APPENDIX 2 CURRENT AND ANNUAL INCOME
INTRODUCTION
The SIH produces estimates of 'current' income and estimates of full year, or annual, income with respect to the 'previous financial year'. The tables in the main body of this publication refer to 'current' income, that is, estimates of income being received at the time the data were collected from respondents. Current income provides the most up to date information available and in some cases the most accurate information available. But it also has some disadvantages. This Appendix discusses the differences in 'current' and 'annual' income measures and presents alternative estimates relating to 'previous financial year' income.
Table A10 (page 50) compares current gross income with previous financial year gross income for common reference years. For example, the previous financial year income for reference year 1995-96 is compiled from data collected in the 1996-97 SIH, whereas the current income for reference year 1995-96 is compiled from data collected in the 1995-96 SIH.
WAGE AND SALARY INCOME
For wage and salary income, table A10 shows that, for each reference year, aggregate income collected on a previous financial year basis was greater than aggregate income collected on a current basis.
Current wage and salary income relates to usual income from the last payment received by the respondent. The reference period for any individual respondent is likely to be the previous week, fortnight or month, depending on the length of the pay period for the job(s) in which the respondent is employed. The length of the reference period is collected in the survey so that the value can be scaled to a common basis such as dollars per week (as presented in tables in the main body of this publication) or dollars per year (as presented in table A10 on page 50).
If current wage or salary income contains a payment for irregular overtime worked in the previous pay period, or a pay bonus that occurs infrequently during the year, the irregular components are excluded. If such payments were included in a weekly or fortnightly pay period estimate, the recipient could appear to be receiving substantially more income annually than is likely to be the case and analysis of the respondent's economic wellbeing would be distorted accordingly.
Excluding the extra payments from current income, on practical grounds of measurement, ignores income that does make a contribution to the economic wellbeing of the recipient. To be able to accommodate the extra payments in a current income measure would require substantial additional information about the pay period with the extra payments in it and their likely recurrence in future, as well for pay periods which have more usual or regular levels of payment so that a reasonable estimate might be made of 'current' income including an appropriate share of expected irregular payments. This is very difficult to achieve in a household interview and reporting error could be significant. By taking wage and salary income for the full preceding financial year, including irregular components received during the course of the year, wage and salary data in SIH are collected on the broader basis.
GOVERNMENT PENSIONS AND ALLOWANCES
Current government pensions and allowances also relate to income from the last payment received. Benefits are normally received fortnightly. As with wages and salaries, there are some benefit components, such as quarterly telephone allowance, that are not likely to be included in estimates of current income. They are not as significant a part of total government pensions and allowances as are the irregular components of wage and salary income. Therefore estimates of current government pensions and allowances could be expected to align more closely with previous financial year estimates.
In practice, estimates of government pensions and allowances reported on a previous financial year basis were significantly lower than estimates of government pensions and allowances reported as current income, as can be seen in table A10. The major cause of the difference appears to be higher underreporting of income received some time earlier compared to underreporting of income being received currently.
In cases where it appears likely that an individual SIH respondent has failed to report previous financial year benefits, previous year benefit income is imputed. For example, where a respondent has reported receiving a current benefit such as age pension, is of an age that would qualify for the age pension in the previous year, and that person has not reported receiving significant income from other sources in the previous financial year, it can be assumed that they probably would have also received the age pension in the previous financial year. In such cases, previous financial year age pension has been imputed on the basis of the amount reported as current income, adjusting for benefit rate changes over the previous 12 months.
However, imputation for previous year benefit income, based on likely ongoing entitlement, is not possible for benefits such as Newstart or youth allowance, and table A10 indicates that, in aggregate, previous financial year income falls short of current income after the implementation of the imputation procedure described in the previous paragraph.
OWN UNINCORPORATED BUSINESS INCOME
Estimates of current income from own unincorporated business are quite different in nature to the estimates of current income for the two income sources discussed above.
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. In the past, many unincorporated businesses did not calculate profit and loss data more than once a year, and for many businesses there are revenues earned or costs incurred only infrequently during the year. Hence SIH respondents have not been able to provide a value of current business income distinct from the value of business income received in the previous financial year.
