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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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SUMMARY OF FINDINGS


INTRODUCTION

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 by deducting estimates of income tax liability and the Medicare levy from the gross cash income data collected in the Survey of Income and Housing (SIH). Gross cash income is defined as regular and recurring cash receipts from wages and salaries (including salary sacrifice), 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 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.



KEY RESULTS

Some of the key income results from the 2005-06 SIH are:

  • for households with middle and high income levels in 2005-06, wages and salaries were the principal source of income, while for low income households government pensions and allowances were the principal income source
  • middle income households contained more people on average than both low and high income households, but contained considerably fewer employed persons than high income households (1.5 compared to 1.9)
  • low income households had on average 0.6 employed persons
  • people living in households where the reference person was aged 65 and over had the lowest mean incomes in 2005-06
  • people aged 65 and over who were living alone were more likely than couples where the reference person was aged 65 and over to have government pensions and allowances as their principal source of income (78% compared to 68%)
  • people aged 65 and over who were living alone were less likely than older couples to own their own home without a mortgage (74% compared to 86%)
  • average incomes in the capital cities in Australia were 16% above those outside the capital cities
  • average incomes in the Australian Capital Territory and in the not very remote parts of the Northern Territory were well above the national average
  • incomes in Tasmania and South Australia were below the national average by 15% and 6% respectively
  • 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 2005-06
  • in real terms, average equivalised disposable household income in 2005-06 ($644 per week) was 10% higher than in 2003-04 ($585 per week)
  • the incomes of households considered to have the lowest levels of economic wellbeing (i.e. those people with household income between the bottom 10% and bottom 30% of incomes) grew by 8% ($24 per week) from 2003-04 to 2005-06, an 8% growth was also recorded for middle income people compared to 13% for high income people
  • over the period from 1994-95, there was a 31% increase in the real mean income of low income people, compared to 32% for middle income people and 36% for high income people, but methodological changes may have had some impact on the comparability of these estimates.

Some of the key net worth results from the 2005-06 SIH are:
  • the wealthiest 20% of households in Australia account for 61% of total household net worth, with average net worth of $1.7 million per household
  • the poorest 20% of households account for 1% of total household net worth, with an average net worth of $27,000 per household
  • the households in which the 20% of people with the lowest equivalised 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 equivalised household income quintiles
  • the households in which the 20% of people with the highest equivalised household incomes live account for 39% of total household net worth.


SALARY SACRIFICE

In this publication, wages and salaries estimates for 2003-04 and 2005-06 include all benefits received through salary sacrifice arrangements. In previous issues of this publication, salary sacrificed amounts were only included in the wages and salaries estimates where the respondent had included this amount indistinguishably with their reported gross wages and salary figure. In the 2003-04 survey, separate questioning identified that about two thirds of salary sacrificed amounts had been included in the reported gross wages and salaries. The 2003-04 income estimates in Tables 1 to 3, A3 in Appendix 2 and A6 in Appendix 4 have been revised to include all salary sacrificed amounts. Estimates for years prior to 2003-04 do not include any adjustments for salary sacrifice not already reported indistinguishably in wages and salaries.


In 2005-06, the change to include all salary sacrificed amounts has meant that the estimate of weekly mean equivalised disposable household income ($644) is $5 higher than it otherwise would have been, while the estimate for 2003-04 has been revised up by $5 per week (from $580 to $585 when adjusted by the Consumer Price Index to be in 2005-06 dollars).


For more information on salary sacrifice see Appendix 4.



HOUSEHOLD INCOME

In 2005-06, 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 $644 per week (Table 1). There were approximately 19.9 million people living in private dwellings.


In real terms, average equivalised disposable household income in 2005-06 ($644) was 10% higher than in 2003-04 ($585) and 34% higher than in 1994-95 ($481).


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 grew by 8% ($24 per week) from 2003-04 to 2005-06, 8% was also recorded for middle income people and 13% for high income people. Over the period from 1994-95, there was a 31% increase in the real mean incomes of low income people compared to 32% for middle income people and 36% for high income people.

S1. Changes in mean real equivalised disposable household income(a)
Graph: Changes in real mean equivalised disposable household income from 1994-95 to 2005-06




Household characteristics

Households with different characteristics tend to have different income levels, 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 2005-06, 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 older people in the low income category.

