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INTRODUCTION TO THE STANDARD
STRUCTURE OF STANDARDS DOCUMENTATION
The documentation for the ABS income standards is organised as follows:
This section provides the ABS standard conceptual definition of income for use in micro level statistics in the household sector, including a description of its components and exclusions. It outlines how the components of income are aggregated to produce the various measures of income required (including private, gross, disposable, and final income). The definition can be applied to a range of statistical units (for example, households, income units, and persons) provided transfers between units are appropriately treated in each case.
Conceptual definition of income
The ABS conceptual definition of household income is based on the definition of household income set out in the international standards by the International Conference of Labour Statisticians (ICLS 2003). The ABS has followed the ICLS wording except where improvements were identified or changes were required to satisfy Australian requirements. The international standards are further explained in the Canberra Group Handbook on Household Income Statistics, Second Edition (2011).
The standard ABS conceptual definition of household 'income' is:
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 by the household.
Household income includes receipts from:
Household income excludes capital transfers received and certain current transfers treated as offsets against expenditures. It excludes receipts that reduce the net worth of the household through a reduction of its cash reserves, the disposal of its other financial or non-financial assets, or an increase in its liabilities. It also excludes holding gains/losses resulting from changes in the value of assets and liabilities.
Components of income
(ii) investment income
(iii) income from production of household services for own consumption, and
(iv) current transfers received.
Conceptually, all of these components and the elements that make them up are included in income. However, in practice, some elements cannot be included in the operational measures of income because they cannot be readily captured or modelled.
(i) Income from employment
Income from employment comprises receipts from participation in economic activities in a strictly employment-related capacity. It consists of employee income and income from self-employment.
Employee income comprises direct wages and salaries for time worked and work done, cash bonuses and gratuities, commissions and tips, directors’ fees, profit-sharing bonuses and other forms of profit-related pay, remuneration for time not worked, free or subsidised goods and services from an employer, severance and termination pay, and employers' social insurance contributions. An employee may receive income from an employer or from their own incorporated business (company). It may be received in cash (monetary) or in kind.
Income from self-employment consists of the profit or loss that accrues to owners of, or partners in, their own unincorporated businesses. Profit or loss is the value of the gross output of the enterprise after the deduction of operating expenses, including depreciation and operating costs, but before income tax. Income from self-employment excludes profits from capital investments of partners who do not work in these enterprises (silent partners). Income from self-employment includes the estimated value of goods and services produced for barter as well as goods produced for own consumption, less expenses.
(ii) Investment income
Investment income, also commonly referred to as property income, is defined as receipts that arise from the ownerships of assets (return for use of assets) that are provided to others for their use. These are returns from:
(iii) Income from household production of services for own consumption
Income from household production of services for own consumption consists of the net estimated value of:
(iv) Current transfers received
Transfers are receipts for which the recipient does not provide anything to the donor in direct return for the receipts. Transfers can consist of money, of goods or of services.
Current transfers include:
(i) Capital transfers
Capital transfers refer to the acquisition of, or disposal of, assets. Capital transfers received are considered an addition to capital, even though they may subsequently be dissaved. A household may receive capital transfers from other households, private institutions and enterprises, and from government. Capital transfers include inheritances, lump-sum retirement benefits, life insurance claims (except annuities), compensation (except for foregone earnings) and loan repayments (the principal component only).
(ii) Certain current transfers offset against expenditures
Lottery and other gambling winnings and payments received from any non-life insurance claims are excluded from the definition of income. The household sector overall incurs net expenditure on these items and, by convention, the transfers received are offset against expenditures. In respect of lottery and other gambling winnings, the stakes (expenditure) are included as part of household consumption which is then offset by any winnings which are effectively considered negative expenditures. A similar treatment is applied to non-life insurance claims, with premiums paid included in household consumption expenditure and offset by any payments received in respect of any claims made.
