4671.0 - Household Energy Consumption Survey, User Guide, Australia, 2012
ARCHIVED ISSUE Released at 11:30 AM (CANBERRA TIME) 24/09/2013 First Issue
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As many of the income concepts and definitions used in the HECS are the same as those used in the Survey of Income and Housing (SIH), users may refer to the Survey of Income and Housing, User Guide, Australia, 2011-12 product (cat. no. 6553.0) for further discussion on these items.
Household income consists of all current receipts, whether monetary or in kind, that are received by the household or by individual members of the household, and which are available for, or intended to support, current consumption.
Income includes receipts from:
Receipts that are excluded from income include the following:
More detail on the various components of gross income are included in 'Components of income'.
Gross income is the sum of the income from all sources before income tax, and the Medicare levy have been deducted.
Disposable income better represents the economic resources available to meet the needs of households. It is derived by deducting estimates of personal income tax and the Medicare levy from gross income. Medicare levy surcharge was also calculated and deducted from gross income while calculating disposable income.
Income tax is estimated for all households using taxation criteria for 2011–12 and 2012–13 as well as the income and other characteristics of household members reported in the survey.
Note that while child support and other transfers from other households are included in the income of the households receiving the transfers, they are not deducted from the incomes of the households making the transfers in deriving disposable income.CURRENT, ANNUAL AND WEEKLY INCOME
Current and annual income
Current income is the income received by respondents at the time data are collected from them. For wage and salary earners and recipients of government pensions and allowances such as Centrelink payments, current income is generally based on their most recent payment, as long as that payment is usual. Additional questions are used to obtain information about receipts which may not have been included in the most recent payment. For example, for wage and salary earners, information is collected on irregular overtime, bonuses and non-cash benefits and for recipients of government pensions and allowances, information is collected on reductions to payments due to lump sum advances, and one-off payments such as the Baby Bonus.
Annual income provides a somewhat longer term perspective of income, providing data about income obtained from all sources over a period of a whole year. It has the advantage of being less sensitive to short term variations in income, such as a person having little or no current income for a short period of non-employment, but for which they have adequate resources from past employment to avoid economic hardship. However, annual income has the potential to be limited in its relevance to the current situation of respondents, especially when analysing the combined income of a household which gained or lost adult members during the course of the year. There are also practical difficulties in collecting annual income, for example where respondents have had short periods of time in different jobs, or have received Centrelink payments for short periods of time.
Estimates of current income from own unincorporated business are quite different in nature to the estimates of current income for the wage and salary earners and recipients of government pensions and allowances. The concept of business income is a net concept. It is the profit or loss derived by deducting operating expenses (including depreciation) from the value of gross output. Respondents who currently operated an unincorporated business were asked to estimate their income from the business for the full current financial year.
Investment income includes interest and dividend income received as a result of the ownership of financial assets, and rent and royalty income received from the ownership of non-financial assets. The rent component of investment income is measured on a net basis, that is, gross rent less operating expenses. Interest paid on money borrowed to purchase shares or units in trusts is also netted off income earned from these sources. All other components, for which associated expenses are normally relatively small, are on a gross basis. As for own unincorporated business income respondents are asked to provide an estimate of their expected investment income in the current financial year.
The remaining income sources include superannuation and life insurance pensions, child support, workers' compensation, scholarships and other current transfers received from family members living in other households. These are collected both on a current basis and on a previous financial year basis.
A more detailed discussion on the differences between current and annual income is provided in Appendix 1 'Current and annual income' of the Survey of Income and Housing, User Guide, Australia 2011–12 (cat. no. 6553.0).
Income is collected using a number of different reporting periods, such as the whole financial year for own unincorporated business and investment income, and the usual payment for a period close to the time of interview for wages and salaries, other sources of private income and government pensions and allowances. The income reported is divided by the number of weeks in the reporting period. Estimates of weekly income from the HECS do not therefore refer to a specific week within the reference period of the survey.EQUIVALISED DISPOSABLE HOUSEHOLD INCOME
A major determinant of economic wellbeing for most people is the level of income they and other family members in the same household receive. While income is usually received by individuals, it is usually shared between partners in a couple relationship and with dependent children. To a lesser extent, it may be shared with other children, other relatives and possibly other people living in the same household, for example, through the provision of free or cheap accommodation. This is particularly likely to be the case for children other than dependants and other relatives with low levels of income of their own. Even when there is no transfer of income between members of a household, nor provision of free or cheap accommodation, members are still likely to benefit from the economies of scale that arise from the sharing of dwellings. Therefore household income measures are usually used for the analysis of people's economic wellbeing.
