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ABOUT THIS PUBLICATION
SUMMARY OF FINDINGS
This publication presents the results of a study of the effects of government benefits and taxes on the distribution of income among private households in Australia in 1998-99.
Benefits and taxes included in the study were restricted to those that are relatable to particular types of households and household expenditure. Household income is increased directly by benefits in the form of regular cash payments, such as the age pension and family payments, and indirectly by government expenditures such as those on health and education. On the other hand, household income is reduced by personal income taxes (direct taxes) and by indirect taxes passed on in the prices households pay for goods and services.
The study excludes government taxes and expenditure that do not relate directly to particular types of households or household expenditure, such as government revenue from corporate taxes and spending on defence, public order and safety, transport and communications.
The most restricted concept of income used in the study is referred to as private income, while the most extensive is final income. Adding direct government benefits to private income gives gross income, which is the most widely used income concept in ABS household surveys. Disposable income is derived by subtracting direct taxes from gross income. Final income is equal to disposable income plus indirect government benefits less indirect taxes.
The methodology used in this study is similar to that used in other studies in Australia and overseas. However, there are other approaches that could have been taken which might have produced different results. Details of the study methodology are given in the Explanatory notes. Please note that the results are dependent on the assumptions that are inherent in the methodology.
GOVERNMENT BENEFITS AND TAXES ALLOCATED
Of the total Commonwealth, State and local government taxation revenue in 1998-99, the study allocates taxes of $95,127 million out of $180,698 million or 53% of total government revenue. Of total government expenditure of $216,208 million, the study allocates benefits of $108,571 million or 50% of total government expenditure. The unallocated amounts mainly reflect taxation and government expenditure that are not conceptually relatable to individual households, but they also reflect the lack of suitable indicators on which to allocate some taxation revenue, such as capital gains tax, and some benefits. In comparison, the 1993-94 study allocated 54% of government revenue and 48% of government expenditure.
More benefits than taxes were allocated in the current study so that, on average, benefits exceed taxes. This outcome is not significant in itself as there is not a direct correspondence between the level of government benefits provided to any sector and the means used to finance those benefits.
The system of government benefits and taxes in Australia has been designed to assist those in the community who are most in need of financial support. The results of this study give an indication of the extent of the redistributive impact between different groups in the population. The following sections summarise the impact on population groups defined in terms of life cycle stages and in terms of high and low income groups.
LIFE CYCLE STAGES
The life cycle stages used in this study consist of ten stages of formation, maturation and dissolution of the traditional nuclear family and provide a simplified view of life cycle possibilities. Some household types such as lone parents and lone persons aged 35-65 years are excluded from this sequential analysis. The stages cover approximately 65% of households.
Levels of household income are related to life cycle stages (figure 1). Private income (all regular cash payments received excluding direct government benefits) generally rises through the early stages of family formation with the increasing number of earners in the household and their increasing work experience. It peaks while non-dependent children are living in the household and contributing to household income. In subsequent stages of the life cycle, as household size is reduced, income declines. Levels of final income (private income plus government benefits less taxes) follow a similar pattern, although they tend to be lower than private income during the early life cycle stages and higher in the later stages.
1 PRIVATE AND FINAL HOUSEHOLD INCOME, by Life cycle group
In the first two stages, which consist of young lone person and young couple only households, direct benefits tend to be low. This relates to their youth, the absence of children (and therefore family payments) and the high employment levels in such households. Indirect benefits also tend to be low in these early life cycle stages because the household size is small, the members do not usually receive school benefits and, due to their age, are less likely to use health services. Direct taxes, which are proportional to income, are lower for lone persons than for couple only households where, on average, more than one person is earning income and paying taxes. Similarly, indirect taxes are low for lone person households because household expenditure is relatively low.
2 TAXES, by Life cycle group
3 GOVERNMENT BENEFITS, by Life cycle group
Couples with dependent children generally receive higher levels of direct and indirect benefits than young couple only and young lone person households. Direct benefits are higher because the households tend to be eligible for family allowance and other benefits such as Austudy. Indirect benefits are also higher. The household receives greater health benefits due to the increase in household size and receives greater education benefits as the children go to school and progress to higher education. Direct taxes are higher than for young lone person households, with household income increasing as more household members participate in the labour force. Indirect taxes also increase as households spend more from the higher income.
