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Income Distribution: Household income redistribution
AVERAGE WEEKLY VALUE OF PRIVATE AND FINAL INCOME, 1993-94Source: 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, 1993-94Source: Household Expenditure Survey, Australia: the Effects of Government Benefits and Taxes on Household Income (cat. no. 6537.0).
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
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