Larger households usually require a greater level of income to maintain the same material standard of living as smaller households, and the needs of adults are usually greater than the needs of children. The income estimates are therefore adjusted by equivalence factors to standardise them for variations in household size and composition, while taking into account the economies of scale that arise from the sharing of dwellings. The resultant estimates are known as equivalised disposable household income. Equivalised disposable household income is calculated by adjusting disposable income by the application of an equivalence scale.
Various calibrations, or scales, have been devised to make adjustments to the actual incomes of households in a way that recognises differences in the needs of individuals within those households and the economies that flow from sharing resources. The scales differ in their detail and complexity but commonly recognise that the extra level of resources required by larger groups of people living together is not directly proportional to the number of people in the group. They also typically recognise that children have fewer needs than adults.
When household income is adjusted according to an equivalence scale, the equivalised income can be viewed as an indicator of the economic resources available to a standardised household. For a lone person household it is equal to household income. For a household comprising more than one person, it is an indicator of the household income that would need to be received by a lone person household to enjoy the same level of economic wellbeing as the household in question.
Alternatively, equivalised household income can be viewed as an indicator of the economic resources available to each individual in a household. The latter view underpins the calculation of income distribution measures based on numbers of people, rather than numbers of households.
The concept of equivalised disposable household income is applicable to both households and the persons comprising those households. That is, each person in a household has the same level of equivalised disposable household income as the household itself.
For more information on equivalised disposable household income (including choice of scale, derivation and weighting), see Appendix 2 'Equivalised disposable household income' in the Survey of Income and Housing, User Guide, Australia 2011–12 (cat. no. 6553.0).COMPONENTS OF INCOME
Income in the HECS is collected in separate components. This part of the User Guide explains the definitions used for each of those components, and also describes some components of income not included in aggregate income measures. Data for some of the excluded components are available from the surveys. Each of the detailed income data items available, and the aggregate measures of income, are included in the data item list available in the "Downloads" tab of this product.
Employment income is collected in the HECS from each person aged 15 years and over who worked for an employer or in his/her own limited liability business. It comprises all payments received by individuals as a result of their current or former involvement in paid employment.
The aggregate current income estimates produced from the HECS include the usual pay that respondents received in the most recent pay period. They include wages and salaries, amounts salary sacrificed, tips, commissions, piecework payments, penalty payments and shift allowances, remuneration for time not worked (e.g. sick and holiday pay) and workers' compensation paid through the payroll. In addition, other components such as non-cash benefits, bonuses, termination payments and payments for irregular overtime worked are all included.
The aggregate annual income estimates produced from the HECS include total income from all jobs in the financial year prior to the survey.
Own unincorporated business income
Own unincorporated business income is collected from all persons aged 15 years and over who are working as owners or partners in unincorporated enterprises. Own business income is the share of the profit/loss of the enterprise accruing to the person. Profit/loss consists of the value of the gross output of the enterprise after the deduction of operating expenses and an allowance for depreciation of assets used in producing the output. Losses occur when operating expenses and depreciation are greater than gross receipts and are treated as negative incomes.
Since profit or loss calculations are often only made by businesses on a quarterly or annual basis, it is not possible to collect data on current income in the same way as can be done for wages and salaries or current cash transfer income. Instead, survey respondents are requested to provide an estimate of their own business income they expect to receive in the current financial year. Responses are likely to be less accurate when collected early in the year and more accurate when collected later in the year, and there is some likelihood that responses will tend to be too optimistic or too pessimistic, resulting in some bias in the aggregate estimate. However, this methodology gives better results than methodology that simply extrapolates reported own business income from the previous financial year onto the current period.
Investment income includes interest and dividend income received as a result of the ownership of financial assets such as bank accounts and shares, and rent and royalty income received from the ownership of non-financial assets. The rent component of investment income is measured on a net basis, that is, gross rent less operating expenses and depreciation allowances. Interest paid on money borrowed to purchase shares or units in trusts is also netted off income earned from these sources. All other components, for which associated expenses are normally relatively small, are on a gross basis.
Rent comprises receipts from residential properties, other than owner-occupied dwellings, and from non-residential properties. Operating expenses deducted from gross rent include repairs and maintenance expenses, rates, interest payments and the like. If the operating expenses plus depreciation allowances are greater than the gross rent, net rental income is negative.
Current investment income is collected by asking survey respondents for an estimate of their total expected income in the financial year, as described above for own unincorporated business income.
