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Overview Definition 8.1. Income is defined as follows: income comprises those receipts accruing (in cash and in-kind) that are of a regular and recurring nature, and are received by the household or its members at annual or more frequent intervals. It includes regular receipts from employment, own business and from the lending of assets. It also includes transfer income from government, private institutions and other households. Income also includes the value of services provided from within the household via the use of an owner-occupied dwelling, other consumer durables owned by the household and unpaid household work. Income excludes capital receipts that are considered to be an addition to stocks, and receipts derived from the running down of assets or from the incurrence of a liability. It also excludes intra-household transfers. Running down of assets 8.2. For practical and conceptual reasons, an exception is made in this definition of income with regard to one important source - viz the household receipts from pension funds. Under the above definition of income, household receipts in the form of pensions from funded schemes should be treated as a drawing on assets and therefore not income.
(Note that similar treatment of benefits from both funded and unfunded pension schemes has been recommended in the SNA93, although an explicit adjustment is made in the Use of Disposable Income Account of the SNA93 to eliminate the double counting and hence to correctly measure aggregate household saving.) Income in-kind 8.5. Income is generally thought of as a cash or money receipt. However, important elements of the income of persons and households are obtained in forms other than money. This is called income in-kind. There are two broad types:
8.6. An example of the first type is an employer who provides an employee with goods (e.g. food, petrol) or with a service (e.g. the use of a car, a free house) in lieu of cash wages. 8.7. An example of the second type is the services provided by an owner-occupied dwelling. The service does not enter the market or involve money, but is nevertheless an important source of 'income' to the owner. 8.8. In order to add or compare income in-kind with cash income, the cash equivalent of the income in-kind has to be estimated or imputed. Also, because the transaction does not have the intermediary of money, income and consumption are not separate events. What is received as income is not cash but rather the right or ability to consume a particular good or service. 8.9. Therefore, in the ICW framework, a simultaneous imputed value for both income and consumption must be made. 8.10. In theory, the scope of income in-kind can be very wide. It may range from the consumption of domestic services provided by a household member, to the pleasure derived from a painting or a clean environment. Two criteria are used to define the limits to the inclusion of income in-kind:
8.11. Applying these criteria, priority should be given to the income in-kind obtained from:
Classification 8.12. Income can be classified as cash income or as income in-kind and can also be classified according to source of income. Income may be derived from market activity, in the form of a return to labour and entrepreneurial skills or from the ownership of assets. It may also be derived from outside the market place, in the form of government and private transfers to the household or in the form of goods and services provided from within the household.
Primary income Definition 8.14. Primary income is defined as receipts accruing in cash or in-kind in the current reference period to employees and self employed persons by virtue of the deployment of their labour and entrepreneurial skill in productive activity. In-kind receipts are measured as an imputed cash equivalent. Classification 8.15. Primary income is classified as:
Primary income: Employee income Definition 8.16. Employee income is defined as the sum of employee 'earnings', as defined by ILO (see below), and employer contributions to employee superannuation and pension funds. 8.19. Employee cash income includes:
8.20. Employee cash income excludes severance or termination pay which is classified as a lump-sum receipt and included with capital transfers received. It excludes allowances paid by an employer purely to cover the cost of work-related expenses (e.g. electoral allowance for MPs). It also excludes pension payments from unfunded schemes paid to former employees which are included in transfer income. (b) Employee income in-kind 8.21. Employee income in-kind includes:
(c) Employer contributions to pension and superannuation funds 8.22. As noted previously, 'employer contributions to pension and superannuation funds' differ from other components of employee income in that they are not available for household consumption. Instead, the contributions are seen to be immediately disbursed by the household into household saving. Classification 8.24. Employee income is classified according to the type of employee, and whether the income is in cash or in-kind.
(b) Employee income:
Primary income: Entrepreneurial income Definition 8.25. Entrepreneurial income is the income that accrues to persons or households as owners of, or partners in, unincorporated enterprises.
