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6523.0 - Household Income and Income Distribution, Australia, 2000-01  
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 23/07/2003   
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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 2000-01 Survey of Income and Housing Costs (SIHC).


CHANGES IN THIS ISSUE

This issue incorporates a range of methodological improvements in household income distribution measurement and presentation. These changes, explained in detail in the Explanatory Notes and Appendix 4, were first described in the Feature Article 'Revised Household Income Distribution Statistics', published in the June 2003 issue of Australian Economic Indicators (cat. no. 1350.0), which was released on 30 May 2003. That article also provided revised estimates of income distribution for 1994-95 to 1999-2000. The changes have been made in response to revised user requirements, developments in international theory and practice and to an observed increase in undercoverage of government cash transfers payments measured in the SIHC in recent years. The changes include:

  • revised demographic benchmarking
  • the use of household income instead of income unit income as the income variable most relevant to an individual's economic wellbeing
  • the use of persons instead of income units in compiling measures of income distribution to better reflect the economic wellbeing of individuals, including children
  • the introduction of benefit transfer benchmarking for 1999-2000 and 2000-01, based on the historical coverage rate achieved for benefit payments
  • the use of the term equivalised income instead of the term equivalent income
  • the use of equivalised disposable income instead of gross income for most analysis
  • the use of the 'modified Organisation for Economic Co-operation and Development (OECD)' equivalence scale instead of the 'original OECD' equivalence scale or the Henderson equivalence scale
  • the presentation of a wider range of income distribution measures, along with an increased emphasis on providing time series of the measures.

As a result of these changes, the publication has been much delayed. I apologise for any inconvenience to users of these statistics. Future issues of this publication should be much more timely.


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.


ABBREVIATIONS

$mmillion dollars
ABSAustralian Bureau of Statistics
ACTAustralian Capital Territory
ASNA Australian System of National Accounts
Aust.Australia
CPIConsumer Price Index
DVADepartment of Veterans Affairs
FaCSFamily and Community Services
GSTGoods and Services Tax
MPSMonthly Population Survey
NSWNew South Wales
NTNorthern Territory
OECDOrganisation for Economic Co-operation and Development
OOPSOne-off payment to seniors
PSIprincipal source of income
QldQueensland
RSE relative standard error
SASouth Australia
SEstandard error
SIHCSurvey of Income and Housing Costs
Tas.Tasmania
Vic.Victoria
WAWestern Australia


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 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 Costs (SIHC), 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 and child support, 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 distribution of income as it changes over time. 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 2 provides a more detailed explanation of equivalised disposable income. It shows the differences in income measures when calculated from data at different stages in progression from gross household income, through disposable income, to person weighted equivalised disposable household income.


THE NEW TAX SYSTEM

The introduction of The New Tax System from 1 July 2000 impacted on the economic resources available to households in a number of ways, including:
  • an increase in the rates of payment for recipients of government cash transfer benefits
  • a decrease in income tax rates
  • an increase in the average rate of indirect taxes levied on goods and services purchased by households.

The net impact of these three influences is likely to have differed between various groups in the population.

Changes made to transfer benefit rates and to income tax rates are both reflected in after tax measures of cash income, and therefore will be reflected in the comparisons between individual years in the time series presented in this publication. To the extent that the effects of the increase in benefit transfers and the reduction in income tax rates are not uniform across the population, income distribution indicators such as percentile ratios, income shares and the Gini coefficient will all reflect the impact of these changes.

The changes were larger in 2000-01 than have been experienced in previous years reported in this publication. The increase in government cash transfers benefits (up 13%) was much higher than in any of the previous five years (and nearly double the next highest annual increase experienced in those years). And whereas the income tax liability of households had increased in recent years, reflecting higher gross incomes and an increasing number of people receiving income, in 2000-01 the decrease in tax rates saw the average household income tax liability fall by 6%.

Comparisons of the value of disposable household income over time, such as the mean values and percentile values provided in table 1, have been adjusted in this publication for overall changes in the consumer price index (CPI). Since the CPI will reflect the price impacts of changes in indirect taxes, the CPI-adjusted income measures for 2000-01 reflect those impacts.