Households containing a couple with non-dependent children only receive a similar level of direct benefits to households with dependent children. However, for these households age and disability support pensions become the most significant sources of direct benefits. Indirect benefits are lower because fewer household members use education services. Levels of income and expenditure are both high, resulting in high direct and indirect taxes. Once the children leave, the households are smaller and contain fewer members who are employed. The incomes and expenditures of these households tend to be lower so they pay less in direct and indirect tax.
In the last two stages, households receive the highest levels of direct benefits, consisting mainly of the age and Veterans Affairs pensions. Indirect benefits are higher than in other households without dependent children due to greater use of health services. Direct taxes paid are very low because income is low and indirect taxes are low because spending is low.
OTHER HOUSEHOLD GROUPS
About 35% of Australian households are not covered by the life cycle groups shown in graphs 1 to 3, up from the 29% not covered in the life cycle analysis a decade ago in the 1988-89 study. The household groups which are excluded from the life cycle analysis are: lone parents (6%); lone persons aged 35 to 64 (11%); couple only, reference person aged 35 to 54 (6%); group households (4%); and all other households (8%). These groups do not fit easily into a life cycle continuum.
Lone parents are a population group of particular interest. This group has higher net benefits (benefits less taxes) than any of the life cycle groups considered above. Households in this group receive very high levels of direct benefits, consisting mainly of family payments. Indirect benefits are also relatively high because of high use of education services. Direct and indirect taxes are both low, since both income and expenditure are low.
Lone persons aged 35-64
This heterogeneous population group has increased in relative size from 7.7% of all households in the 1988-89 study to 10.9% in this study, accounting for half the increase in the population of households outside the life cycle analysis. Within this lone persons grouping, the characteristics of the different age groups are quite different (see Table 19 for details). The older persons (aged 55 to 64) have increased in number by 31% in the past decade, in line with the increase in total household numbers. This subgroup now receives a relatively higher private income, compared with the average household, than it did 10 years ago (up from 29% to 37%) but it also has higher relative taxes and lower relative benefits. However, benefits still outweigh taxes for this subgroup. The youngest lone person subgroup (aged 35 to 44) in this wider category that is outside the life cycle analysis has more than doubled in size over the past 10 years, growing well above the total household growth rate. This age subgroup pays the highest taxes of all lone person households, and receives the lowest benefits, resulting in a net tax payment of $172 per week. The subgroup of lone persons aged 45 to 54, which also more than doubled in size, pays net taxes of $95 per week.
Couple only, reference person aged 35-54
The group comprising couple only households where the reference person is aged 35 to 54 has increased its share of total household numbers from 4.3% in 1988-89 to 5.9% a decade later. The two age subgroups within this group (aged 35 to 44, and 45 to 54) both pay substantial net weekly taxes.
HIGH AND LOW INCOME GROUPS
Low income households receive more government benefits and pay less tax than high income households. This redistribution of income from high to low income households can be seen more clearly in an analysis of income quintile groups.
Quintile groups are formed by ranking all households in terms of gross income and then dividing the households into five groups each containing 20% of all households. The lowest quintile contains the 20% of households with the lowest incomes, the second lowest contains the 20% of households with the next lowest incomes and so on.
The net effect of benefits and taxes, as shown in this study, was to increase the average value of income of households in the three lower quintiles and decrease the average income of households in the two higher quintiles (graph 4). In the lowest quintile, average private income was $15 per week and average final income was $261 per week. In the highest quintile, private income was $1,954 per week and final income was a lesser amount of $1,514 per week.
4 PRIVATE AND FINAL HOUSEHOLD INCOME, by Gross income quintile
A similar pattern applies to the shares of private and final income received by households in different quintiles. The share of all income received by households in the lowest quintile was 0.4% using the private income measure and 6.4% using the final income measure. For households in the highest quintile, the income share decreased from 50.8% for private income to 37.6% for final income.
However, care needs to be taken in interpreting these results. The measures of income do not take into account differences in household size and composition. Specifically, there are more single person and smaller households in the lower income quintiles.
DISTRIBUTION OF HOUSEHOLD INCOME, TAXES AND BENEFITS, by Gross income quintile
The effects of different benefits and taxes varied with the level of household income. The payment of direct taxes and, to a lesser extent indirect taxes, increased with income. Households in the lowest quintile paid 0.2% of total direct tax while households in the highest quintile paid 60.1%. For indirect taxes, households in the lowest quintile paid 9.5% while households in the highest quintile paid 32.7%.
