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6523.0 - Household Income and Income Distribution, Australia, 2002-03  
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 03/12/2004   
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ABOUT THIS PUBLICATION

This publication presents the income and characteristics of households and persons resident in private dwellings in Australia, compiled from the 2002-03 Survey of Income and Housing (SIH). These statistics are compared with results from each of the previous survey cycles from 1994-95.



CHANGES IN THIS ISSUE

The changes included with this issue are:

  • a larger sample of 19,400 persons for 2002-03 compared with 13,200 for the 2000-01 survey
  • a new table 2 which shows the income ranges for households and persons
  • the inclusion of the numbers of persons with zero or negative incomes in tabulations by principal source of income
  • the "average number of earners in the household" data item reported in previous issues of this publication has been replaced in this issue with the data item "average number of employed persons". "Earners" excluded both dependent children with wage and salary income, and contributing family workers i.e., persons working without pay in economic enterprises operated by relatives. "Employed persons" includes all persons in the household with a labour force status of "employed"
  • in addition to the number of employed persons, the household characteristics presented in the tables now also includes the average number of dependent children in the household
  • in Appendix 1, a comparison between the Gini coefficient and some alternative summary measures (the Theil index and the Atkinson index).


EFFECTS OF ROUNDING

All figures have been rounded, and discrepancies may occur between sums of the component items and totals, and between the percentages as presented and those that could be calculated from the rounded figures.



INQUIRIES

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 6627.



SUMMARY COMMENTARY


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, 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.



HOUSEHOLD INCOME

In 2002-03, 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 $510 per week (table 1). There were approximately 19.3 million people living in these dwellings.


In real terms, average equivalised disposable household income in 2002-03 was 2% higher than in 2000-01 ($498) and 15% higher than in 1994-95 ($445). Between 2000-01 and 2002-03, real mean income for low income people (i.e. the 20% of people with household income between the bottom 10% and bottom 30% of incomes) grew by 4%, compared to 2% for both middle income people and high income people. Over the period from 1994-95, there was a 12% increase in the real mean income of low income people, 14% for middle income people and 16% for high income people.

CHANGES IN MEAN REAL EQUIVALISED DISPOSABLE HOUSEHOLD INCOME (a)
Graph: CHANGES IN MEAN REAL EQUIVALISED DISPOSABLE HOUSEHOLD INCOME (a)



Household characteristics

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 for households with middle and high income levels in 2002-03, 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.

Household characteristics 2002-03, By income group

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

Mean equivalised disposable household income per week$
269
449
975
Has PSI of wages and salaries(d)%
20.7
73.7
85.8
Has PSI of government pensions and allowances(d)%
70.1
7.0
-
Owns home without a mortgage%
49.3
34.3
26.9
Owns home with a mortgage%
15.3
38.1
48.3
Rents from state/territory housing authority%
8.4
2.7
*0.2
Rents from private landlord%
22.2
22.3
21.9
Average number of persons in the householdno.
2.3
2.8
2.4
Average number of employed persons in the householdno.
0.5
1.4
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


Middle income households contained more people on average than high income households (2.8 compared to 2.4) but contained considerably fewer employed persons (1.4 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 0.3 and 0.1 respectively for high income households. Low income households had an average of 0.5 employed persons, and housed an average of 2.3 persons. Of these, 1.1 were 18 to 64 years, with 0.6 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 2002-03, with over half the decline being in the under 18 age group. There was also a fall in the proportion of households containing couple families. In contrast, the proportion of lone person households and of households comprising one parent with dependent children both increased. Each principal source of income retained its relative importance between 1994-95 and 2002-03, with about 58% of households primarily dependent on wages and salaries. The proportion of households reliant on government pensions and allowances decreased slightly to 26.6% in 2002-03, down from 28.4% in 1994-95 and similar levels in the intervening years. 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 9. Other family situations and household compositions are shown in table 8. The following table compares households in different life cycle stages.

INCOME AND HOUSEHOLD CHARACTERISTICS FOR SELECTED LIFE CYCLE GROUPS, 2002-03

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

Lone person aged under 35
371.8
1.0
0.8
-
10.3
528
3.9
Couple only, reference person aged under 35
442.6
2.0
1.8
-
3.4
765
5.5
Couple, one family with dependent children
Couple with dependent children only
Eldest child aged under 5
405.6
3.4
1.4
1.4
10.3
478
8.1
Eldest child aged 5 to 14
856.8
4.2
1.5
2.2
8.2
493
17.7
Eldest child aged 15 to 24
467.0
4.2
2.3
2.2
8.4
462
29.3
Couple with dependent & non-dependent children only
243.8
4.6
2.9
1.5
*5.6
542
32.5
Other couple, one family with dependent children
72.1
5.1
2.0
1.8
18.2
498
32.9
Total couple, one family with dependent children
2,045.2
4.1
1.9
1.9
8.7
490
20.7
Couple, one family with non-dependent children only
430.1
3.3
2.3
-
11.0
644
54.8
Couple only, reference person aged 55 to 64
453.2
2.0
1.0
-
24.5
527
72.5
Couple only, reference person aged 65 and over
609.9
2.0
0.2
-
66.4
362
88.7
Lone person aged 65 and over
680.2
1.0
-
-
79.9
305
71.7
One parent, one family households with dependent children
428.8
2.9
0.8
1.7
48.9
352
14.0

