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Progress in Australia: The headline dimensions
National income is a measure of Australia's capacity to acquire goods and services for consumption. It is a determinant of material living standards and is also important for other aspects of progress. There are many different ways of measuring income. The headline measure - real net national disposable income per capita - has a variety of features that make it an informative indicator of national progress.
Australia experienced significant real income growth during the past decade. Between 1994-95 and 2004-05, real net national disposable income per capita grew by 3.0% a year.
Society generally accepts that people have a right to enjoy some minimum material standard of living, that is, to consume a minimum standard of goods and services. Household income is the major source of economic resources for most households and therefore a key determinant of economic wellbeing. The headline economic hardship indicator shows the growth in average real equivalised disposable income of people close to the bottom of the income distribution (Endnote 5). Although it provides no information about the number of people who might have an unacceptable standard of living, it does indicate whether the average income of people in the low income group is rising or falling.
The headline economic hardship indicator shows that low income people experienced a trend of rising real incomes between 1994-95 and 2003-04. The average real equivalised disposable household income of low income people is estimated to have risen by 22% over the period, although part of the increase in 2003-04 may reflect improvements to the way income was collected in the survey in that year. For those people who were in this income grouping for the entire period, their rising incomes would on average have provided a capacity to increase their real standard of living, other things being equal. While some would interpret this increase in the real income of the low income group as progress, others would consider that it also needs to be weighed against changes in community standards. Although there is no direct measure of these, one approach is to compare changes with those of 'middle' Australians. And so the chart also shows changes in the real income of people in the third quintile, also estimated to have risen by 22% between 1994-95 and 2003-04.
The headline indicator considers low income which is commonly associated with economic hardship. However, some people have access to other economic resources such as wealth. Furthermore, economic hardship is a multidimensional issue that is often associated with problems such as lack of participation in work, substance abuse, poor health, poor education, poor housing, crime, social exclusion and a lack of opportunity for children. It can also be associated with changes in life fortunes.
National wealth and national income are very closely related. Along with the skills of the work force, a nation's wealth has a major effect on its capacity to generate income. Produced assets (such as machinery and equipment) are used in income-generating economic activity. Income, in turn, provides for saving that enables the accumulation of new wealth. 'Real national net worth per capita' exhibits features that make it an informative indicator of national progress.
Between June 1995 and June 2005, Australia’s real net worth per capita rose at an average annual rate of 0.9%. However, the headline indicator does not take account of everything that might be regarded as valuable. For example, it does not include - native forests and other natural assets not used for economic production; or human capital (e.g. knowledge and skills); or social capital (e.g. social networks and trust).
Housing provides people with shelter, security and privacy. Having an adequate and appropriate place to live is fundamental to people's wellbeing, and there are many aspects to housing that affect the quality of people’s lives. Dwelling attributes, such as size, number of bedrooms, physical condition, location relative to amenities and services, and affordability, are all important in this regard but there is currently no one indicator that succinctly captures whether people's many needs and desires for suitable housing are being met.
Housing in Australia is generally good, and Australians are continuing to invest significantly in the homes that they own. In the decade to June 2005, the household sector invested about $400 billion (in current price terms) in new dwellings (excluding land). The value of land and dwellings owned by the household sector at 30 June 2005 represented close to 60% of the value of all assets owned by the sector.
Australians are tending to live in smaller household groups, with the average household size shrinking by 13% over the 20 years to 2001. In 2003-04, while 5% of private dwellings across Australia required an extra bedroom to accommodate the residents of those dwellings, 69% of private dwellings had one or more bedrooms spare. But poor or inadequate housing is currently a problem for some groups, especially for Aboriginal and Torres Strait Islander peoples living in remote areas.
A nation's productivity is the volume of goods and services it produces (its output) for a given volume of inputs (such as labour and capital). A nation that achieves productivity growth produces more goods and services from its labour, capital, land, energy and other resources. Much, but not all of Australia's output growth can be accounted for by increases in the inputs to production. The amount by which output growth exceeds input growth is the productivity improvement. Productivity growth can generate higher incomes. Benefits might also accrue in the form of lower output prices.
Productivity can be measured in a variety of ways. The most comprehensive Australian measure available at present is multifactor productivity for the market sector. Multifactor productivity represents that part of the growth in output that cannot be explained by growth in labour and capital inputs. During the decade 1994-95 to 2004-05, Australia experienced improved productivity growth, and multifactor productivity rose 14% or 1.3% per year on average.
During the past few decades, successive Australian governments have enacted reforms that have sought to create an economic environment favourable to increased competition, better allocation of resources and more innovation. Key policy influences have included reduction of tariffs and other barriers to international trade, relaxation of barriers to international investment, changes to the structure and rates of taxation, domestic competition policy and reforms to financial, labour and other markets. Economists continue to investigate the links each of these varied influences has on productivity growth, and many are not yet well understood.