Direct benefits increased with household size and decreased as levels of household income rose. The lowest quintile received 26.8% of direct benefits; the second quintile, which contained larger households, received 39.7%; and the third, fourth and fifth quintiles received progressively smaller shares.
In comparison, indirect benefits were spread more evenly across quintiles. The receipt of such benefits tended to vary in relation to other household characteristics such as the numbers and ages of household members.
COMPARISON WITH PREVIOUS STUDIES
Estimates contained in the majority of tables in this publication are not comparable with estimates from previous studies because the methodology differs. A comparative study, however, has been undertaken utilising similar methodology to that used in previous studies. Nevertheless, despite the use of similar methodology, there may be significant inconsistencies between estimates for 1998-99 and the estimates for earlier years. For 1998-99 the aggregate data relating to government indirect benefits were compiled on an accruals basis instead of a cash basis, and it is not possible to fully adjust them back to a cash basis.
Detailed estimates from the comparative study are given in tables 21 and 22. Differences between the study methodologies are discussed in the Explanatory notes.
Using estimates from the comparative study, the following table compares income shares for quintile groups over time. It should be noted that one of the adjustments made to 1998-99 data to make them more comparable with earlier years is to set negative incomes (e.g. business losses) to zero. This adjustment leads to private incomes for 1998-99 in the lowest quintile being significantly higher than those published in the tables relating to the main study.
DISTRIBUTION OF HOUSEHOLD INCOME, TAXES AND BENEFITS, by Gross income quintile (a)
The spread of private income across the quintiles in 1998-99 was similar to the spread in 1993-94. The differences in quintile shares shown in private income were reduced by government benefits and taxes so that final income is more evenly distributed in all years. However, in 1998-99 final income of households was slightly less equally distributed than in previous years, with the bottom quintile receiving a smaller proportion of benefits and therefore of final income and the highest quintile receiving a slightly larger proportion of both benefits and final income.
As graph 5 shows, the share of government benefits going to the lowest income quintile has fallen in each of the last three studies to be 17% lower in 1998-99 than in 1984. While the highest income quintile had seen its share of benefits decline in both 1988-89 and 1993-94, graph 5 shows the share increasing in 1998-99 to be 13% below the 1984 level.
However, comparisons between income quintiles and over time should be undertaken with care because the effects of differences in, and changes over time to, household size and composition are not taken into account in the measures used in this study. For example, compositional change is a significant factor in the fall in the share of government benefits accruing to households in the lowest income quintile in the past ten years. Whereas aggregate age pension payments in this study are about 70% higher than those recorded in the 1988-89 study, the average age pension per household in the lowest gross income quintile has risen only by about 10%. This outcome is expected to be, in part at least, due to the relatively stronger growth in the representation of single and younger person households in the bottom quintile. On the other hand, in the second quintile the average age pension over the ten years to 1998-99 has risen by over 150%, reflecting a significant increase in the average age of people in this quintile. Similar compositional effects are observed for family payments, with a 50% increase in the proportion of households in the second quintile that are lone parent families. In 1988-89, the proportion of households in the lowest income quintile that were lone parent households (10%) was higher than in any other quintile. By 1998-99, compositional changes had resulted in lone parent households accounting for 13% of all households in the second quintile, while the proportion in the first quintile had slipped to 7%.
5 DISTRIBUTION OF GOVERNMENT BENEFITS TO HOUSEHOLDS, By Gross income quintile (a)
This publication presents the results of a study of the effects of government benefits and taxes on the distribution of income among private households in Australia in 1998-99. The approach chosen for the study is only one of several ways of undertaking such a study. To enable critical interpretation of the findings, this section briefly describes the concepts, sources and methods used.
The diagram below shows the set of income concepts used to describe the effects of different types of government benefits and taxes. The starting point is private income which is the total current weekly income of all members of a household and includes wages and salaries, profits and losses from own business and rent, other investment income and income from superannuation and annuities. Government direct benefits, such as pensions and unemployment allowances paid to individuals, are added to private income to give gross income. Personal income taxes (i.e. direct taxes) are deducted from gross income to give disposable income. The value of government indirect benefits for education, health, housing and social security and welfare is added to disposable income to give disposable income plus indirect benefits. Finally, indirect taxes such as sales taxes on selected commodities are deducted from disposable income plus indirect benefits to give final income.
