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4102.0 - Australian Social Trends, 1997  
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Contents >> Income & Expenditure >> Income Distribution: Trends in household disposable income

Income Distribution: Trends in household disposable income

Between 1984 and 1994 the share of total household disposable income going to low-income households decreased slightly while high-income households increased their share.

Households may receive income from a range of sources e.g. wages and salaries, own business, government pensions and allowances. Such regular and recurring receipts provide the main means by which most households finance current consumption and make provision for the future through saving, investments, etc. Analysis of income distribution can indicate whether the gap between high and low income households is growing or shrinking, and which groups within the population are at most risk of economic or social disadvantage.


Household income

Gross income is regular and recurring receipts from all sources before deductions for income tax, superannuation, etc. Comprises private income (e.g. from wages/salaries, business, investment) and government cash benefits (e.g. age pension, unemployment allowance, family allowance) of all household members.

Income quintiles are formed by ranking all households in ascending order by level of household income and then dividing into five groups each containing 20% of all households.

Disposable income is equal to gross income minus direct taxes (i.e. personal income tax and Medicare levy) for all household members.

Real disposable income is disposable income which has been adjusted for the effects of inflation to enable comparison of real values over time. In this review, 1984 disposable income has been inflated to 1993-94 values using the CPI - weighted average of eight capital cities, all groups index.

Reference periods in this review uses income data from two household expenditure surveys, one referring to the calendar year 1984 and the other to the financial year 1993-94. 1994 is used throughout to refer to the reference period 1993-94.


Increasing inequality in household incomes
Between 1984 and 1994, the gap between high and low income households widened. Household disposable (after tax) income increased by 52% in the lowest income quintile compared to 71% in the highest quintile.

Households in the lowest three quintiles received a slightly smaller share of total household disposable income in 1994 than in 1984. The fourth quintile remained about the same while households in the highest quintile increased their income share.

In 1994, the top 20% of households received 40% of total household disposable income (an average of $1,205 per week). The bottom 20% of households received a 6% share or an average of $175 per week.

DISTRIBUTION OF HOUSEHOLD DISPOSABLE INCOME AND HOUSEHOLD SIZE

Average per week
Income share
Average persons per household
One person households




Income quintile
1984
1994
1984
1994
1984
1994
1984
1994
$
$
%
%
no.
no.
%
%

Lowest
114.86
174.82
6.3
5.8
1.7
1.5
53.8
63.4
Second
218.61
340.07
12.1
11.4
2.7
2.4
16.9
17.5
Third
324.78
517.77
17.9
17.4
3.1
2.9
15.8
16.5
Fourth
449.19
745.77
24.8
25.0
3.2
3.1
7.0
8.5
Highest
703.45
1,205.46
38.8
40.4
3.6
3.2
2.1
2.9
Total
362.01
596.84
100.0
100.0
2.8
2.6
19.1
21.8

Source: Household Expenditure Survey, Australia: The Effects of Government Benefits and Taxes on Household Income
(cat. no. 6537.0); Household Expenditure Survey, Australia: Household Characteristics (cat. no. 6531.0).


Factors contributing to greater inequality
Households are getting smaller, on average, due partly to the ageing of the population and the consequent increase in aged one-person households. Increases in one-person and one-parent households following separation and divorce have also contributed to smaller average household size (see Australian Social Trends 1994, Changes in living arrangements).

Between 1984 and 1994 the size of households declined from an average of 2.8 persons per household to 2.6 persons per household. As a proportion of all households, one-person households increased from 19% to 22%, and aged one-person households increased from 8% to 9%. One-parent households (with dependent children only) increased from 4% to 5% of all households.

On average, households with only one adult and therefore only one income, have lower incomes than households with 2 or more adults. Among one-adult households, the aged and one-parent households generally have the lowest incomes. This increasing proportion of relatively low-income households has contributed to the increased inequality of household incomes and to the decline in average real (CPI adjusted) disposable incomes at the lower end of the distribution.

