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4102.0 - Australian Social Trends, 2003  
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Contents >> Economic resources >> Income distribution: The geography of income distribution

Income distribution: The geography of income distribution
Contributed by Peter Siminski and Kate Norris, Social Policy Research Centre, University of New South Wales.

In 2001, average weekly equivalised gross household income in the Major Cities of Australia was 7% higher than the national average, while in Outer Regional areas it was 16% lower.

Income is a key factor in determining the standard of living of most Australian households, influencing both their access to economic resources and services, and ability to participate fully in society. The sustainability and wellbeing of regional and remote communities is a current focus of public policy debate in Australia, and differences in the level and the distribution of incomes across Australia is one aspect of this debate. This article uses Remoteness Areas to compare the level and distribution of household income across different parts of Australia. In addition, the distribution of household income among people within each of the Remoteness Areas is examined, along with the concentration of people in lower income households in each area.


Gross household income
Data in this article are drawn from the 1996 and 2001 Censuses of Population and Housing. Income data are adjusted to 2001 dollars using the Consumer Price Index (CPI) for the eight capital cities.

A household is a person living alone, or a group of related or unrelated people who usually reside together and make common provision for food or other essentials for living. In practice, most dwellings contain a single household.

Gross household income is the combined gross incomes (before tax and other deductions are removed) of all the usual residents of the household. As the census collects income using broad ranges, information from the 1996 and 2001 ABS Survey of Income and Housing Costs was used to estimate the mean income for each of the census income ranges. This mean income value for each household member was then summed to produce gross household income.

Equivalised gross household income is household income adjusted on the basis of the household’s size and composition. This allows the relative standard of living of different households to be compared. For example, an adjustment is made to more accurately account for the difference that would exist in the standard of living between a couple with children and a couple without children who both receive the same household income. The Henderson equivalence scale has been used in this article to derive equivalised gross household income. When comparing equivalised household income, the relative magnitude of the figures is most relevant, rather than the absolute levels. For more information see Income Distribution, Australia, 1999-2000 (ABS cat. no. 6523.0).

Remoteness Areas
This article uses the ABS Remoteness classification to examine various aspects of household income across the four most populous of the six Remoteness Areas. Remoteness is calculated using the road distance to different sized urban centres, where the population size is considered to govern the range and type of services available. The six Remoteness Areas are: Major Cities of Australia; Inner Regional Australia; Outer Regional Australia; Remote Australia; Very Remote Australia; and Migratory. The Remoteness Area names used in this article are abbreviated versions of these official names with ‘Australia’ omitted. For further information see Statistical Geography: Volume 1 - Australian Standard Geographical Classification (ASGC), 2001 (ABS cat. no. 1216.0).

AVERAGE WEEKLY EQUIVALISED GROSS HOUSEHOLD INCOME - 2001
Selected Remoteness Areas
$
% change 1996-2001(a)
% of all persons(b)

Major Cities
1,291
17.1
66.9
Inner Regional
1,034
15.1
20.7
Outer Regional
1,013
13.3
10.1
Remote
1,154
14.7
1.5

Australia(c)
1,205
16.3
100.0

(a) Adjusted to 2001 dollars using the CPI for the eight capital cities.
(b) In occupied private dwellings, excluding persons in households where an income was not stated or a usual resident was not present on census night.
(c) Includes households in Very Remote and Migratory categories.

Source: ABS 1996 and 2001 Censuses of Population and Housing.


Average gross income levels across Remoteness Areas
In 2001, the average weekly equivalised gross household income for all Australian households was $1,205. Comparing the level of average weekly equivalised household income for the four most populous Remoteness Areas shows that household income varied across these areas. In addition, between 1996 and 2001 there was some change in the distribution of incomes across these areas.

