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HOUSEHOLD INCOME, EXPENDITURE AND WEALTH
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 sub-populations 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 section 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 an equivalence scale 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 section 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.
In 2003-04, 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 $549 per week. There were approximately 19.6 million people living in these dwellings.
After adjusting for changes in prices and before taking account of some breaks in series between 2002-03 and 2003-04, average real equivalised disposable household income in 2003-04 ($549) was 5% higher than in 2002-03 ($522) and 21% higher than in 1994-95 ($455). Between 2002-03 and 2003-04, the $27 increase in average real income in part reflects the one-off payments to families and carers announced in the May 2004 Australian Government budget. About $2.2 billion (b) was payable to families in 2003-04 under this initiative which, on average, increased gross weekly household incomes by about $6, and equivalised disposable household incomes by a little over $4 per week. Increases in real incomes between the two years also reflects higher average wages and salaries (up 4.8% in 2003-04). (For more details on the breaks in series between 2002-03 and 2003-04, see Household Income and Income distribution, Australia, 2003-04 (6523.0).)
For low income people (represented by the 20% of people with household income between the bottom 10% and bottom 30% of incomes), average equivalised disposable household income in 2003-04 grew by 9% ($24 per week), compared with 7% for middle income people and 3% for high income people. About $7 (or more than one quarter) of the increase for the low income people resulted from the one-off payments to families and carers in 2003-04. The net impact of these one-off payments on the average real equivalised disposable household incomes of high income households was less than $1 per week. Over the period from 1994-95, there was a 22% increase in the average real incomes of both low income people and middle income people and 19% for high income people.
Households with different income levels tend to differ with respect to other characteristics as shown in table 7.2. Wages and salaries were the principal source of income for households with middle and high income levels in 2003-04, 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.
Middle income households contained more people on average than high income households (2.8 compared with 2.5) but contained considerably fewer people employed (1.5 compared with 1.9). In part, this reflects the different age profiles of the two groups. Low income households had an average of 0.5 employed persons, and housed an average of 2.5 persons.
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. Table 7.3 compares households in different life cycle stages.
Of the groups included in table 7.3, the group with the highest average equivalised income was younger couples without children. Their average equivalised disposable household income was $821 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 5 years, their average equivalised disposable household income was $557 per week. Compared with younger couples without children, this lower income reflects a 12% lower after-tax income, principally reflecting the lower average number of employed persons in these households (1.5) 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 people employed in these households, but were lower again for households comprising older couples and lone persons, where the numbers of employed people were substantially lower.
People aged 65 years and over had the lowest average incomes, with lone persons' incomes at $350 per week, somewhat lower than older couple only household incomes at $399 per week. Elderly lone people were more likely than elderly couples to have government pensions and allowances as their principal source of income (77% compared with 67%), while couples were more likely to fully own their home (85% compared with 74%).
Households comprising one parent with dependent children had an average income of $391 per week, similar to that of elderly couples ($396 per week), but only 11% 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, 54% 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. Tasmania's average weekly income was 13% below the national average income level and Queensland was 5% below. New South Wales recorded an average income 4% above the national average. In table 7.4 the Australian Capital Territory and the Northern Territory are shown to have the highest average incomes (22% and 17% above the national average respectively). The high income levels reflect in part the younger age profile of the Australian Capital Territory and the Northern Territory. However, it also reflects the exclusion from the results of households in areas of the Northern Territory defined as very remote or Indigenous communities which, if included, would be likely to significantly reduce the average incomes in that territory.
There are also considerable differences between the equivalised disposable household incomes recorded in capital cities in Australia compared with those earned elsewhere. At the national level, average incomes in the capital cities were 16% above those in the balance of state, and in all states the capital city average incomes were above those in the balance of state. The largest differences recorded were for New South Wales and Tasmania where the capital city incomes were respectively 26% and 24% above the average incomes across the rest of the state.
While the average equivalised disposable household income of all households in Australia in 2003-04 was $549 per week, the median (i.e. the midpoint when all people are ranked in ascending order of income) was somewhat lower at $491 per week. 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 (graph 7.5).
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 in graph 7.5. In 2003-04, P90 was $912 per week and P10 was $246 per week, giving a P90/P10 ratio of 3.70. Various percentile ratios for selected years are shown in table 7.6, and the changes in these ratios 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. Table 7.6 shows that, in 2003-04, 10.9% of total equivalised disposable household income went to people in the 'low income' group (i.e. the 20% of the population in the second and third income deciles), with 37.4% going to the 'high income' group (represented by 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 2003-04, the Gini coefficient was 0.294. About one third of the decline in the Gini coefficient between 2002-03 and 2003-04 (down about 5%) results from the one-off payments to families and carers. This real world effect also explains a significant proportion of the movement in the remaining indicators in table 7.6.