Government pensions and allowances
Some government payments are excluded from income as they are considered to be either a reimbursement of expenditure or a capital transfer. In deciding whether a government payment should be included in income, the intent of the government payment is considered. Government payments considered to be reimbursements of expenditure include the Medicare rebate, Child Care Rebate (CCR) and Child Care Benefit (CCB), and payments considered to be capital transfers, including the First Home Owner Grants Scheme (as it is designed to help first home buyers purchase their own home) are not included as income.
The Baby Bonus introduced in July 2004, is included as income, recognising that the intention of the payment is to offset some of the extra consumption costs incurred with the birth of a child. Similarly, Child Disability Assistance Payment paid to recipients of Carer Allowance, is also included as part of income.
Paid Parental Leave introduced on 1 January 2011, is also included as income as per the Baby Bonus. Under the Paid Parental Leave scheme, eligible working parents can get government funded pay when they take time off from work to care for a newborn or recently adopted child. The income test for paid parental leave requires that the parent or parents earn no more than $150,000 in the year previous to the child's birth. People who meet the eligibility requirements must decide which payment, paid parental leave or baby bonus, is best suited to them, as both payments cannot be received for the same child.
The one-off clean energy advance payment paid in May 2012 and June 2012 is included in current weekly income from government pensions or allowances for households interviewed between January and June 2012. This one-off payment was paid to pensioners, other income support recipients, families receiving Family Tax Benefit payments and Senior Supplement recipients, provided they met eligibility requirements.
Also included in income from government pensions and allowances is the one-off Education Tax Refund that was paid to eligible families in June 2012. This one-off payment was made payable to families receiving Family Tax Benefit Part A, plus young people in school receiving Youth Allowance and some other income support and veterans' payments, providing they met the age and education requirements.
Values of FTB paid as a lump sum and one-off payments regarded as income are annualised, that is, treated as though they were paid evenly through the year. Therefore the amount included in current weekly income is the total payment for the year divided by 52.14, the average number of weeks in a year. The payments are assigned to all respondents who would have met the eligibility criteria at the time that they were interviewed, even if the payments were only announced after the interview took place. If an annualised approach was not taken, a few respondents receiving the benefit would include a large amount in the current income, and most people eligible for the benefit would not include any payment because it was not received in the fortnight before the interview.
All pensions received from overseas are included under government pensions and allowances.
For further information regarding modelled government payments and allowances in the HECS, refer to the 'Income tax and other modelled data items' section of this User Guide.
Other income includes non-government pensions such as superannuation and life insurance pensions, regular annuity benefits, private scholarship or study allowances, workers’ compensation not paid through the payroll, child support payments (non-government), income from accident/sickness insurance, and other current transfers received from family members living in other households such as parental allowances paid to students living away from home.
Note that, while child support and financial support received from other family members not living in the same household are included in the income of the households receiving the transfers, they are not deducted from the disposable income of the households making the transfers.
Workers' compensation payments are made to injured employees to compensate for foregone earnings and to meet ongoing medical costs. A cut-off has been applied to significant lump sum amounts, where it was considered likely that part of the receipt would be saved to meet future expenses, rather than to support current consumption. Two methods were applied in determining the cut-off limit. For respondents who reported some wage and salary income, the cut-off was applied at the equivalent of three months pay, based on the greater of the respondent's reported wages and salaries and average weekly earnings. For those reporting no wage or salary income, the cut-off was applied at the equivalent of 52 weeks average weekly earnings.
Most severance, termination and redundancy payments – and payments for unused leave – are relatively small amounts but some very large amounts were reported in the HECS. These were treated in the same manner as the reported large amounts in the SIH, that is, an adjustment was applied on the basis of the current weekly income that would have been earned over a three week period which was calculated to be the average time of unemployment between jobs. Amendments were made to both current financial year and previous financial year data if required.
Income tax and Medicare levy
In the HECS, estimates of income tax, the Medicare levy and the Medicare levy surcharge relate to the liability associated with the income being reported by respondents, regardless of when it is actually paid. In other words, an accrual rather than cash-based concept is used.LOW INCOME HOUSEHOLDS
While income generally provides a useful indicator of economic wellbeing, some circumstances present particular difficulties. For example, 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. Households may under report 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.
There are a variety of other circumstances where households in the lowest income decile may not face the risk of economic hardship. Some households have very low consumption requirements, particularly if their housing costs are low e.g. if they own their home outright. Some respondents report nil or low income because they are between jobs, were waiting to start a new job, or were on holidays without pay. The current incomes of these people may not well reflect their overall economic circumstances.
For some time, the ABS has noted that households at the lowest end of the income distribution have, on average, expenditures higher than those households with somewhat higher levels of income. For this reason the ABS has adopted the practice of using persons in the second and third deciles of the income distribution, when describing the characteristics of people on low incomes.
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