Therefore a respondent is only deemed to have current own unincorporated business income if they had such income in the previous year and they are still operating the business. The current income value is defined to be the same amount as the previous year income, scaled up to a full year basis if the business only operated for part of the previous year. Thus it is assumed that the business will have the same monthly profit or loss in the current year as it did in the previous financial year. This is particularly problematic with businesses which only commenced operating toward the end of the previous year, especially if they made a loss in their first months of operation. Also, there is no current income estimate for businesses which only commenced operations in the current year.
INVESTMENT INCOME
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. As for own unincorporated business income, only previous financial year income data are collected from SIH respondents. Current income from dividends from own incorporated businesses is derived from reported previous financial year data in the same way as current own unincorporated business income, as discussed above. Current income from other forms of investment is derived by simply assuming that current income is equal to previous financial year income.
The rent component of investment income is measured on a net basis, that is, gross rent less operating expenses. The other components, for which associated expenses are normally relatively small, are on a gross basis.
OTHER INCOME
The remaining income sources include superannuation, child support, workers' compensation and scholarships. These are collected both on a current basis and on a previous financial year basis.
COMPARISON OF ESTIMATES
There are two major advantages of the current income estimates compared to previous financial year income estimates. First, they are more up to date for wages and salaries, for government cash benefits and for 'other' income (as defined in the preceding paragraph), which together accounted for 86% of total current income in 2002-03. Second, they appear to be more accurately reported for government cash benefits, and may also be more accurately reported for those elements of wages and salaries that are included in current income and for 'other' income.
On the other hand, the previous financial year estimates have the major conceptual advantage of being annual estimates with more complete coverage of income components. They have a longer time perspective, which while allowing short-term fluctuations in income to have an influence, do not allow short-term situations to potentially dominate the measure being compiled. If a short-term fluctuation has an undue influence on a current income measure, the measure is not a good indicator of underlying economic wellbeing. Short-term fluctuations may be positive or negative, for example, salary bonuses compared to low income or even nil income during short periods of unemployment.
The previous financial year income estimates also have the attraction of being internally consistent with respect to the time periods to which the underlying income data relate. The current income estimates are compiled from a mix of data collected on a current basis and on a previous financial year basis.
However, this internal consistency does not extend to other aspects of the data. The composition of the household, employment status of members of the household, etc., all relate to the current period. If the composition of the household has changed, previous financial year household income estimates in effect relate to a quasi household. In many cases this will not have a marked effect on the data. If, for example, an additional adult joined the household, their previous financial year income will be included in total 'household' income for the previous financial year, but their presence will be reflected in the household composition data that are used for calculating the equivalising factor for that previous year, muting the impact of the artificially inflated previous year income for the household.
However, the issues in analysis due to household composition changing between the previous and current years can be more marked. For example, for households with new members that do not have previous financial year income recorded in SIH, due to being out of scope at that time (perhaps overseas), their previous financial year income does not contribute to the previous financial year income compiled for the household. But their presence is reflected in the equivalising factor applied to the income of the rest of the household, resulting in an underestimate of equivalised income of the household. Similarly, a household may have had an additional member in the previous year and that person provided the bulk of the income for the household. But since SIH can only include the previous financial year income of the household members remaining at the time of interview, the household may incorrectly appear to have had very low income in the previous year, perhaps well below the levels which would have entitled members to social security benefits. While it is possible to omit such households from income distribution calculations, that has not been done for the tables included in this appendix.
Table A11 provides income distribution indicators compiled from previous financial year data. It provides alternative estimates to the current income estimates provided in table 1 in the main body of this publication. Comparisons can be made between the two tables for the reference periods 1994-95 to 1999-2000, and a summary is given in the following table, A9.