INCOME CONCEPTS AND COMPONENTS
MAJOR DATA SOURCES
The two major data sources used in this study are the 1998-99 ABS Household Expenditure Survey (HES) and the ABS Government Finance Statistics.
Household Expenditure Survey
The 1998-99 HES collected detailed information about the expenditure, income and household characteristics of a sample of households resident in private dwellings throughout Australia. Interviews for the survey were equally spread over the financial year beginning July 1998 and ending June 1999.
This study uses information reported in the HES as a basis for modelling the effects of various government benefits and taxes on household income. The survey provided details on the composition of households and the characteristics of their members, the level and sources of their income and the patterns of their expenditure. Household income data were used to provide a measure of private income and direct government benefits; income as well as personal and household characteristics were used to calculate direct tax paid; expenditure data were used to calculate indirect taxes paid; and characteristics of household members were used to identify recipients of indirect government benefits.
Aspects of the survey which affect the results of the study are as follows.
Survey scope and coverage
The HES is concerned only with households living in private dwellings. As a result, persons living in 'special dwellings' such as hotels, nursing homes, boarding houses and institutions are excluded.
While no adjustment has been made to the HES population estimates to compensate for limited scope, efforts have been made to ensure that the appropriate share of government expenditures has been allocated to the HES population. This was achieved by calculating average benefits on the basis of benchmark estimates of the total population eligible for particular indirect benefits.
The HES is a sample survey, the results of which are based on the responses of 6,893 households. The information provided by households is weighted to produce estimates for all Australian households. These estimates are subject to sampling variability and may differ from the figures that would have been produced if information had been collected from all households in Australia. Further information on sampling variability is given in Appendix 2 of the publication.
Underestimation of some income
A comparison of the total HES income with corresponding figures in the Australian System of National Accounts (ASNA) suggests underestimation of income from investment and self-employment. As it is not known whether this can be attributed to conceptual differences, scope differences, understatement by respondents or to non-response, there is no basis for making adjustments to the recorded figures.
Underestimation of some expenditure
The average expenditure on both alcohol and tobacco recorded by households in the sample is well below the level which would be expected from the recorded total of Australian production (adjusted for imports and exports) of these items. Reported expenditure on gambling is also well below the expected level. For reasons similar to those mentioned for income, no adjustment has been made to any of the reported expenditure data.
The non-response rate for the 1998-99 HES was 23% of the in-scope sample.
In previous surveys, the sample weighting was adjusted to account for non-response. For the 1998-99 HES the demographic and geographic information available for non-respondents was analysed to determine whether a strong relationship existed between household non-response and its demographic and geographic characteristics. No strong relationship was detected so no adjustment to the initial weights to account for non-response was required.
Non-response bias may remain if non-responding households are systematically different from responding households. The full effect of such residual non-response bias cannot be quantified.
Readers requiring a more detailed description of the 1998-99 HES should refer to the 1998-99 issue of Household Expenditure Survey, Australia: User Guide (Cat. no. 6527.0).
Government Finance Statistics
As part of the Australian System of National Accounts (ASNA), the ABS regularly produces summaries of government revenues and expenses. These government finance statistics (GFS) provide Commonwealth, State and local government revenues classified by type of tax and expenditures classified by purpose and type of economic transaction. The Government Purpose Classification (GPC) identifies the functional areas to which expenses relate (e.g. health, housing and welfare) while the Economic Transactions Framework (ETF) identifies the type of transaction. For example, direct cash payments to households are distinguished from expenses relating to the payment of administrative staff and from expenses on building construction. It is from the combination of these classifications that direct and indirect expenses in various programs are identified.
GFS for 1998-99 are not consistent with those for previous periods because of the implementation of accrual accounting. Previously GFS had been recorded on a predominantly cash basis. The accruals-based statistics include some transactions such as depreciation provisions and accrued superannuation expenses that were not included as expenses in the cash-based statistics. For more information on the impact of accrual accounting on GFS refer to Information Paper: Accruals-based Government Finance Statistics (Cat. no. 5517.0).