However, any differences in the impact of indirect tax rates on different groups in the population, for example because they tend to spend a greater or lesser proportion of their income on goods and services that had a higher or lower than average net impact from the indirect taxation changes being made, are not taken into account in the income measures presented in this publication. Analysis of the differential impact of indirect taxes requires detailed information on expenditure patterns, which is not available in the SIHC. The next issue of Government Benefits, Taxes and Household Income, Australia, (cat. no. 6537.0), to be released after the 2003-04 Household Income and Expenditure Survey has been completed, will present analyses of the impacts of both direct and indirect taxation on the total population and on population subgroups.


HOUSEHOLD INCOME

Changes since 1994-95

In 2000-01 there were approximately 18.9 million people living in private dwellings in Australia, up by 7% on the number of people in 1994-95. In real terms, equivalised disposable household income for all people, on average, increased by 12% between 1994-95 and 2000-01, from $419 to $469 per week (table 1). Over that same period the real mean income of low income people (i.e. the 20% of people with household incomes between the bottom 10% and the bottom 30% of incomes) increased by 8%, from $227 to $245 per week, with the increase spread reasonably evenly over the period. The real mean income of middle income and high income people increased by 12% (from $497 to $555 per week) and 14% (from $792 to $903 per week) respectively.

INDEXES OF MEAN REAL EQUIVALISED DISPOSABLE HOUSEHOLD INCOME(a)
graph:INDEXES OF MEAN REAL EQUIVALISED DISPOSABLE HOUSEHOLD INCOME



Household characteristics

Households with different income levels tend to differ with respect to other characteristics, as shown in table 5 and summarised in the following table. Wages and salaries were the principal source of income for households with middle and high income levels, 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 BY INCOME GROUP
Low income(a)
Middle income(b)
High income(c)

Mean weekly equivalised disposable household income per week$
245
413
903
Has PSI of wages and salaries(d)%
15.2
73.7
87.9
Has PSI of government pensions and allowances(d)%
75.9
6.1
-
Owns home without a mortgage%
51.5
38.1
30.4
Owns home with a mortgage%
15.8
34.8
46.4
Rents from state/territory housing authority%
8.7
2.3
**0.2
Rents from private landlord%
19.5
21.3
21.1
Average number of persons in the householdno.
2.3
2.9
2.5
Average number of earners in the householdno.
0.3
1.3
1.9

- nil or rounded to zero (including null cells)
** estimate has a relative standard error greater than 50% and is considered too unreliable for general use
(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 (2.9 compared to 2.5) but contained considerably less earners (1.3 compared to 1.9). In part, this reflects the different age profiles of the two groups. Table 5 shows that middle income households had an average of 0.9 persons under the age of 18 and 0.3 aged 65 and over, compared to 0.4 and 0.1 respectively for high income households. Low income households only had an average of 0.3 earners, and housed an average of 2.3 persons. Of these, 1.0 were 18 to 64 years, with 0.6 under 18 years and 0.7 persons aged 65 years and over.

The characteristics of Australian households are changing over time. Table 2 shows that the average number of persons per household declined from 2.69 to 2.58, or about 4%, between 1994-95 and 2000-01. There was no decline in the 65 and over age group, and over half the decline was in the under 18 age group, reflecting an 8% fall in that age group. There was also a fall in the proportion of households containing couple families. In contrast, the number of one parent families with dependent children increased. Each principal source of income retained its relative importance between 1994-95 and 2000-01, with about 57% of households primarily dependent on wages and salaries and about 28% on government pensions and allowances. Home ownership remained relatively stable at around 70% of households throughout this period, but an increasing proportion of owners had an outstanding 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 8. Other family situations and household compositions are shown in table 7. The following table compares households in different life cycle stages.


INCOME AND HOUSEHOLD CHARACTERISTICS FOR SELECTED LIFE CYCLE GROUPS
Average
number
of persons
Average
number
of earners
Proportion with
govt. benefits
as PSI(a)
Mean equivalised
disposable
household income
per week
Proportion owning
home without
mortgage
Household composition
no.
no.
%
$
%

Lone person aged under 35
1.0
0.8
13.7
513
6.9
Couple only, reference person under 35
2.0
1.8
*2.8
692
6.9
Couple with dependent children only
Eldest child under 5
3.4
1.4
9.4
466
8.9
Eldest child 5 to 14
4.2
1.5
9.9
434
20.6
Eldest child 15 to 24
4.2
1.6
8.1
481
33.0
Couple with
Dependent and non-dependent children only
4.9
2.4
*6.7
502
39.5
Non-dependent children only
3.3
2.2
11.0
597
61.2
Couple only, reference person 55 to 64
2.0
0.9
28.2
475
72.6
Couple only, reference person 65 and over
2.0
0.1
71.7
321
88.5
Lone person 65 and over
1.0
-
79.2
274
73.7
One parent, one family households with dependent children
3.0
0.7
53
329
13.8

