LOW INCOME HOUSEHOLDS
While income generally provides a useful indicator of economic wellbeing, there are some circumstances which present particular difficulties. Some households report extremely low and even negative income in the survey, which places them well below the safety net of income support provided by social security pensions and allowances such as those available from Centrelink. Households may underreport their incomes in the survey at all income levels, including low income households. However, households can correctly report low levels of income if they incur losses in their unincorporated business or have negative returns from their other investments.
For some time, the ABS has noted that households at the very lowest end of the income distribution have average expenditures higher than those households with somewhat higher average levels of income. Due to this observation, the ABS has adopted the practice of describing the characteristics of persons in the second and third deciles of the income distribution when describing the characteristics of low income people.
In order to gain a better understanding of the characteristics of households at the lowest end of the income distribution, the ABS has used data from the 2003-04 HES analysing the relationship between income, wealth and expenditure of these households. The estimates of income, net worth and expenditure have been adjusted for differences in household size and composition, that is, they are on an equivalised basis. The purpose of this is to maximise the comparability of the three aggregates. The process used to equivalise net worth and expenditure is the same as that used in the equivalisation of income. For more information on equivalised income see Appendix 2.
In 2003-04, average expenditure by households in the lowest income decile was higher than the average expenditure by households in the second income decile. Households in the lowest income decile also had higher average net worth than households in the second decile. As might be expected, the households with relatively higher net worth also had relatively higher expenditure, even when they had similar income levels. In addition the gap between expenditure and income was markedly greater for households that owned an unincorporated business or rental property but had low income, strongly suggesting that these households had access to economic resources other than income, such as lines of credit.
Since the average level of expenditure of households in the lowest income decile was higher than that of households in the second income decile, it can be expected that the households in the lowest income decile had a higher average standard of living than the households in the second income decile.
However, it needs to be emphasised that nearly half the people living in households in the lowest income decile who did not own an unincorporated business or rental property were also in the lowest net worth quintile and had mean expenditure lower than the corresponding households in the second income decile. These people were likely to have had lower average standards of living than people in households in the second income decile. They predominantly relied on government pensions and allowances as their principal source of income and rented their dwellings. Lone person households were the most common households in this population, with over half being lone persons under 65 years of age. The next largest category was one parent families with dependent children.
It also needs to be emphasised that some households with low income that had their own unincorporated business or rental property would not have had access to other economic resources and would also have had low standards of living.
See Appendix 4 of Household Wealth and Wealth Distribution, Australia, 2003-04 (cat. no. 6554.0) for a more detailed analysis of the income, expenditure and net worth of low income households.