Estimates of total government expenses (for Commonwealth, State and local government) used to cost indirect benefits, and to compare the results of the allocation of direct benefits, were specially tabulated by the ABS and reflect 1998-99 data as at the release of 1999-00 GFS. Taxation information, used to assess the results of tax imputation methods, was obtained from the 1999-00 issue of Taxation Revenue, Australia (Cat. no. 5506.0).
Unit of analysis
The basic unit of analysis in the study is the household. A household is defined as a group of people who usually reside and eat together. This may be:
Spending on many items, particularly on food, housing, fuel and electricity is largely joint spending by members of the household. Without further information or assumptions it is difficult to apportion spending, and indirect taxes based upon this spending, between individuals, families or other subdivisions of the household. The household is therefore the unit of analysis used in the study.
Benefits and taxes allocated
The aim of the study has been to allocate only those benefits and taxes relevant to households and no attempt has been made to allocate the whole of government expenditure and revenue. The government expenses and revenues allocated and not allocated in the study are illustrated in graphs below.
In many cases, the decision to allocate or not to allocate was guided by the availability of data. For direct benefit payments, allocation of government expenses relating to direct cash payments was restricted to cash payments covered by the HES income questionnaire. Direct taxes not allocated include taxes not directly relevant to the household sector such as corporate taxes, and taxes relating to some household receipts, such as lump sums, which were not collected in sufficient detail in the HES income questionnaire. Many indirect benefits were not allocated because:
Indirect taxes were calculated by applying intermediate and final tax rates derived from the 1996-97 Australian National Accounts: Input-Output tables (Cat. no. 5209.0) to household expenditure. Because household expenditure does not account for the full amount of production and consumption recorded in the Input-Output tables, only a proportion of indirect taxes was allocated to households.
Direct benefits were defined as selected payments in cash by Commonwealth, State and local government to Australian residents and cover age, Veterans Affairs, disability support, and wife/carer pensions; Newstart, youth, Austudy/Abstudy, mature age, sickness, widow and family allowances; and parenting payment. Direct benefits were allocated as reported in the HES. Pensions and allowances from overseas governments were excluded from direct benefits and included in private income.
GFS figures for Commonwealth, State and local government show 1998-99 expenses relating to all monetary transfers to Australian residents to be $49,924 million. However, this figure includes some direct health benefits, which for practical reasons are allocated as health related indirect benefits (see below). Accordingly, the direct benefits recorded in GFS figures that most closely correspond to the estimates provided from the HES are those relating to social security and welfare and education. The expenses on direct benefits in these areas amounted to $48,221 million. Of this amount, the study allocated $38,732 million to households. The discrepancy between expenses reported in GFS and the amount allocated is due to:
Indirect benefits consist of goods and services provided free or at subsidised prices by the government. In the study, allocation of indirect benefits was restricted to those arising from the provision of education, health, housing, social security and welfare services.
Except for government expenditure on housing (see details following), benefits were based on the cost to government of the provision of those services. More specifically, the total value of indirect benefits was defined as Commonwealth, State and local government expenses, net of intra-government transfers, minus monetary transfers. In the case of health benefits, however, some direct health benefits which were not collected as monetary transfers in the HES are allocated together with the indirect health benefits.
The methods used to allocate the indirect benefits to households are described in the following paragraphs.
Indirect benefits were allocated for school education, tertiary education and other education benefits. School education includes benefits from pre-school education, primary and secondary education and student transportation. Tertiary education includes benefits from university education, technical and further education, and tertiary education n.e.c. Other education benefits include benefits from special education and education n.e.c.
Government expenses relating to pre-school education were allocated to households containing children aged 3, 4 or 5 years. An average benefit per child attending pre-school in each State was derived by dividing GFS expenses in each State by the number of children attending pre-school in that State as measured by the 1998 Child Care Survey. The number of children attending pre-school in each household was imputed according to pre-school participation rates. Pre-school participation rates were separately derived for 3, 4 or 5 year olds by dividing the number of children attending pre-school (largely as measured by the Child Care Survey) by the estimated population of 3, 4 or 5 year olds in that State. The benefit received by households was the (imputed) number of children attending pre-school multiplied by the average pre-school benefit for their State or Territory of residence. Of $358 million available for allocation, $348 million was allocated for pre-school benefits. Estimates of the number of children obtained from the HES led to the underallocation.