8.30. Depreciation is the value of capital consumed in the productive activity. An allowance for this is subtracted from the receipts of the business in order to allow for entrepreneurial income to conform with the broad definition of income that defines income as receipts that exclude the running down of capital. Classification 8.31. Entrepreneurial income may be classified as:
8.32. This distinction may be useful in analysis given the added difficulty of collecting data on farm produce consumed and given the wider fluctuations in farm income from year to year. Comments (a) Negative income 8.33. As indicated above, the income of an unincorporated enterprise will be negative when the operating expenses and depreciation are greater than the gross receipts. This means that not only does the enterprise not make any profit, but that even to cover costs the enterprise must be either drawing on assets or incurring a debt. 8.34. Data on entrepreneurial income is often the most unsatisfactory of all income items collected in household surveys. This 'unsatisfactory' nature of the data stems from two different considerations:
8.35. It is often the case that the record-keeping practices of the enterprise are inadequate. Many of the self employed are not in a position to provide figures for 'gross output', 'operating expenses' and 'depreciation'. Even if adequate records are kept, they are often not kept in the home where the respondent is interviewed. Suitability of the measure 8.39. The second question is whether either of the above measures gives an accurate reflection of the resources available to the household for consumption and saving. Of particular importance may be whether some of the cash receipts of the business are used for personal consumption before they are entered into either set of accounts. 8.40. Given the often unsatisfactory nature of the above measures of profit/loss, it is sometimes suggested that a better measure to collect may be the 'withdrawals' that the entrepreneur makes from the enterprise. The suggestion is that this may be a better indicator of the household's standard of living and may better match the household's consumption patterns. This suggestion was most recently made at the Fifteenth International Conference of Labour Statisticians in Geneva (ILO 1992).
8.42. The stance taken in this paper is that, conceptually, it is not appropriate to attempt to impose separate identities on the self-employed person and the enterprise when these two identities in fact form a single legal entity. 8.43. Therefore, where consumption of the household is higher than the income received, then that household must be financing that consumption either by drawing on capital or incurring a liability. Such dissavings by entrepreneurial income households are not included in the concept of income as defined by the framework. Property income Definition 8.44. Property income is defined as the net receipts accruing in the current reference period as a result of ownership of assets. It comprises returns from financial assets (interest, dividends), from non-financial assets (rent) and from royalties. Property income excludes the income imputed for services provided by owner-occupied dwellings and services provided by consumer durables which are included in other non-market income. Classification 8.45. Property income is classified as:
Property income: Interest Definition 8.46. Interest consists of receipts from deposits (including term deposits) with banks, building societies, credit unions, and other financial institutions. Also included is interest received from government bonds/loans and securities, debentures and interest received from personal loans to others outside the household. Property income: Dividends Definition 8.47. Dividends comprise income received from investments in corporate equities, such as ownership of shares. Dividend income includes bonus shares received. Bonus shares are deemed to be received and saved as one notional transaction. They add to the value of the household's assets and are not available for consumption. Property income: Rent Definition 8.48. Rent comprises payments received from property other than owner-occupied dwellings. It includes income from lodgers and from others who are sub-letting parts of the dwelling, but excludes income from boarders who are counted as members of the household. Property income: Royalties Definition 8.51. Royalties comprise payments for the use of patented or copyright materials, etc. Property income: Returns on equity in pension funds Definition 8.52. Property income includes interest and other income paid to pension funds on the employee's equity while that employee is still working. This income is deemed to be received and saved as one notional transaction, increasing the value of financial assets during the period. It is therefore not available for consumption. Definition 8.54. Transfer income is defined as regular and recurring receipts other than those derived from primary or property income. They differ from primary and property income in that they do not involve a 'quid pro quo' e.g. a return for labour, a return for use of assets. Therefore, transfer income is classified as 'non-market' income. Classification 8.59. Transfer income is classified as:
Transfer income: Social security cash pensions, benefits and allowances Definition 8.60. Social security cash pensions, benefits and allowances are regular, recurring receipts paid by government to persons, families or households under the social security and related government programs. They include benefits paid to veterans and their survivors, study allowances for students, etc. They include pensions paid to residents by overseas governments e.g. paid to former migrants who retain eligibility for pensions provided in their country of origin. Classification 8.62. These transfers are classified according to the purpose for which they are granted.