Some of the change in the indicators between 2002-03 and 2003-04 will reflect methodological improvements introduced in 2003-04, although it is not possible to quantify these impacts on the distributional measures shown in table 7.6. However, if the former method of imputing business and investment incomes based on reported previous year incomes had been continued for 2003-04, the Gini coefficient would have been about 1% higher.
While it is difficult to assess changes in income distribution over time due to the methodological improvements introduced with the 2003-04 survey, it appears that there has been no significant change in income inequality from the mid-1990s to 2003-04. If only the real impact of the one-off payments to families and carers were to be taken into account, the Gini coefficient for 2003-04 would be below the estimate for 2002-03, and not significantly different from the Gini coefficients for either 1994-95 or 1995-96 (0.302 and 0.296 respectively). This pattern would also be reflected in the other selected indicators of income distribution.
The latest household expenditure information available is from the 2003-04 Household Expenditure Survey, conducted by the ABS. This survey collected detailed information on the expenditure, income and characteristics of households in Australia.
The household is the usual unit of analysis for expenditure because it is assumed that sharing of the use of goods and services occurs at this level. If smaller units are adopted, for example, person, then it is difficult to attribute the use of both shared items such as accommodation and household goods, and of expenditure on items consumed by others, such as food.
In 2003-04, Australian households spent an average of $883 per week on goods and services. The level and pattern of expenditure differ between households, reflecting characteristics such as income, household composition, household size and location.
Predictably the level of household expenditure differs between households with differing income levels. In 2003-04, households in the lowest income quintile (i.e. the 20% of households with the equivalised disposable household income) spent $488 per week on goods and services, compared with $1,306 spent by households in the highest income quintile. Households in these quintiles had average gross weekly incomes of $337 and $2,280 respectively. Since the Household Expenditure Survey does not collect information on all forms of income and expenditure, and there are significant timing differences between the different components of income and expenditure collected, caution should be exercised in comparing the income and expenditure data. Nevertheless, for both the lowest and the second lowest income quintiles, average weekly household income as measured in the survey is less than average weekly household expenditure. This does not necessarily mean that these households are spending beyond their means. Some of the households in these quintiles will have had higher income in the past and so can finance their expenditure by drawing on past savings. This is especially so for retired people. Other households may take out loans in the expectation of higher incomes at a later time. The lowest quintile also includes households who reported zero or negative income. These households’ losses from their unincorporated businesses or investments equalled or were greater than their income from all other sources. In general this group can draw on economic resources other than income to maintain their standard of living, at least in the short term.
The composition of a household’s weekly expenditure is also affected by the level of household income. For example, food and non-alcoholic drinks accounted for 20% of the expenditure on goods and services of households in the lowest income quintile, compared with 16% for households in the highest income quintile. In general, the proportion spent on household services, domestic fuel and power and tobacco products also declined as household income rose, while the proportion spent on recreation, clothing and footwear, and alcohol increased.
The distribution of net worth, or wealth, across households is very unequal, partly reflecting the common pattern of people gradually accumulating wealth throughout their working life. In 2003-04 the 20% of households with the least net worth accounted for only 1% of total household net worth, with an average net worth of $23,800 per household. The share of net worth increases with each higher net worth quintile, with 6% for the second quintile, 13% for the third quintile, 21% for the fourth quintile, while the wealthiest 20% of households in Australia accounted for 59% of total household net worth, with average net worth of $1.4 million (m) per household.
The distributional pattern of net worth is also marked when considered in terms of sources of income. The households where the principal source of household income was 'other' income (principally investment income) had average household net worth of $1.1m, while for those where the principal source of income was government pensions and allowances the average household net worth was $249,000. Net worth in renter households was on average only about 10% of the net worth in owner households with no mortgage, and about 20% of owner households with a mortgage.
The picture of wealth (net worth) is a little different and more equally distributed when viewed from the perspective of the distribution of incomes. The households in which the 20% of people with the lowest household incomes live accounted for 15% of total household net worth, similar to the shares of net worth held by the households with people in the second and third household income quintiles. The households in which the 20% of people with the highest household incomes live accounted for 37% of total household net worth.