Government expenses relating to primary and secondary education and student transportation were allocated to households containing primary and secondary school students. An average benefit, for both education and transportation, was calculated for six student types: government primary, Catholic primary, other non-government primary, government secondary, Catholic secondary and other non-government secondary. Data on average expenditure for government school children was obtained from the National Report on Schooling in Australia, 1998 produced by the Curriculum Corporation and the Australian Education Council, and average expenditure per student type for all non-government school students was obtained from the Department of Education, Training and Youth Affairs. Numbers of students were obtained from the 1998 and 1999 issues of the ABS publication Schools, Australia (Cat. no. 4421.0) and aggregate expenditure was calculated. This was compared with GFS expenses on primary and secondary education and an adjustment factor was calculated and applied to average expenditure by student type. This ensured that average student benefits reflected GFS expenses. Households were allocated benefits according to the reported number of members who attended schools of each type. Of $17,509 million available, $18,018 million was allocated. Overallocation of benefits occurred because the number of school students reported in the 1998-99 HES exceeded the estimates of school students provided in Schools, Australia.
Government expenses relating to university education were allocated to higher education students. Average benefits were derived by dividing GFS expenses by benchmark enrolment data from the 1998 and 1999 issues of the ABS publication Transition from Education to Work, Australia (Cat. no. 6227.0) and then, from each average benefit, deducting Higher Education Contribution Scheme (HECS) charges for 1998-99. Part-time students were assumed to receive half the benefits of full-time students. Benefits were allocated to households according to the number of members who reported themselves as attending higher education. Of the $7,780 million available for allocation, $4,727 million was allocated. Underallocation of benefits occurred because HECS charges were deducted and HES numbers of higher education students, which exclude students living in student residences and in other special dwellings, were less than benchmark estimates of student numbers.
Government expenses relating to technical and further education were allocated to Technical and Further Education (TAFE) students. Average benefits were derived by dividing GFS expenses by the estimated number of TAFE students from the 1998-99 HES. Part-time students were assumed to receive half the benefits of full-time students. Benefits were allocated to households according to the number of members who reported themselves as attending TAFE. Of the $3,216 million available for allocation, all was allocated.
Government expenses relating to tertiary education n.e.c. were allocated to all persons who reported that they attended a tertiary institution either full or part-time. An average benefit was derived by dividing GFS expenses by benchmark enrolment data for higher education students and estimated number of TAFE students from the HES. The same benefit was allocated to all student types regardless of institution type and full-time or part-time status. Benefits were allocated to households according to the number of members who reported themselves as tertiary students. Of the $193 million available for allocation, all was allocated.
Other education benefits
Government expenses relating to special and other education were allocated to all pre-school, primary and secondary education students. An average benefit was derived for each State by dividing GFS expenses in each State by the reported number of pre-school, primary and secondary students. An equal average benefit was allocated to each student and household benefits were the sum of household members' benefits. Of $748 million available, all was allocated.
Health benefits are allocated for hospital care, medical clinics, pharmaceuticals and other health benefits. Hospital care covers expenses relating to acute care institutions; medical clinics cover community health services; pharmaceuticals cover pharmaceuticals, medical aids and appliances; and other health benefits cover public health services, health research and health administration n.e.c.
These benefits were allocated to households according to an insurance premium approach. Instead of allocating benefits according to actual use of health services (which implies that benefits increase with ill health), members of the HES population were allocated benefits according to the average utilisation rates for their age, sex and State or Territory of residence groups.
Government expenses relating to acute care institutions were allocated to all persons according to hospital bed utilisation rates (average number of days in hospital per person) for their age, sex and State or Territory of residence group. Hospital utilisation was used as an indicator of the use of all institutional services and benefits. The utilisation rates were calculated using patient days and population estimates contained in the Australian Institute of Health and Welfare's Hospital Statistics, 1997-98.
The benefit allocated to households was the sum of each member's utilisation rate multiplied by the average benefit per hospital bed day in their State or Territory of residence. The average benefit per hospital bed day was derived by dividing GFS expenses per State by the number of days spent in hospital by the State population. Total hospital usage was the product of the utilisation rates multiplied by estimated resident population, from Population by Age and Sex, Australian States and Territories (Cat. no. 3201.0). Of $15,782 million available for allocation, $14,928 million was allocated. Underallocation of benefits occurred because the HES excludes residents of special dwellings.