A9 SELECTED INCOME DISTRIBUTION INDICATORS, Equivalised disposable household income |
|  |
| | | Current income basis
| Previous financial year basis
| | |
| | | 1994-95 | 1999-2000 | % change | 1994-95 | 1999-2000 | % change | Difference in % change | |
| |
| Mean income per week, in 2000-01 dollars | | | | | | | | | |
| Low income(a) | $ | 227 | 241 | 6.4 | 230 | 249 | 8.2 | 1.8 | |
| High income(b) | $ | 792 | 879 | 10.9 | 807 | 917 | 13.7 | 2.8 | |
| Income shares | | | | | | | | | |
| Low income(a) | % | 10.8 | 10.5 | -2.3 | 10.7 | 10.5 | -2.5 | -0.2 | |
| High income(b) | % | 37.8 | 38.4 | 1.6 | 37.7 | 38.6 | 2.5 | 0.8 | |
| Percentile ratios | | | | | | | | | |
| P90/P10 | ratio | 3.77 | 3.89 | 3.1 | 3.90 | 4.06 | 4.3 | 1.2 | |
| P80/P20 | ratio | 2.56 | 2.64 | 3.4 | 2.63 | 2.64 | 0.6 | -2.7 | |
| Gini coefficient | no. | 0.302 | 0.310 | 2.8 | 0.302 | 0.313 | 3.6 | 0.8 | |
| |
| (a) Persons in the 2nd and 3rd income deciles after being ranked by their equivalised disposable household income |
| (b) Persons in the top income quintile (9th and 10th deciles) after being ranked by their equivalised disposable household income |
The previous financial year estimates show stronger growth in real incomes between 1994-95 and 1999-2000 for both the high income and the low income groups, with greater additional growth in the high income group. The P80/P20 ratio derived from previous financial year estimates shows less increase in inequality than the ratio derived from current income estimates (0.6% compared to 3.4% respectively). However, for all the other distribution indicators, the opposite is the case. For example, the Gini coefficient is 0.302 in 1994-95 on both a previous financial year basis and a current basis. However, the previous financial year income based coefficient rose to 0.313 in 1999-2000, while the current income based coefficient rose to 0.310.
FUTURE DEVELOPMENTS
The ABS is taking steps to improve the quality of both current and previous financial year estimates.
The focus for current estimates is to get more up to date information of own unincorporated business income. However, because of the nature of business income, the underlying concept would still be an annual one. The information collected would relate to the likely business income outcome of the respondent in the year in which the survey is being conducted, to avoid issues such as imputing ongoing losses in start up situations. Changed record keeping practices by businesses following the introduction of The New Tax System in July 2000 are expected to be of assistance to respondents in providing relevant information for this purpose.
The ABS is also exploring ways of using computer assisted interviewing tools during the SIH interview to better identify those respondents who appear to be providing incomplete previous financial year data.
A10 Current and Previous financial year gross income(a) |
| |
| | 1993-94 | 1994-95 | 1995-96 | 1996-97 | 1997-98 | 1998-99 | 1999-2000 | 2000-01 | 2001-02 | 2002-03 | |
| | $ billion | $ billion | $ billion | $ billion | $ billion | $ billion | $ billion | $ billion | $ billion | $ billion | |
| |
| Wages and salaries | | | | | | | | | | | |
| Current income | na | 194.7 | 199.3 | 211.6 | 223.6 | na | 251.1 | 268.3 | na | 308.4 | |
| Previous financial year income(b) | 194.7 | 204.4 | 219.1 | 232.2 | na | 257.7 | 277.0 | na | 311.2 | na | |
| Government cash benefits | | | | | | | | | | | |
| Current income | na | 34.3 | 36.5 | 38.6 | 39.0 | na | 41.2 | 46.5 | na | 49.6 | |
| Previous financial year income(b) | 30.7 | 32.8 | 34.9 | 36.2 | na | 37.7 | 40.5 | na | 44.6 | na | |
| Own unincorporated business income | | | | | | | | | | | |