* estimate has a relative standard error of between 25% and 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 average income was younger couples without children. Their mean equivalised disposable household income was $692 per week, with the average number of earners in the household being 1.8. For couples with dependent children only, and with the eldest child being under five, the average numbers of earners dropped by about one-quarter, to 1.4. Because those households consisted of an average of 3.4 persons, compared to 2.0 in younger couple only households, their average equivalised disposable household income of $466 per week was about one-third lower than the $692 per week income of the younger couple only households. Average incomes were higher for households with non-dependent children, reflecting higher proportions of earners in these households, but were lower again for households comprising older couples and lone persons where the numbers of earners declined substantially.

People aged 65 and over had the lowest mean incomes, with lone persons' incomes at $274 per week, somewhat lower than older couple only household incomes at $321 per week. Elderly lone persons were more likely than elderly couples to have government pensions and benefits as their principal source of income (79% compared to 72%), while couples were more likely to fully own their home (88% compared to 74%).

Households comprising one parent with dependent children had a mean income of $329 per week, similar to that of elderly couples ($321 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, 53% had government pensions and benefits as their principal source of income. On average they had 0.7 earners 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 average of $469 per week (see table 12). Tasmania's mean weekly income was 17% below the national average income level, followed by South Australia (9% below) and Queensland (6% below). In table 12 the Northern Territory is shown with the highest mean income (34% above the national average). This high income level reflects in part the younger age profile of the NT. 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 average incomes in the NT. The Australian Capital Territory recorded the second highest average income (24% above the average), also reflecting in part its relatively younger population. New South Wales and Victoria both recorded incomes at 3% above the national average, with Western Australian incomes 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, average 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 average incomes were above those in the balance of state. The largest difference was recorded for NSW where the capital city incomes were 30% above the average incomes across the rest of the state.


INCOME DISTRIBUTION

While the mean equivalised disposable household income of all households in Australia in 2000-01 was $469 per week, the median (i.e. the midpoint when all people are ranked in ascending order of income) was somewhat lower at $414 (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 2000-01
GRAPH: DISTRIBUTION OF EQUIVALISED DISPOSABLE HOUSEHOLD INCOME 2000-01



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 2000-01, P90 was $802 per week and P10 was $202 per week, giving a P90/P10 ratio of 3.97. Various percentile ratios for six years are shown in the table below, 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 table below shows that, in 2000-01, 10.5% 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 summarises the degree of inequality, with values closer to 0 representing a lesser degree of inequality, and values closer to 1 representing greater inequality. For 2000-01, the Gini coefficient was 0.311. The coefficients for earlier years are shown below.


SELECTED INCOME DISTRIBUTION INDICATORS, EQUIVALISED DISPOSABLE HOUSEHOLD INCOME

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

Ratios of incomes of households at top of selected income percentiles
P90/P10
P90/P10ratio
3.77
3.74
3.66
3.77
3.89
3.97
P80/P20ratio
2.56
2.58
2.54
2.56
2.64
2.63
P80/P50ratio
1.55
1.57
1.56
1.56
1.57
1.56
P20/P50ratio
0.61
0.61
0.61
0.61
0.59
0.59
Percentage share of total income received by persons with
Low income(a)%
10.8
10.9
11.0
10.8
10.5
10.5
Middle income(b)%
17.7
17.7
17.8
17.6
17.6
17.7
High income(c)%
37.8
37.3
37.1
37.9
38.4
38.5
Gini coefficientno.
0.302
0.296
0.292
0.303
0.310
0.311

(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. Data are available from the SIHC from 1994-95.

While all the indicators in the previous table rose over the period 1994-95 to 2000-01, only the increase in the P90/P10 ratio and the decline in the share of total income going to persons with low income are sufficiently large to be regarded as statistically significant at the 95% confidence level (see Appendix 3). Relaxing the confidence level to 90% results in the increase in the Gini coefficient also being statistically significant. The indicators therefore suggest some possible rise in income inequality over the second half of the 1990s.

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 2000-01 shows somewhat greater changes in the income distribution measures than those resulting from a comparison between the single years of 1994-95 and 2000-01. 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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