Government expenses relating to medical clinics and other community health services (collectively referred to as medical clinic expenditure in this study) were allocated to all persons according to the doctor visit rate for their age, sex and State or Territory of residence. Doctor visits were used as an indicator of utilisation of all non institutional benefits and services such as dentists, specialists, maternal and infant centres, chiropractors, pathology services and domiciliary care. Utilisation rates for doctors were obtained from the 1995 National Health Survey.
The benefit allocated to households was the sum of each member's utilisation rate multiplied by the average benefit per doctor visit in their State or Territory of residence. An average benefit per doctors visit was derived by dividing GFS expenses per State by the number of doctor visits made by the State population. Number of doctor visits was the product of the utilisation rates multiplied by the estimated resident population, from Population by Age and Sex, Australian States and Territories (Cat. no. 3201.0). Of $10,628 million available for allocation, $10,461 million was allocated. Underallocation of benefits occurred because the HES excludes residents of special dwellings.
Government expenses relating to pharmaceuticals, medical aids and appliances were allocated to all persons according to their eligibility for pharmaceutical concessions as well as usage of prescribed medicines for their age, sex and State or Territory of residence group. In 1998-99, concessional benefits were available to holders of pensioner concession cards, health care cards, Commonwealth seniors health cards and Department of Veterans Affairs Gold or White cards. Expenses relating to pharmaceuticals, medical aids and appliances were divided between those who were eligible for concessions and those who were not, in proportion to the cost to government of concessions provided by the Department of Health and Aged Care. Utilisation rates were obtained from the 1995 National Health Survey.
Household benefits were the sum of each household member's utilisation rate multiplied by the average benefit per prescribed medicine according to their eligibility for concessions. Average benefits per prescribed medicine for those who were eligible for concessions and those who were not, were derived by dividing GFS expenses by total prescribed medicine utilisation for the two groups. For persons receiving concessions, total prescribed medicine utilisation was the product of benchmark numbers of holders of each type of concession card (derived from the 1998-99 Department of Family and Community Services Annual Report) multiplied by the average utilisation rate for those eligible for concessions (derived by applying National Health Survey utilisation rates to persons who reported holding cards in the HES). For others, total prescribed medicine utilisation was the product of the estimated resident population (minus those who are holders of concession cards) multiplied by the average utilisation rates. Benefits were adjusted according to State differences in expenses. Of the $3,283 million available for allocation, $3,044 million was allocated. Underallocation of benefits occurred because the HES excludes residents of special dwellings.
Other health benefits
Government expenses relating to public health, health research and health administration n.e.c. were allocated to all persons. An average benefit was derived by dividing GFS expenses per State by the estimated resident population, from Population by Age and Sex, Australian States and Territories (Cat. no. 3201.0). Benefits per household were equal to the number of members multiplied by the average benefit. Of the $3,061 million available for allocation, $3,007 million was allocated. Underallocation of benefits occurred because the HES excludes residents of special dwellings.
Government expenses relating to housing largely involves building new houses for rent at subsidised cost. These expenses were not allocated amongst HES households because it is difficult to identify likely future recipients of the benefits.
Instead, benefits were allocated to households in government rental accommodation according to the value of their rent subsidy. The value of their rent subsidy was taken to be the difference between the rent paid by the household and the estimated value of private market rent according to the State, region, type of dwelling and number of bedrooms. Market rents for private unfurnished dwellings were obtained from the 1996 Census and the prices for the rents were adjusted to December 1998 prices according to the percentage change in the Consumer Price Index (CPI). In total, $1,296 million was allocated.
Social security and welfare
Government expenses relating to social security and welfare programs, other than direct cash payments (see DIRECT BENEFITS described previously) and payments for child care assistance and child care rebate, were allocated to persons who received social security and welfare cash benefits. Average indirect benefits for different types of benefit recipients were calculated by dividing indirect GFS expenses by the number of recipients as reported in the 1998-99 Department of Family and Community Services Annual Report and the 1998-99 Department of Veterans Affairs Annual Report. Different levels of benefit were calculated for persons receiving age, veterans affairs, and disability support pensions and family allowance and parenting payment. Average benefits were allocated to persons receiving similar direct government benefits. Household benefits were the sum of household members' benefits. Of $10,260 million available for allocation, $9,102 million was allocated. Underallocation of benefits occurred because of HES population exclusions and under-reporting of government cash benefits by HES respondents.