S2. Household characteristics 2005-06, By income group

Low income(a)
Middle income(b)
High income(c)

Mean equivalised disposable household income per week $
341
565
1 239
Has PSI of wages and salaries(d) %
26.5
78.1
85.6
Has PSI of government pensions and allowances(d) %
61.6
4.2
-
Owns home without a mortgage %
45.9
28.6
26.7
Owns home with a mortgage %
19.6
41.9
50.3
Rents from state/territory housing authority %
7.6
1.5
*0.4
Rents from private landlord %
22.5
24.3
19.9
Average number of persons in the household no.
2.5
2.8
2.5
Average number of employed persons in the household no.
0.6
1.5
1.9

* estimate has a relative standard error of 25% to 50% and should be used with caution
- nil or rounded to zero (including null cells)
(a) Persons in the second and third income deciles
(b) Persons in the middle income quintile
(c) Persons in the highest income quintile
(d) Principal source of income (PSI)


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 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 had an average of 0.6 employed persons, and housed an average of 2.5 persons. Of these, 0.7 were under 18 years, 1.1 were 18 to 64 years, and 0.6 were 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 2.51, or about 7%, between 1994-95 and 2005-06, with more than 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 2005-06, with 59.3% of households primarily dependent on wages and salaries in 2005-06. The proportion of households reliant on government pensions and allowances was 26.1% in 2005-06, down from 27.7% in 2003-04 and 28.5% in 1994-95. Over the last decade, home ownership remained relatively stable at around 70% of households, but an increasing proportion of owners had a mortgage.



Life cycle stages

Income levels across the population partly reflect 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.

S3. Income and household characteristics for selected life cycle groups, 2005-06

Number of households
Average number of persons
Average number of employed persons
Average number of dependent children
Proportion with government pensions and allowances as PSI(a)
Mean equivalised disposable household income per week
Proportion owning home without a mortgage
'000
no.
no.
no.
%
$
%

Lone person aged under 35
369.3
1.0
0.9
-
10.8
666
*3.5
Couple only, reference person under 35
423.5
2.0
1.9
-
*2.0
888
*2.7
Couple with dependent children only
Eldest child under 5
429.9
3.4
1.5
1.4
3.8
683
6.0
Eldest child 5 to 14
859.4
4.1
1.5
2.1
8.1
642
13.0
Eldest child 15 to 24
469.3
4.2
2.3
2.2
7.0
660
29.5
Couple with
Dependent & non-dependent children only
264.4
4.7
3.0
1.5
*5.9
695
25.3
Non-dependent children only
449.3
3.3
2.3
-
11.4
740
50.2
Couple only, reference person 55 to 64
506.8
2.0
1.2
-
19.2
729
61.1
Couple only, reference person 65 and over
678.8
2.0
0.2
-
67.6
458
86.4
Lone person 65 and over
744.3
1.0
0.1
-
77.6
363
74.0
One parent, one family households with dependent children
538.6
3.0
0.8
1.7
50.9
446
12.8

* estimate has a relative standard error of 25% to 50% and should be used with caution
- nil or rounded to zero (including null cells)
(a) Principal source of income (PSI)


Younger couples without children had the highest mean equivalised disposable household income of $888 per week, with an average of 1.9 employed persons in the household. For couples with dependent children only, and with the eldest child being under five, mean equivalised disposable household income was $683 per week (23% lower than for the young couples without children). This lower income, principally reflects the lower average number of employed persons in these households (1.5) and the larger average number of persons in these households (3.4) 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 living in households where the reference person was aged 65 and over had the lowest mean incomes, with lone persons' incomes at $363 per week, somewhat lower than for older couple only households where the reference person was aged 65 and over and mean incomes were $458 per week. Older lone persons were more likely than older couples to have government pensions and allowances as their principal source of income (78% compared to 68%), while couples were more likely to fully own their home (86% compared to 74%).


Households comprising one parent with dependent children had a mean income of $446 per week, similar to that of older couples ($458 per week), but only 13% fully owned their home and therefore a substantially greater proportion had to make mortgage or rental payments from their income. Of these households, 51% had government pensions and allowances as their principal source of income. On average there were 0.8 employed persons in the household.



States and territories

There were considerable differences in the average levels of income between the states and territories (see Table 16). However, not all the differences were large enough to be regarded as statistically significant at the 95% confidence level (see Appendix 5).


