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The restriction to cash incomes is one of practical measurement and is assessed to provide a reasonable, broad picture of the level and distribution of income. However, readers are advised that the relative mix of cash and non-cash incomes across sub-populations will be different, and can change over time.
While income is usually received by individuals, it is normally shared between partners in a couple relationship and with dependent children. To a lesser degree, there may be sharing with other members of the household. 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. The income measures shown in this section therefore relate to household income. However, larger households normally require a greater level of income to maintain the same material standard of living as smaller households, and the needs of adults are normally greater than the needs of children. The income estimates are therefore adjusted by an equivalence scale to standardise the income estimates with respect to household size and composition while taking into account the economies of scale that arise from the sharing of dwellings. The equivalised disposable income estimate for any household in this section is expressed as the amount of disposable cash income that a single person household would require to maintain the same standard of living as the household in question, regardless of the size or composition of the latter.
In 2000-01 there were approximately 18.9 million people living in private dwellings in Australia, up by 7% on the number of people in 1994-95. In real terms, equivalised disposable household income for all people, on average, increased by 12% between 1994-95 and 2000-01, from $419 to $469 per week. As illustrated in graph 7.1, over that same period the real mean (or average) income of low income people increased by 8% (from $227 to $245 per week), with the increase spread reasonably evenly over the period. The real mean income of middle income and high income people increased by 12% (from $497 to $555 per week) and 14% (from $792 to $903 per week), respectively.
Households with different income levels tend to differ with respect to other characteristics, as shown in table 7.2. Wages and salaries were the principal source of income for households with middle and high income levels, while government pensions and allowances dominated for low income households. However, low income households had the highest incidence of full ownership of their home, reflecting the high proportion of elderly people in the low income category.
Middle income households were larger on average than high income households (2.9 persons compared to 2.5) but contained considerably less earners (1.3 compared to 1.9). Low income households only had an average of 0.3 earners, and an average size of 2.3 persons.
The range of income levels across the population partly reflects the different life stages that people have reached. Of the household composition groups included in table 7.3, younger couples without children show the highest average income. Their mean equivalised disposable household income was $692 per week, with the average number of earners in the household being 1.8. For couples with dependent children only, and with the eldest child being under five, the average numbers of earners dropped by about one-quarter, to 1.4. Because those households consisted of an average of 3.4 persons, compared to 2.0 in couple only households, their mean equivalised disposable household income of $466 per week was about one-third lower than the $692 per week disposable income of the younger couple only households. Mean equivalised disposable incomes were higher for households with non-dependent children, reflecting higher numbers of earners in those households, but were lower for households comprising older couples and lone persons, where the numbers of earners declined substantially.
People aged 65 and over had the lowest mean equivalised disposable household incomes, with lone persons' incomes ($274 per week), somewhat lower than older couple only household incomes ($321 per week). Elderly lone persons were more likely than elderly couples to have government pensions and benefits as their principal source of income (79% compared to 72%), while couples were more likely to fully own their home (88% compared to 74%).
Households comprising one parent with dependent children had a mean equivalised disposable household income of $329 per week, similar to that of elderly couples ($321 per week), but only 14% of the one parent households fully owned their home and therefore a substantially greater proportion had to make mortgage or rental payments from their income. Of those households, 53% had government pensions and benefits as their principal source of income.
States and territories
There are considerable differences in the average levels of household income per week between the states and territories, with three having mean equivalised disposable household incomes below the national average of $469 per week (table 7.4). Tasmania's mean weekly income was 17% below the national average income level, followed by South Australia (9% below) and Queensland (6% below). The Northern Territory has the highest mean equivalised disposable household income (34% above the national average). This high income level reflects in part the younger age profile of the Northern Territory. However, it also reflects the exclusion from the results of sparsely settled areas of the Northern Territory which, if included, would be likely to significantly reduce the mean incomes in the Northern Territory. The Australian Capital Territory recorded the second highest mean equivalised disposable household income (24% above the average), also reflecting in part its relatively younger population. New South Wales and Victoria both recorded mean incomes at 3% above the national average, with Western Australian incomes at about the national level.