At the same time, the proportion of households with two incomes has increased. For example, among couple families with dependent children, the proportion with both partners employed increased from 42% in 1984 to 53% in 1994. Moreover, the combined hours that couples with dependent children work each week has also increased (see Australian Social Trends 1997, Families and work).

These trends have also contributed to the increased inequality of household incomes and to the rise in average real disposable income in the highest quintile.

Other changes during this period, such as increasing dispersion in full-time adult earnings (see Australian Social Trends 1994, Trends in earnings distribution) and rising unemployment rates have also contributed to the increased inequality of household incomes.

REAL DISPOSABLE INCOME OF HOUSEHOLDS

Average per week
Change 1984 to 1994


1984
1994
Amount
Per household
Per capita
Income quintile
$
$
$
%
%

Lowest
192.13
174.82
-17.31
-9.0
-1.3
Second
365.67
340.07
-25.60
-7.0
4.7
Third
543.27
517.77
-25.50
-4.7
-0.1
Fourth
751.37
745.77
-5.60
-0.7
3.1
Highest
1,176.68
1,205.46
28.78
2.5
13.2
Total
605.54
596.84
-8.70
-1.4
6.4

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


Buying power of household incomes
Inequality and relative advantage or disadvantage are important measures associated with social justice issues and can form the basis for the development and review of redistributive policy (e.g. taxation and income support). An equally important consideration is whether household incomes have maintained their value over time, in terms of the goods and services which can be bought and the potential standard of living which can be supported.

In 1994, real disposable household incomes were lower than in 1984 for all but the highest income quintile. The apparent buying power of households in the lowest quintile was eroded by 9% ($17 per week at 1994 values). The second and third quintiles were about $25 worse off in real terms, representing decreases of 7% and 5% respectively from 1984 income levels. Only the highest quintile achieved an increase (2.5% or $29 per week) in real disposable income between 1984 and 1994.

While real disposable income per household has declined in all but the top income quintile, this does not take into account the decline in average household size. When calculated in terms of income per person, real disposable income per household member increased by an average of 6% between 1984 and 1994. This is consistent with the steadily rising trend observed in household disposable income per capita as measured in national accounts (see Income - national summary table).

Measuring changes in living standards
In addition to income, a household may draw on other resources, such as accumulated savings/assets, loans, superannuation lump sums or gifts from relatives to finance their needs. Some households receive, directly from employers, goods or services such as the use of a car, free or subsidised housing, low interest loans, etc. Most households also benefit to a greater or lesser extent from free or subsidised goods and services provided by government in the form of education, health care and subsidised pharmaceuticals, housing, etc. These have a much greater impact on the total resources, or final income, of households with low cash incomes (see Australian Social Trends 1996, Household income redistribution).

While cash income is not a complete measure of the resources available to households, trends in real disposable income can still provide a useful proxy indicator of trends in living standards.

Household characteristics and living standards
In order to achieve an equivalent standard of living, different types of households in different circumstances require different levels of income. The financial needs of different household types vary according to a range of factors including household size and the age and lifecycle stage of household members. For example, a person living alone would generally need less income than a couple without children who would in turn need less than a couple with several dependent children to achieve an equivalent standard of living.

Direct comparisons of income levels over time are confounded to the extent that household size, composition and circumstances (e.g. housing costs associated with either renting buying or outright home ownership) change over time. These need to be taken into account when making inferences about apparent changes in living standards. Equivalence scales, which may be defined as the ratios of the incomes needed by different types of households to achieve the same standard of living, can be used to adjust household incomes to remove at least some of the confounding effects of changing household size, composition and living arrangements. Adjusting income in this way also enables comparison of living standards between different household types at a given point in time.

An alternative method of making meaningful comparisons over time is to compare each household type separately. This method can be very laborious and is generally used, as in this review, to focus on a few specific household types. However, while this method allows changes to be observed for specific household types it does not allow comparison of living standards between different household types.