8.64. These transfers should also be classified according to whether they are paid by the Australian (or State) governments or by overseas governments. They may also be classified according to the government authority responsible for the payments e.g. Department of Social Security, Department of Veteran's Affairs, Department of Employment, Education and Training. Comments 8.65. In Australia, the bulk of government cash transfers are paid by the Commonwealth Government in the form of pensions and benefits which constitute a non-contributory scheme. Transfer income: Other pension and life assurance annuity benefits Definition 8.66. Other pensions and benefits are defined as all pensions and regular superannuation payments that are made other than under the government's social security and related schemes. They include annuities from life insurance paid to survivors. 8.68. These schemes cover pension funds in which contributions are made to the insurance enterprise or fund. 8.73. These are schemes in which employers pay insurance benefits to their employees, ex-employees or their dependents out of their own resources without creating a fund. These are usually government schemes such as that provided for Commonwealth public servants by the government. Classification 8.75. Conceptually, it is desirable to distinguish between 'other pensions and benefits' paid out of funded or unfunded schemes. At a practical level, this may prove difficult. Transfer income: Social security in-kind concessions Definition 8.76. Social security in-kind concessions refer to all in-kind concessions received by persons in special eligibility categories e.g. recipients of social security and other related pensions and benefits, aged persons or students. These usually comprise goods and services provided free or at subsidised cost e.g. transport and pharmaceutical concessions, and an imputed value of the service or goods should be derived. The services or goods may be delivered directly by government or via private organisations and authorities whose services are subsidised by government - e.g. subsidised transport for pensioners delivered by private transport companies. Includes benefits provided by all three tiers of government. These concessions are over and above the general subsidy received by all users of the good or service under consideration. (See also the next topic, Other government in-kind transfers.) Classification 8.77. These pensioner concessions may be classified according to the nature of the concession (e.g. transport, phone etc) or the government authority subsidising the service. Transfer income: Other government in-kind transfers Definition 8.78. These transfers are defined as indirect benefits provided by government spending other than those distributed as concessions to special eligibility groups under the social security and related schemes. They cover a broad range of benefits such as health, education, housing, welfare services, etc. All persons and households that make use of the services , e.g. medical and hospital benefits for the ill, schooling for children and adults, receive these indirect benefits. The value of the benefits received relates to the level of use. Special eligibility groups may be entitled to an additional level or type of benefit in any of these broad areas. (See the previous topic, Social security in-kind concessions.) Classification 8.80. The classification of other government in-kind transfers is as follows:
Transfer income: Other current transfers 8.81. This broad category covers all other current transfers in cash or in-kind. It comprises transfers between households and transfers from private organisations to households. It covers both compulsory transfers (e.g. some child support) and non-compulsory transfers. Classification 8.82. Other current transfers are classified according to whether the transfer is paid by a private organisation or by another household:
Comments 8.83. It should be noted that under the present system in Australia, child support may be paid on a voluntary basis or via compulsory collection through the taxation system. It remains, however, a transfer from household to household even though the payment may be backed up by law and/or paid via the Taxation Office or some other third party (see also Current transfers outlaid (excluding taxes) in Chapter 9). Definition 8.85. Other non-market income is defined as the imputed value of goods and services, other than transfers, consumed by the household and provided other than via the market place. These differ from goods and services received as in-kind transfers in that they are provided from within the household, either as a result of ownership of durable goods and dwellings or via work carried out at home by household members. As for income from unincorporated enterprises and rental property, other non-market income is net of depreciation of household assets used to produce the income. Classification 8.87. Other non-market income is classified as follows:
Other non-market income: Value of unpaid household work Definition 8.88. There are considerable difficulties in giving a satisfactory definition of what constitutes unpaid household work. These difficulties include setting the boundaries on the scope of activities to be included and, in particular, in setting boundaries between work and leisure.
8.90. The criterion of the activities being 'by and for the members' means that activities such as volunteer and community work are excluded. (These activities are, however, included in the broader definition of total unpaid work discussed in the ABS occasional paper Unpaid Work and the Australian Economy, 1992.) Classification
Other non-market income: Imputed rent from owner-occupied dwelling Definition 8.91. Imputed rent from owner-occupied dwelling is defined as the imputed value of the services of (mainly) shelter provided to the household by the household's usual residence after deduction of expenses and depreciation. Other non-market income: Value of services provided by consumer durables Definition 8.92. This item is defined as the value of services provided by all household consumer durables (other than the owner-occupied dwelling), after deduction of depreciation and the cost of maintenance and repairs. Classification 8.94. The classification of services provided by consumer durables will be left until further work has been carried out on this item. Definition 8.95. Net disposable income is defined as gross income minus the value of direct taxes and compulsory fees and fines. Comments 8.96. For some analyses it may be desirable to deduct compulsory private transfers (along with taxes) from the gross income of households to derive a measure of net disposable income after all compulsory transfers have been dispersed. This would also overcome the problem of double counting of these transfers at national aggregate level noted earlier in Other current transfers, paragraph 8.84.
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