(iii) Holding gains or losses
Holding gains or losses refer to changes in the value of financial and non-financial assets and liabilities over a reference period. A holding gain, the result of an increase in the value of assets or a reduction in the value of liabilities, increases the net worth of the owner's assets while a holding loss has the opposite effect. All holding gains and losses are excluded from income whether they are realised (if the owner sells the asset) or remain unrealised.
(iv) Other receipts that result from a reduction in net worth
Receipts that represent a running down of assets are excluded from income and may include the sale of assets, withdrawals from savings and loans obtained. Reductions in net worth can be used to support consumption, at least for a time, just as income is.
The components of income can be aggregated in a hierarchy to produce selected measures of income for particular analytical purposes. Gross and disposable income are the main income aggregates produced.
Total income (interchangeably referred to as gross income) is the sum of income from all sources before income tax or levies, such as the Medicare Levy and Medicare Levy Surcharge, are deducted. It is the most commonly used measure of income across ABS household collections.
Disposable income is derived by deducting taxes and levies on income from gross income. It is the remaining income which is available to support consumption and/or saving. Disposable income generally better represents the economic resources available to meet the needs of households than gross income. It is the main measure produced from the specialised ABS income surveys.
For some purposes, private income and final income measures may be produced.
Private income is the most restricted concept of income, and relates to total income less all benefits received from government, i.e. government benefits in cash and in kind.
Final income is the most extensive concept of income, being equal to household disposable income, including government social transfers in kind, less taxes on household consumption expenditure (also referred to as taxes on production). Final income is used to study the effects of taxation and government expenditure on the distribution of income among private households in Australia.
Income and its relationship to the broader framework for household economic resources
The conceptual definition of income relies on some discussion about the boundaries between income and capital flows and about household consumption. The Canberra Group Handbook on Household Income Statistics, Second Edition (2011) illustrates how the various concepts can be brought together in an integrated manner. The following tables summarise the key measures and their relationships, as outlined in the Handbook.
Source: Canberra Group Handbook on Household Income Statistics, Second Edition (UNECE, 2011, p19 Table 2.2)
See 'Operational definition' in the 'Total Income' standard.
DISCUSSION OF ISSUES
The international standards for micro level statistics on household income are provided in Resolution I of the Seventeenth International Conference of Labour Statisticians (ICLS): Household Income and Expenditure Statistics (ILO, 2003). The ICLS definition has been used as the starting point for developing the Australian conceptual definition of income set out in these standards. The Canberra Group Handbook on Household Income Statistics, Second Edition (2011) also draws on the ICLS definition and is the result of international collaboration by several national statistical offices and international agencies. As much as practicable, these standards align with the international standards.
There is no standard international classification for types of income. However the ICLS stated that:
"Income should be classified by types of source, at as detailed a level as relevant and, to the extent possible, by means of payment so that users would have the option of including or excluding in-kind receipts, e.g. to facilitate international comparisons. Wages and salaries packaging that is negotiated at the discretion of the employee and is to be delivered as goods and services should be considered as monetary income and not in-kind income" (ICLS Resolution I, para 87).
Income estimates are also compiled at the macro level, such as the ASNA. The objective of macro level statistics is to measure the economic wellbeing of the nation as a whole through flows such as production, income, consumption, expenditures, investment, savings etc. between sectors. The household sector is one such sector and the total income accruing to households is described in relation to other aggregate components of this system. At the macro level, the main framework developed for compilation and analysis of income estimates is the United Nations System of National Accounts (SNA). The SNA is a comprehensive system for expressing in statistical terms most elements of a country's economy, including the total income accruing to households. In SNA 2008, disposable household income is described conceptually as:
"... the maximum amount that a household or other unit can afford to spend on consumption goods or services during the accounting period without having to finance its expenditures by reducing its cash, by disposing of other financial or non-financial assets, or by increasing its liabilities" (SNA 2008, 8.25).
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