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4102.0 - Australian Social Trends, 1996  
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 24/06/1996   
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Contents >> Income >> Income Distribution: Household income redistribution

Income Distribution: Household income redistribution

In 1993-94 the final income of households in the lowest income quintile was 16 times greater than their private income. The final income of households in the highest quintile was 22% lower than their private income.

Government improves economic equity in society by redistributing the nation's income. The government raises revenue through the taxation system which is then spent for the benefit of households. Some households pay more tax than they receive in benefits while others pay less tax and receive more benefits. These differences in amounts paid and received change the distribution of income.

Some taxes and benefits have a more direct impact on households than others. For example, personal taxes are paid to government by household members while company taxes are not; family payments are received by households containing children but benefits from spending on defence are shared by all. The data presented in this review refer only to taxes and benefits which could be directly associated with different household types. The estimates do not account for all government revenue and expenditure.

AVERAGE WEEKLY VALUE OF PRIVATE AND FINAL INCOME, 1993-94


Source: Household Expenditure Survey, Australia: the Effects of Government Benefits and Taxes on Household Income (cat. no. 6537.0).


The effect on high and low income households
In 1993-94 average weekly private income was $13 for households in the lowest gross income quintile and $1,586 for households in the highest quintile. (The amount for households in the lowest quintile is affected by people reporting negative income due to business losses.) When taxes were subtracted and benefits added, this difference was markedly reduced. Final income of the lowest quintile was $233 per week and final income of the highest quintile was $1,231 per week. The difference between the final incomes of the two quintiles, $998, was much less than the difference between their private incomes, $1,573.

The value of taxes paid increased as income increased and the proportions of direct and indirect tax also changed. In 1993-94 the lowest income quintile paid 7% of their total tax in direct tax while the highest quintile paid 81%.

The receipt of benefits did not consistently increase as income decreased. Households in the lowest income quintile did not receive the greatest value from benefits. This was received by households in the second quintile. This is because income is not the only influence on the receipt of benefits. The size and composition of households is also influential. Households in the second quintile had a higher average number of people receiving government cash benefits and a higher average number of children than households in the lowest quintile.

AVERAGE WEEKLY VALUE OF TAXES PAID AND BENEFITS RECEIVED, 1993-94


Source: Household Expenditure Survey, Australia: the Effects of Government Benefits and Taxes on Household Income (cat. no. 6537.0).


Household composition
In 1993-94 one parent families received the lowest private income ($216) and consequently paid the lowest taxes ($71). However, they received the highest total benefits ($411) due to the sole parent pension, the family payment and a range of indirect benefits such as education, health and housing. The value of education and health benefits consumed by one parent families was comparable to married couples with dependants.

In terms of final income, one parent families had a weekly average of $557 per week which was shared between an average of 2.8 people. The weekly average of $824 for two parent families was shared between 4.2 people.

Lone person households had the lowest level of indirect benefits ($68), due mainly to their low receipt of education and health services. However, they paid a relatively low level of total taxes. The high proportion of older people among people living alone (see People who live alone) is reflected in the relatively high average value of direct benefits received from the age pension ($53). Lone person households had an average weekly final income of $326 compared to $601 for couple only households.

AVERAGE WEEKLY VALUE OF THE COMPONENTS OF FINAL INCOME FOR SELECTED HOUSEHOLD COMPOSITION, 1993-94

Couple with dependants only
One parent with dependants only
Couple only
Lone person
Final income components
$
$
$
$

Private income
807
216
598
260
Total taxes
258
71
185
92
Total benefits
276
411
188
158
    Direct benefits
69
190
91
91
      Age pension
0
* *
46
53
      Disability support pension
4
4
11
10
      Veteran's Affairs pension
1
* *
21
14
      Unemployment allowance
18
2
7
9
      Sole parent pension
* *
104
. .
. .
      Family payment
39
68
. .
. .
    Indirect benefits
207
221
97
68
      Education
124
128
7
4
      Health
66
49
65
40
      Housing
3
20
2
5
      Social security/welfare
14
24
22
19
    Net benefits
18
340
2
66
Final income
824
557
601
326

Source: Household Expenditure Survey, Australia: the Effects of Government Benefits and Taxes on Household Income (cat. no. 6537.0)


Average net benefits over the life-cycle
The extent to which households pay tax and benefit from government expenditure varies over the life-cycle. In the early stages of the adult life-cycle, when people are young and single, or living as a couple without children, the payment of taxes considerably outweighs benefits received. The households receive little in benefits because they are small, members are usually employed and they are less likely to use educational and health services. Young couples without children often have both partners employed and thus pay more tax than young people living alone. For both these groups, final income is lower than private income.

Once a couple have children, one parent (usually the mother) may choose to leave the paid labour force, thus reducing the family's private income and hence the direct tax paid. The household receives greater benefits in the form of family payments and, for those with children aged 5 or over, in indirect education benefits. Final income for couples with dependent children aged 5 and over is greater than private income.

Lone parents with dependants receive a high level of direct and indirect benefits, including the sole parent pension and education benefits. They have relatively low incomes and spend less so they pay less tax. Their final incomes are twice their private incomes.

When one partner in a couple or a person living alone is aged 65 or over, their private incomes are low. They often receive direct government benefits, mainly the age pension, and relatively high indirect benefits, mainly health benefits. Their final incomes are well over twice their private incomes.

AVERAGE WEEKLY VALUE OF THE COMPONENTS OF FINAL INCOME FOR SELECTED LIFE-CYCLE GROUPS, 1993-94

Private income
Direct taxes
Indirect taxes
Direct benefits
Indirect benefits
Final income
Life-cycle groups
$
$
$
$
$
$

Single person under 35
443
102
40
33
36
370
Couple only, reference person under 35
951
203
74
13
53
741
Couple with oldest child under 5
736
170
67
55
94
648
Couple with oldest child 5-14
765
174
74
78
228
823
Couple with oldest child 15-20
958
222
76
64
269
993
Couple with non-dependant children only
1,012
208
93
97
120
929
Lone parent with dependants
216
33
38
190
222
557
Couple only, reference person over 65
186
31
38
204
171
493
Single person over 65
65
14
15
148
107
290

Source: Household Expenditure Survey, Australia: the Effects of Government Benefits and Taxes on Household Income (cat. no. 6537.0)



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