* 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


Of the groups included in the table, the group with the highest mean income was younger couples without children. Their mean equivalised disposable household income was $765 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 $478 per week. Compared with younger couples without children, this lower income reflects a 20% lower after tax income, principally reflecting the lower average number of employed persons in these households (1.4) 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 $305 per week, somewhat lower than older couple only household incomes at $362 per week. Elderly lone persons were more likely than elderly couples to have government pensions and allowances as their principal source of income (80% compared to 66%), while couples were more likely to fully own their home (89% compared to 72%).


Households comprising one parent with dependent children had a mean income of $352 per week, similar to that of elderly couples ($362 per week), but only 14% 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, 49% 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, with three having mean equivalised disposable household incomes below the national mean of $510 per week (see table 13). Tasmania's mean weekly income was 15% below the national mean income level, followed by South Australia and Queensland (both 5% below). In table 13 the Australian Capital Territory is shown with the highest mean income (26% above the national average). This high income level reflects in part the younger age profile of the ACT. The Northern Territory recorded the second highest mean income (13% above the national average), also reflecting in part its relatively younger population. However, it also reflects the exclusion from the results of sparsely settled areas of the NT 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 and Victoria also recorded mean incomes above the national mean, 3% and 2% respectively, with Western Australian mean income at about the national level.


There are also considerable differences between the incomes recorded in capital cities in Australia compared to those earned elsewhere. At the national level, mean incomes in the capital cities were 20% above those in the balance of state, and in each state (separate information is not available for the NT and ACT) the capital city mean incomes were above those in the balance of state. The largest difference recorded was for NSW where the capital city income was 31% above the mean income across the rest of the state. The smallest difference recorded was for Tasmania where the capital city income was 6% above the rest of the state.



INCOME DISTRIBUTION

While the mean equivalised disposable household income of all households in Australia in 2002-03 was $510 per week, the median (i.e. the midpoint when all people are ranked in ascending order of income) was somewhat lower at $448 (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.

DISTRIBUTION OF EQUIVALISED DISPOSABLE HOUSEHOLD INCOME, 2002-03
Graph: DISTRIBUTION OF EQUIVALISED DISPOSABLE HOUSEHOLD INCOME, 2002-03
Note: Persons with an income between $25 and $1,625 are shown in $50 ranges on the graph.


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 2002-03, P90 was $870 per week and P10 was $218 per week, giving a P90/P10 ratio of 4.00. Various percentile ratios for seven 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 2002-03, 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 38.3% 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 2002-03, the Gini coefficient was 0.309. The coefficients for earlier years are shown in the following table. Please refer to Appendix 1 for more information on analysing income distribution.

Selected income distribution indicators, Equivalised disposable household income

1994-95
1995-96
1996-97
1997-98
1999-2000
2000-01
2002-03

Ratios of incomes of households at top of selected income percentiles
P90/P10ratio
3.77
3.73
3.66
3.77
3.89
3.98
4.00
P80/P20ratio
2.56
2.58
2.53
2.56
2.64
2.63
2.63
P80/P50ratio
1.55
1.58
1.56
1.56
1.57
1.56
1.57
P20/P50ratio
0.61
0.61
0.62
0.61
0.59
0.59
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
Middle income(b)%
17.7
17.7
17.8
17.7
17.7
17.6
17.6
High income(c)%
37.8
37.3
37.1
37.9
38.4
38.5
38.3
Gini coefficientno.
0.302
0.296
0.292
0.303
0.310
0.311
0.309

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


Changes since 1994-95

Changes in the income distribution measures presented in this publication tend to be relatively small from year to year but trends can emerge over longer time periods.


The movements in the indicators in the previous table all suggest some possible rise in income inequality over the period 1994-95 to 2002-03, but not all the movements are large enough to be regarded as statistically significant at the 95% confidence level (see Appendix 4: Sampling variability). The statistically significant movements are the increases in the P90/P10 and the decline in the share of total income going to persons with low income.


In addition to looking at the changes in income distribution measures from one year to another, a perspective on changes in income distribution can also be obtained by bringing data from the intervening years into the analysis. Looking at the results over the period 1994-95 to 1997-98 and comparing them with observations from 1999-2000 to 2002-03 shows somewhat greater changes in the income distribution measures than those resulting from a comparison between the single years of 1994-95 and 2002-03. Because the effective samples are greater when data are combined across years, and the sampling errors are therefore lower, the increases in the inequality indicators can be regarded as statistically significant with a higher degree of confidence, further supporting a conclusion of some increase in inequality.


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