In 2001, Major Cities had the highest average weekly equivalised gross household income of $1,291, 7% higher than the national average. Higher incomes in Major Cities are consistent with there being a larger proportion of managerial and professional workers in these areas. All other areas outside of Major Cities had average weekly equivalised gross household incomes below the national average. Inner and Outer Regional areas had the lowest average weekly equivalised household incomes (14% and 16% below the national average respectively). These levels are consistent with the higher proportions of people aged 65 years and over living in these areas, many of whom rely on the age pension for income. While Remote areas had the second highest average weekly equivalised household income ($1,154), this level was 4% below the national average. This high average for Remote areas, compared with other areas outside Major Cities, is partly explained by a comparatively high proportion of employed people in this area working in the Mining industry (8% compared with 1% nationally), and the high average rates of pay associated with this industry.


Households and persons excluded from analysis
Households (and the people within them) were excluded from the analysis in this article where the income data for the household was incomplete. These were households where one or more household members, aged 15 years and over, were temporarily absent on census night, or did not state their income. Very Remote areas are not discussed in the detailed analysis in this article due the large proportion of households excluded in these areas.

It should be noted that households with lower incomes are more likely than others to not state their incomes (for more information see, Census Working Paper 00/04 - 1996 Census Data Quality: Income). In addition, data from ABS household collections are likely to miss some of the most disadvantaged people in society, such as homeless people.
PERSONS EXCLUDED(A)
Person temporarily absent
Income not stated(b)
Total excluded
Census year
% of persons
% of persons
‘000

1996
8.5
8.0
2,852.7
2001
8.4
9.8
3,351.0

(a) Persons in households only.
(b) Not including those households already excluded for having a person temporarily absent.

Source: ABS 1996 and 2001 Censuses of Population and Housing.

AVERAGE WEEKLY EQUIVALISED GROSS HOUSEHOLD INCOME: STATES AND TERRITORIES - 2001
Graph - Average weekly equivalised gross household income: states and territories - 2001

Source: ABS 2001 Census of Population and Housing.


There are considerable differences in the average levels of income between the states and territories. Several states had average weekly equivalised gross household incomes below the national average. Tasmania was lowest (17% below the national average at $1,000), followed by South Australia (9% below) and Queensland (7% below). In contrast, the Australian Capital Territory was 29% above the national average at $1,554, followed by New South Wales (6% above). There were similar variations between Remoteness Areas when comparisons are made across the states and territories. For example, Major Cities in South Australia, Queensland and Western Australia had the lowest average weekly equivalised household income levels - 12%, 8% and 6% lower respectively than that of Major Cities nationally ($1,291). A number of factors contribute to differences in incomes between states and territories, including sources of income (i.e. age pension, wages and salaries, etc.), levels of employment and unemployment, and differences in average earnings (for more information see Australian Social Trends 2000, Interstate income inequality).

Between 1996 and 2001, average weekly equivalised gross household income rose by 16% nationally (when adjusted for inflation using the CPI). Across Australia, all Remoteness Areas experienced growth in average weekly equivalised household income during this period. However, Major Cities, which had the highest average weekly equivalised household income in 1996, experienced the highest growth in income over this period (17%). In contrast, Outer Regional areas had the lowest average weekly equivalised household incomes in 1996 and grew by the least (13%). This resulted in Outer Regional areas falling further behind the other areas in relative terms over the second half of the 1990s.

Over the same period, a similar pattern of growth occurred across the states and territories. The Australian Capital Territory, which had the highest average weekly equivalised gross household income in 1996, also experienced the highest growth in average income (20%), while Tasmania, which had the lowest average weekly equivalised household income in 1996 also had the lowest growth (12%). However, as a result of different rates of growth in each of the states and territories, between 1996 and 2001, Victoria replaced Western Australia as the state or territory with the third highest average weekly equivalised household income (behind the Australian Capital Territory and New South Wales).


Income distribution and housing costs
The Gini coefficient is a measure for assessing inequality of income distribution. The measure, expressed as a ratio between 0 and 1, is low for populations with relatively equal income distributions and high for populations with relatively unequal income distributions.

People in low income households are those people who are placed in the bottom 20% of all people, when they are ranked by their average weekly equivalised gross household income.