Households with dependent children
To the extent that real disposable income provides an indication of potential living standards over time, the standard of living of households with dependent children appears to have improved between 1984 and 1994. Real disposable incomes, and hence the buying power, of these households have increased.

One-parent households, with dependent children only, have had the highest percentage gains in real disposable income; 18% or $54 per week for those with one dependent child and 13% or $45 per week for those with two dependent children. This is mainly due to increases in social security payments. Between 1984 and 1994, the maximum sole parent pension rates increased by between 11% and 15% in real terms.

Increases in real disposable income of two-parent households, with dependent children only, ranged from 12% ($76 per week) for those with one dependent child to 2% ($14 per week) for those with three dependent children. These increases are linked to rises in the labour force participation rates of married women with dependent children.

REAL DISPOSABLE INCOME OF HOUSEHOLDS WITH DEPENDANT CHILDREN

Average per week
Change 1984 to 1994
Households



1984
1994
1994
Selected household types
$
$
$
%
'000

One parent with:
    One dependent child only
300.74
355.04
54.30
18.1
163.4
    Two dependent children only
340.57
385.88
45.31
13.3
112.7
Two parents with:
    One dependent child only
630.30
706.29
75.99
12.1
451.4
    Two dependent children only
665.53
714.86
49.33
7.4
706.5
    Three dependent children only
700.89
714.43
13.54
1.9
214.5

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


Households without children
Among households without children, young households (reference person aged under 25 years) and older households (reference person aged 55-64 years) experienced large reductions in real disposable income between 1984 and 1994. This is linked to rising unemployment rates among 55-64 year olds combined with decreasing rates of full-time employment, particularly among 55-59 year old men, due to the continuing trend towards early retirement from full-time work (see Australian Social Trends 1994, Early retirement among men). In the case of young people, lower rates of full-time employment (partly due to increased participation in full-time study) and decreases in the value of real full-time and part-time earnings (see Australian Social Trends 1997, Youth income) have contributed to the decrease in real disposable incomes during this period.

In both age groups, one-person households experienced bigger losses than couple-only households. In 1994 young one-person households were 26% ($94 per week) worse off than in 1984. Young couples were 9% ($64 per week) worse off. Singles aged 55-64 years experienced a 17% ($46 per week) loss in real disposable income while couples in the same age group lost 8% ($39 per week).

On average, aged households (reference person aged 65 or more) maintained about the same level of real disposable income, or buying power, between 1984 and 1994. This was the case for aged people living alone and for those living with a partner.

Over 60% of the aged population (women over 60 and men over 65) receive the age pension. An increase of 5% in the real value of the maximum age pension rate between 1984 and 1994 has helped to maintain real disposable incomes of aged households during this period.

REAL DISPOSABLE INCOME OF HOUSEHOLDS WITHOUT CHILDREN

Average per week
Change 1984 to 1994
Households



1984
1994
1994
Selected household types
$
$
$
%
'000

One person, aged:
    Under 25 years
366.88
273.25
-93.63
-25.5
94.4
    25-34 years
444.13
425.33
-18.80
-4.2
201.7
    35-44 years
460.85
436.44
-24.41
-5.3
183.9
    45-54 years
394.68
385.73
-8.95
-2.3
178.2
    55-64 years
265.66
219.59
-46.07
-17.3
201.4
    65 years and over
204.46
207.00
2.54
1.2
582.4
Couple only, reference person aged:
    Under 25 years
712.13
647.81
-64.32
-9.0
122.7
    25-34 years
827.40
816.13
-11.27
-1.4
298.6
    35-44 years
819.08
856.62
37.54
4.6
131.0
    45-54 years
651.53
666.45
14.92
2.3
291.9
    55-64 years
501.05
462.44
-38.61
-7.7
343.2
    65 years and over
361.56
360.83
-0.73
-0.2
523.1

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

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