| Current income | na | 18.8 | 23.2 | 21.4 | 23.6 | na | 28.7 | 27.7 | na | 33.2 | |
| Previous financial year income(b) | 18.5 | 22.8 | 22.5 | 24.4 | na | 27.5 | 25.9 | na | 31.3 | na | |
| Investment income | | | | | | | | | | | |
| Current income | na | 10.7 | 10.9 | 14.4 | 13.2 | na | 17.3 | 16.3 | na | 16.2 | |
| Previous financial year income(b) | 10.9 | 11.0 | 14.3 | 13.0 | na | 17.3 | 15.7 | na | 16.6 | na | |
| Other income | | | | | | | | | | | |
| Current income | na | 7.2 | 7.9 | 8.2 | 9.9 | na | 10.5 | 11.7 | na | 15.1 | |
| Previous financial year income(b) | 6.6 | 7.0 | 7.5 | 8.4 | na | 8.5 | 9.7 | na | 13.1 | na | |
| Total income | | | | | | | | | | | |
| Current income | na | 265.8 | 277.8 | 294.3 | 309.3 | na | 348.9 | 370.5 | na | 422.5 | |
| Previous financial year income(b) | 261.4 | 278.0 | 298.4 | 314.2 | na | 348.7 | 368.8 | na | 416.9 | na | |
| |
| na not available |
| (a) Historic data in the table are not adjusted for changes in the CPI |
| (b) Compiled from data collected in the SIH of the year following the reference year |
A11 Income distribution indicators, Previous financial year income(a) |
| |
| Person weighted indicator | 1993-94 | 1994-95 | 1995-96 | 1996-97 | 1998-99 | 1999-2000 | 2001-02 | |
| |
| Mean income per week(b) | | | | | | | | | |
| Lowest quintile | $ | 169 | 177 | 182 | 183 | 188 | 190 | 188 | |
| Second quintile | $ | 290 | 293 | 297 | 295 | 318 | 318 | 331 | |
| Third quintile | $ | 406 | 403 | 409 | 413 | 448 | 444 | 461 | |
| Fourth quintile | $ | 542 | 542 | 546 | 558 | 600 | 595 | 619 | |
| Highest quintile | $ | 847 | 856 | 870 | 894 | 964 | 973 | 989 | |
| All persons | $ | 451 | 454 | 461 | 469 | 503 | 504 | 518 | |
| Second and third deciles | $ | 240 | 243 | 248 | 246 | 262 | 264 | 270 | |
| Income per week at top of selected percentiles(b) | | | | | | | | | |
| 10th (P10) | $ | 194 | 198 | 202 | 203 | 212 | 213 | 215 | |
| 20th (P20) | $ | 237 | 242 | 249 | 246 | 259 | 263 | 267 | |
| 30th (P30) | $ | 290 | 293 | 296 | 294 | 318 | 315 | 329 | |
| 40th (P40) | $ | 346 | 345 | 350 | 349 | 379 | 376 | 397 | |
| 50th (P50) | $ | 406 | 403 | 409 | 413 | 447 | 445 | 459 | |
| 60th (P60) | $ | 466 | 468 | 469 | 478 | 521 | 515 | 533 | |
| 70th (P70) | $ | 533 | 538 | 544 | 555 | 596 | 592 | 617 | |
| 80th (P80) | $ | 634 | 635 | 632 | 645 | 696 | 695 | 720 | |
| 90th (P90) | $ | 776 | 772 | 773 | 791 | 849 | 866 | 876 | |
| Income share | | | | | | | | | |
| Lowest quintile | % | 7.5 | 7.8 | 7.9 | 7.8 | 7.5 | 7.5 | 7.3 | |
| Second quintile | % | 12.9 | 12.9 | 12.9 | 12.6 | 12.6 | 12.6 | 12.8 | |
| Third quintile | % | 18.0 | 17.8 | 17.7 | 17.6 | 17.8 | 17.6 | 17.8 | |
| Fourth quintile | % | 24.0 | 23.9 | 23.7 | 23.8 | 23.8 | 23.6 | 23.9 | |
| Highest quintile | % | 37.6 | 37.7 | 37.8 | 38.2 | 38.3 | 38.6 | 38.2 | |
| All persons | % | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | |
| Second and third deciles | % | 10.6 | 10.7 | 10.8 | 10.5 | 10.4 | 10.5 | 10.4 | |
| Ratio of incomes at top of selected income percentiles | | | | | | | | | |
| P90/P10 | ratio | 4.00 | 3.89 | 3.82 | 3.89 | 4.00 | 4.06 | 4.08 | |
| P80/P20 | ratio | 2.68 | 2.63 | 2.54 | 2.63 | 2.68 | 2.64 | 2.70 | |
| P80/P50 | ratio | 1.56 | 1.58 | 1.55 | 1.56 | 1.56 | 1.56 | 1.57 | |
| P20/P50 | ratio | 0.58 | 0.60 | 0.61 | 0.60 | 0.58 | 0.59 | 0.58 | |
| Gini coefficient | no. | 0.304 | 0.302 | 0.303 | 0.308 | 0.312 | 0.313 | 0.312 | |
| |
| (a) Compiled from data collected in the SIH of the year following the reference years. Income is equivalised disposable household income |
| (b) In 2002-03 dollars, adjusted using changes in the Consumer Price Index |
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