Direct housing costs comprise the value of the mortgage payments (including the capital component) for owners with a mortgage and regular rent paid by those who rent. When these housing costs are removed from household income, the Henderson equivalence scales, less the housing component, have been used to adjust the income to account for household size and composition (for further information see Income Distribution, Australia 1999-2000, ABS cat. no. 6523.0). To obtain the revised household income, direct housing costs, in whole dollar values, are subtracted from the median of the income ranges. In addition to the exclusions relating to households for which income data were incomplete, people in households that did not state their direct housing costs were excluded (1.5% in 1996 and 1.8% in 2001).

Removal of direct housing costs does not take into account the quality of housing purchased or rented in the different Remoteness Areas. In addition, mortgage payments include both an interest (an expense) and a capital component (an investment). Rent paid will include costs such as rates and repairs, not accounted for in either mortgage payments and for those households where the dwelling is owned outright. Other household expenses, such as those relating to transport, are likely to result in higher costs being incurred in more remote areas but no information is collected on these expenses in the census.

INCOME(a) DISTRIBUTION BETWEEN PERSONS WITHIN REMOTENESS AREAS
Gini coefficient
2001
1996-2001
Selected Remoteness Areas
% change

Major Cities
0.332
1.6
Inner Regional
0.307
1.2
Outer Regional
0.318
-1.2
Remote
0.353
-1.1

Australia(b)
0.332
1.5

(a) Equivalised gross household income.
(b) Includes persons in Very Remote and Migratory categories.

Source: ABS 1996 and 2001 Censuses of Population and Housing.


Income distribution within Remoteness Areas
Another consideration in the regional distribution of income is the level of income inequality within each of the Remoteness Areas. Comparing Gini coefficients (a measure of inequality) shows that in 2001, income inequality was highest for people in Remote areas (0.35), and lowest in Inner Regional areas (0.31).

This pattern of Remote and Inner Regional areas having the highest and lowest levels of income inequality respectively was evident among the five most populous states. This comparison cannot be made for Tasmania and the two territories as they do not include all four Remoteness Areas discussed (for example, Tasmania does not have a Major City area). Comparing the Gini coefficient for the states and territories, New South Wales and the Northern Territory both had the highest level of income inequality (both 0.34). In New South Wales this is likely to be due to greater proportions of people living in households with very high average weekly equivalised gross household income. In the Northern Territory, the comparatively high Gini coefficient reflects relatively high proportions of people with both higher and lower average weekly equivalised household incomes. The lowest levels of inequality were in Tasmania (0.30) and South Australia (0.31) - the states with the two lowest levels of average weekly equivalised household income.

While average weekly equivalised gross household income grew in all areas between 1996 and 2001, the Gini coefficient for people in households indicated income inequality had increased in some Remoteness Areas and had declined in others. However, it showed that inequality had increased in every state and territory. Nationally, the Gini coefficient increased from 0.327 to 0.332, or by 1.5%. For people in households within Major Cities, the Gini coefficient rose by 1.6% and within Inner Regional areas it rose by 1.2%. Inequality, as measured by the Gini coefficient, fell in Outer Regional areas and Remote areas, by 1.2% and 1.1% respectively.

PROPORTION OF PERSONS IN LOW INCOME HOUSEHOLDS(a) IN SELECTED REMOTENESS AREAS - 2001
Graph - Proportion ofpersons in low income households(a) in selected Remoteness Areas - 2001

(a) Those persons in the bottom 20% of the national distribution of persons when ranked by their equivalised gross household income.
(b) Comprises the value of the mortgage payments (including the capital component) for owners with a mortgage and regular rent paid by those who rent. Households who had either of these expenses but did not state them were excluded from the calculations.

Source: ABS 2001 Census of Population and Housing.


People in low income households
People in households with limited access to financial resources (usually those on lower incomes) are often the focus of government programs and community services organisations. As a result, their location is of considerable interest to policy makers and service providers.
In 2001, 17% of people in Major Cities were in low income households (i.e. they were in the bottom 20% of the national distribution of people when ranked by their gross equivalised household income), the lowest proportion in any Remoteness Area. In comparison, Outer Regional areas had the highest proportion of people in low income households (27%), while Inner Regional and Remote areas also had relatively high proportions (24% and 25% respectively). That said, as the majority of the population live in Major Cities, these areas contained the greatest number of people in low income households. In 2001, 58% of all people in low income households were in Major Cities, compared with 2% in Remote areas. Between 1996 and 2001, there was little change in the distribution of people in low income households across Remoteness Areas.