Expenditure on child care assistance was allocated to households with children under 12, according to household income and the probability that the children were attending eligible child care. The probability of a child attending care was the sum of the ratios of the number of children attending long day care, family day care, occasional care and outside school hours care to total numbers of children in these categories according to age and whether the child attends school as reported in the 1999 Childcare Survey. This probability was then multiplied by the rate of child assistance provided to families according to their income and number of children as given in the July 1998 Childcare Assistance Ready Reckoner produced by Centrelink. Of the $635 million (a figure obtained from the Department of Family and Community Services) spent on child care assistance, all was allocated.
Government expenditure on child care rebates was similarly allocated to households with children aged under 12. The probability that children were attending child care (calculated for the child care assistance benefit) was multiplied by the rate of child care rebate provided to families according to their income. Of the $116 million spent on the child care rebate (a figure obtained from the Health Insurance Commission statistical tables), all was allocated.
Direct taxes were imputed according to the following steps:
In total, the HES population was calculated to have paid $65,716 million in direct tax. Government finance figures for 1998-99, however, show revenue from income tax levied on individuals to be $75,657 million. The main reasons for the underestimation of direct tax in this study are:
Indirect taxes include taxes paid on production inputs (intermediate taxes) and taxes paid by households on final products (final taxes).
In allocating indirect taxes, it was assumed that the incidence of these taxes was fully shifted to the final consumer. With the exception of taxes on ownership of dwellings and banking services, the amount of indirect tax paid by HES households was calculated as follows:
In 1993-94 the method outlined above was also used to calculate indirect taxes on ownership of dwellings and banking services. In the case of ownership of dwellings, since imputed rent paid by owner occupiers is not included in expenditure in the HES, this resulted in an understatement of these taxes by about $2.5 billion. To overcome this problem, in 1998-99 indirect taxes on ownership of dwellings were calculated differently. For owner occupiers, indirect taxes on ownership of dwellings were taken to be equal to the expenditure on general rates and land taxes reported in the HES. For renters (other than those renting from a State or Territory housing authority), an estimate of total general rates and land taxes applicable to private rental properties was allocated across reported rent payments.
Similarly, indirect taxes on banking services were not allocated in the 1998-99 study based on a tax rate applied to an observable expenditure category in the HES because a substantial proportion of the activity on which the taxes are levied -- debits and credits to accounts -- is not measured in the HES. Instead, total banking taxes have been allocated across a range of proxy HES expenditure components such as interest, etc. In the 1993-94 study when a tax rate was applied to HES expenditure categories, the result understated these taxes by about $0.5 billion.
National accounts figures for 1998-99 show revenue from indirect taxes (taxes on production and imports) to be $76,177 million. Indirect taxes on Household Final Consumption Expenditure (a national accounts concept measuring net expenditure on goods and services by households and non-profit institutions serving households) account for approximately 48% of total indirect taxes. We can therefore expect at best that 48% of this revenue from indirect taxes would be allocated by the study. The study allocated $29,411 million or 39% of total indirect taxes. Less than 48% of indirect taxes were allocated because:
METHODS FOR COMPARISONS OVER TIME
Being the first of its kind, the study based on the 1984 Household Expenditure Survey relied on less detailed HES information and was less refined than later studies. To enable comparisons over time, it is necessary to use the 1984 methodology so that differences between studies may reflect real changes in the effects of government benefits and taxes and not methodological changes. However, despite the use of similar methodology, there may be significant inconsistencies between estimates for 1998-99 and the estimates for earlier years. For 1998-99 the aggregate data relating to government indirect benefits were compiled on an accruals basis instead of a cash basis, and it is not possible to fully adjust them back to a cash basis.
Differences between the main study presented in the majority of this publication's tables and the study performed for comparisons over time are summarised below.
For more information on the study methodology contact the Assistant Director, Household Expenditure, on Canberra 02 6252 6174.
For further information about these and related statistics, contact the National Information and Referral Service on 1300 135 070 or Jan Gatenby on Canberra 02 6252 6174.
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