Tasmania's mean equivalised disposable household weekly income was 15% below the national average and South Australia was 6% below. In Table 16, the Australian Capital Territory and the Northern Territory are shown to have the highest mean incomes (22% and 12% above the national average respectively). The high income levels reflect in part the younger age profile of the ACT and NT and the greater number of employed persons per household.


However, it also reflects the exclusion from the results of households in collection districts in the NT defined as very remote which, if included, would be likely to reduce the mean income in that territory. This potential for an overestimated mean income in the NT is based on the large relative size of the very remote population for that territory. New South Wales recorded a mean equivalised disposable household weekly income 2% above the national average.


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, with all states (separate information is not available for the ACT and NT) recording capital city mean incomes above those in the balance of state. The largest differences recorded were for NSW and Tasmania where the capital city incomes were 25% and 17% respectively, above the mean incomes across the rest of the state.



INCOME DISTRIBUTION

While the mean equivalised disposable household income of all households in Australia in 2005-06 was $644 per week, the median (i.e. the midpoint when all people are ranked in ascending order of income) was somewhat lower at $563 (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, 2005-06
Graph: S4. Distribution of Equivalised Disposable household Income, 2005-06


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 2005-06, P90 was $1,073 per week and P10 was $274 per week, giving a P90/P10 ratio of 3.92. Changes in these ratios 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 2005-06, 10.6% 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 38.5% 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 2005-06, the Gini coefficient was 0.307. The inclusion of all salary sacrificed amounts in 2003-04 increased the Gini coefficient for that year from 0.294 to 0.297.


Some of the change in some of the income distribution measures between 2003-04 and 2005-06 reflects the changes in personal income tax rates and thresholds. For example, if the 2003-04 taxation rates and thresholds had been applied to 2005-06 incomes, the Gini coefficient would have been 0.303 rather than 0.307. The higher numbers of employed persons per household, the very strong growth in total wages reported between 2003-04 and 2005-06 (up 17%), and the strong rise in reported investment incomes (up 38%) will also have impacted on the summary distributional measures.


While it is difficult to assess changes in income distribution over longer time periods 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 2005-06. The change in income distribution since 1994-95 is affected by the inclusion of all salary sacrificed amounts in 2003-04 and 2005-06, and the exclusion of an unknown amount in 1994-95.


Please refer to Appendix 1 for more information on analysing income distribution.

S5. Selected income distribution indicators, EQUIVALISED DISPOSABLE HOUSEHOLD INCOME

1994-95
1995-96
1996-97
1997-98
1999-2000
2000-01
2002-03
2003-04
2005-06

Ratio of incomes at top of selected income percentiles
P90/P10 ratio
3.78
3.74
3.66
3.77
3.89
3.97
4.00
3.75
3.92
P80/P20 ratio
2.56
2.58
2.54
2.56
2.64
2.63
2.63
2.50
2.55
P80/P50 ratio
1.55
1.57
1.56
1.56
1.57
1.56
1.57
1.51
1.54
P20/P50 ratio
0.61
0.61
0.61
0.61
0.59
0.59
0.60
0.61
0.60
Percentage share of total income received by persons with
Low income(a) %
10.8
11.0
11.0
10.8
10.5
10.5
10.6
10.8
10.6
Middle income(b) %
17.7
17.7
17.8
17.7
17.7
17.6
17.6
17.8
17.6
High income(c) %
37.8
37.3
37.1
37.9
38.4
38.5
38.3
37.6
38.5
Gini coefficient no.
0.302
0.296
0.292
0.303
0.310
0.311
0.309
0.297
0.307

(a) Persons in the second and third income deciles
(b) Persons in the middle income quintile
(c) Persons in the highest income quintile



WEALTH DISTRIBUTION

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 2005-06 the 20% of households with the lowest net worth accounted for only 1% of total household net worth, with an average net worth of $27,000 per household.


The distributional pattern of net worth is also marked when considered in terms of sources of income. Households where the principal source of household income (PSI) is 'other' income (principally investment income) had average household net worth of $1.6 million, while for those where the PSI was government pensions and allowances the average household net worth was $277,000. Net worth in renter households was on average only about 11% of the net worth in owner households with no mortgage, and about 16% of the net worth of owner households with a mortgage.


The picture of wealth 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 39% of total household net worth.


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