In 2001, among the states and territories, the proportion of people in low income households was highest in Tasmania (27%) and the Northern Territory (25%), and lowest in the Australian Capital Territory (11%). In addition, there were some substantial differences in the distribution of people in low income households within the states and territories. For example, Remote areas in Victoria, Tasmania and New South Wales had the highest proportions of people in low income households (between 34% and 32%), while Major Cities in the Australian Capital Territory and the Outer Regional areas of the Northern Territory (which included Darwin) had the lowest (11% and 15% respectively). Tasmania and the Northern Territory which had the highest proportions of people in low income households in 2001, also had the largest increases in the proportion of people in low income households between 1996 and 2001 (increasing by 1.4 and 3.1 percentage points respectively). The Australian Capital Territory, which had the lowest proportion of people in low income households in 1996 also had the greatest decrease in this proportion between 1996 and 2001 (a decrease of 1.6 percentage points).

PROPORTION OF PERSONS IN LOW INCOME HOUSEHOLDS(a): STATES AND TERRITORIES - 2001
Graph - Proportion of persons in low income households(a): states and territories - 2001

(a) Those persons in the bottom 20% of the national distribution of persons when ranked by their equivalised gross household income.
(b) Comprises the value of the mortgage payments (including the capital component) for owners with a mortgage and regular rent paid by those who rent. Households who had either of these expenses but did not state them were excluded from the calculations.

Source: ABS 2001 Census of Population and Housing.


...after direct housing costs
Many factors influence the relationship between income and economic wellbeing, not least of which are the geographical differences in the costs of many goods and services, and in the typical ‘baskets’ of goods and services that households in different areas consume. Housing costs are a major item of expenditure for many Australian households. These costs vary across Australia and across Remoteness Areas. Such variations, combined with variations in incomes across areas, affect the amount of income available to people within households for other purposes. When direct housing costs (i.e. rent and mortgage payments) are removed from household income, and the national distribution of equivalised household income is recompiled, there are a number of notable changes to the proportions of people in low income households across Remoteness Areas.

Removing direct housing costs results in a decrease in the proportion of people in low income households in all Remoteness Areas in 2001, except for Major Cities. In Remote areas, the proportion of people in low income households falls from 25% to 15%. In contrast, the proportion of people in low income households in Major Cities increases from 17% to 20% when direct housing costs are removed. These two examples reflect the relatively high direct housing costs in Major Cities, compared with relatively low direct housing costs in Remote areas. For Outer Regional areas, the reduction in the proportion of people in low income households, when direct housing costs are removed, is also comparatively large (from 27% to 19%), while the reduction is not as marked for Inner Regional areas (from 24% to 22%).

Prior to the removal of housing costs, the prevalence of people in low income households tended to increase as remoteness increased (though the rate for Remote areas was lower than for Outer Regional areas). However, removing direct housing costs largely reverses this pattern, with the prevalence of low income households decreasing with increasing remoteness. Major Cities were the exception to this pattern, where the proportion of low income households is slightly lower than in Inner Regional areas (20% compared with 22% respectively). After the removal of direct housing costs, Inner Regional areas have the highest proportion of people in low income households of all areas. This may reflect higher direct housing costs in Inner Regional areas, similar to those experienced in Major Cities, not being offset by the higher incomes more commonly earned in Major Cities.

The prevalence of people in low income households is more even across states and territories after the removal of housing costs. In 2001, Western Australia has the highest proportion of people in low income households after housing costs are removed (23%, up from 20%), while the lowest proportion is in the Australian Capital Territory (16%, up from 11%). Reflecting their lower housing costs, Tasmania and the Northern Territory have substantial decreases in the proportion of people in low income households when the effect of direct housing costs are removed from income.

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