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As Australia has net foreign liabilities, it typically has a deficit on income, due to the net interest and dividends payable to non-residents. The September quarter 1993 income deficit was the lowest of the past 12 years at $2,887m. The income deficit quickly fell in 1994 to around $5b, and has remained around that level since.
The income item of the balance of payments covers income earned by Australian residents from non-residents (credits) and income earned by non-residents from Australian residents (debits). The sum of the income debits and the income credits gives net income. In broad terms, income relates to the return to the owner of a factor resource (i.e. labour or capital) from the use of that resource by either the owner or another economic entity.
In the balance of payments, income is divided into two categories: investment income (for the use of capital) and compensation of employees (for the use of labour). Investment income refers to the earnings by owners of financial assets and commonly includes such items as dividends and interest. Compensation of employees refers to wages and salaries earned by employees resident in one country from employers resident in another. In Australia's case, the investment income flows are far greater than those for compensation of employees.