There are also considerable differences between the incomes recorded in capital cities in Australia compared to those earned elsewhere. At the national level, mean equivalised disposable household income in the capital cities was 20% above that in the balance (rest) of state. In each state (separate information is not available for the Northern Territory and Australian Capital Territory) the mean incomes in the capital city were above those in the balance of state. The largest difference was recorded for New South Wales where the capital city incomes were 30% above the average incomes across the balance of the state.
Summary income distribution indicators
While the mean (or average) equivalised disposable household income of all households in Australia in 2000-01 was $469 per week, the median (i.e. the midpoint when all people are ranked in ascending order of income) was somewhat lower at $414. This difference reflects the typically asymmetric distribution of income where a relatively small number of people have relatively very high household incomes, and a large number of people have relatively lower household incomes, as illustrated in graph 7.5.
7.5 DISTRIBUTION OF EQUIVALISED DISPOSABLE HOUSEHOLD WEEKLY INCOME - 2000-01
Source: Household Income and Income Distribution, Australia, 2000-01 (6523.0).
Percentile ratios are one measure of the spread of incomes across the population. P90 (i.e. the income level dividing the bottom 90% of the population from the top 10%) and P10 (i.e. dividing the bottom 10% of the population from the rest) are shown. In 2000-01, P90 was $802 per week and P10 was $202 per week, giving a P90/P10 ratio of 3.97. Various percentile ratios for the years 1994-95 to 2000-01 are shown in table 7.6. Changes in these ratios can provide a picture of changing income distribution over time.
Another measure of income distribution is provided by the income shares going to groups of people at different points in the income distribution. The table shows that, in 2000-01, 10.5% of total equivalised disposable household income went to people in the 'low income' group, with 38.5% going to the 'high income' group.
The Gini coefficient is a single statistic that lies between 0 and 1 and is a summary indicator of the degree of inequality of income distribution, with values closer to 0 representing a lesser degree of inequality, and values closer to 1 representing greater inequality. For 2000-01, the Gini coefficient was 0.311. The coefficients for earlier years are shown in table 7.6.
The indicators in table 7.6 are based on data collected in sample surveys, they may differ from the results that would have been obtained from data collected from the whole population. After taking into account the likelihood of such variability, the extent and pattern of growth in the various indicators suggests some rise in income inequality over the second half of the 1990s.
Distribution of wealth
There is considerable interest in the composition and distribution of wealth across Australian households, and how this is changing over time. However, distributional wealth data have not been collected in Australia on a regular basis in the past. This section reports the findings of an exploratory study which constructed experimental distributional wealth data for Australia, using modelling techniques. A fuller explanation of the wealth model can be found in Working Papers in Econometrics and Applied Statistics: No 2002/1 Experimental Estimates of the Distribution of Household Wealth, Australia, 1994-2000 (1351.0).
The distribution of wealth between different types of households
Average and median household wealth increased as the age of the household reference person increased, peaked in the 55-64 age group, and then declined. This illustrates how households build their wealth while householders are working, then draw upon this wealth in retirement (graph 7.7). As expected, this pattern is different from the distribution of income across age groups, which falls away more rapidly for older households.
For many households, the major assets are their owner occupied dwelling and their superannuation assets. Growth in the value of these assets led to strong growth in the average wealth of households in middle and older age groups (i.e. those where the age of the reference person is over 44).
The distribution of wealth between different types of households is closely linked to the effects of both age and income level on wealth accumulation. Couple households had higher average net worth than lone-parent or lone-person households with reference people of a similar age. This is to be expected, as couples may have had access to two incomes for much of their lives.
Average net worth grew in all states and territories between 1994-95 and 1999-2000. Average net worth was highest in New South Wales, where average dwelling values were higher than those in other states (graph 7.8).