net worth of $1.4 million per household.
The distributional pattern of net worth is also marked when considered in terms of sources of income. The households with people where the principal source of household income (PSI) is 'other' income (principally investment income) had average household net worth of $1.1 million, while for those where the PSI was government pensions and allowances the average household net worth was $249,000. Net worth in renter households was on average only about 10% of the net worth in owner households with no mortgage, and about 20% of owner households with a mortgage.
The picture of wealth (net worth) is a little different and more equally distributed when viewed from the perspective of the distribution of incomes. The households in which the 20% of people with the lowest household incomes live account for 15% of total household net worth, similar to the shares of net worth held by the households with people in the second and third household income quintiles. The households in which the 20% of people with the highest household incomes live account for 37% of total household net worth.
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This page last updated 28 August 2008