• Summary
• Downloads
• Explanatory Notes
• Related Information
• Past Releases

APPENDIX 5 COMPARISON OF INCOME, BENEFITS AND TAXES FOR 1998-99 AND 2003-04 STUDIES


INTRODUCTION

This appendix compares the results of the 2003-04 study of the distributional impact of government taxation and expenditure on the income of private households, with those of the previous study which was conducted in respect of 1998-99. Differences between the two studies that may impact on the comparison are also outlined.

In previous issues of this publication, data from the latest study were compared with data from each of the previous studies (conducted in respect of 1984, 1988-89 and 1993-94). This was done by conducting a separate comparative study utilising similar methodology to that used in the 1984 study. However this became increasingly difficult with each study because of the changes that had occurred in both the methodology and data sources. In particular, the implementation of accrual accounting in government finance statistics in 1998-99 meant that it was not possible to compile comparable estimates of social transfers in kind. Further changes have been made in both methodology and data sources in the 2003-04 study and it is no longer possible to compile data for the comparative study.

COMPARABILITY OF 1998-99 AND 2003-04 DATA

The 1998-99 data presented in this appendix differ from those originally published in the 1998-99 issue of this publication. Some revisions were made to the data to correct errors detected after the original release. These revisions were incorporated in the 1998-99 confidentialised unit record file that was re-released in 2002. Changes have also been made to the methodology to make the 1998-99 study results more comparable with the 2003-04 study. The main changes are:

• estimates of average weekly household income in 1998-99 were revised upwards for private income, income from Veterans' Affairs pensions and income from other government pensions and allowances, totalling $10
• estimates of social assistance benefits in cash for 1998-99 have been recompiled using the 2003-04 classification
• estimates of taxes on production for 1998-99 have been recompiled using the revised methodology outlined in Appendix 4, resulting in the total 1998-99 estimate for the selected taxes on production increasing by $43 per week per household.

• the revised terminology used in the 2003-04 study applied (for more information see paragraph 7 of the Explanatory Notes)
• the application of equivalence scales to produce estimates of equivalised private income and equivalised final income for comparison with 2003-04 data
• the figures adjusted to 2003-04 dollars using changes in the Consumer Price Index.

COMPARISON OF INCOME ESTIMATES

Private income

Table A5.1 shows that average weekly private household income has increased by 9% in real terms between 1998-99 and 2003-04. However, the items are not directly comparable because of improvements in the estimation of business and investment income in 2003-04, and the redefinition of a number of income items as a result of the integration of the Household Expenditure Survey and the Survey of Income and Housing in 2003-04.

A5.1 Income, benefits and taxes, Comparison between 1998-99 and 2003-04 studies, All households
			1998-99(a)	2003-04
Income, benefits and taxes - Average weekly value ($)
Private income			912	992
Social assistance benefits in cash(b)
	Age pension		41	44
	Disability support pension		15	17
	Veterans' Affairs pension		12	12
	Family tax benefit(c)		20	28
	Parenting payment		14	13
	Unemployment and student allowances		21	15
	Other government pensions and allowances		8	8
	Total social assistance benefits in cash		131	136
Gross income			1 042	1 128
Taxes on income			210	213
Disposable income			832	916
Selected social transfers in kind
	Education benefits
		School education	58	62
		Tertiary education	26	21
		Other education benefits	2	4
		Total education benefits	86	87
	Health benefits
		Acute care institutions	47	46
		Community health services	33	39
		Pharmaceuticals	10	15
		Other health benefits	10	13
		Total health benefits	100	113
	Housing benefits		4	3
	Social security and welfare benefits		32	35
	Total selected social transfers in kind		222	238
Disposable income plus social transfers in kind			1 054	1 154
Selected taxes on production(d)
	Alcoholic beverages		11	11
	Tobacco products		9	8
	Motor vehicle fuel		21	19
	Ownership of dwellings		12	14
	Food and non-alcoholic beverages		11	9
	Meals out and fast food		6	7
	Motor vehicle purchases		15	8
	Clothing and footwear		4	6
	Other taxes on production		55	66
	Total selected taxes on production		143	147
	GST component in total selected taxes on production		. .	54
Final income			961	1 007
Total benefits allocated			353	375
Total taxes allocated			354	360
Net benefits allocated			**-1	*15
Equivalised private income			531	597
Equivalised disposable income			491	549
Equivalised final income			545	612
* estimate has a relative standard error of 25% to 50% and should be used with caution
** estimate has a relative standard error greater than 50% and is considered too unreliable for general use
. . not applicable
(a) In 2003-04 dollars, adjusted using changes in the Consumer Price Index (multiplied by 1.17816).
(b) Excludes overseas pensions.
(c) Income for 1998-99 refers to Family Allowance payments.
(d) Includes GST component.

Social assistance benefits in cash

Social assistance benefits in cash are comparable between the two studies. Average social assistance benefits in cash paid to households increased 4% in real terms from 1998-99 to 2003-04. Unemployment and student allowances decreased by 29% whereas disability support pensions increased by 13%. The average amount of family tax benefit received by households in 2003-04 was up 40% on the amount of family allowance received in 1998-99.

Social transfers in kind

There was a 7% increase in social transfers in kind across all households between 1998-99 and 2003-04. However, there were a number of changes in the methodology and data sources used in the estimation of social transfers in kind in 2003-04 which impact on comparability. Some government expenditure transaction types that were allocated in the 1998-99 study have not been included in social transfers in kind in 2003-04. These relate to:

• subsidy expenses (since they are allocated as part of taxes on production)
• capital transfer expenses (since there is no obvious way to measure how the resulting benefits accrue to households and since they do not necessarily accrue within the same period)

There were some other changes (outlined in paragraph 6 of the Explanatory Notes) that cannot be quantified.

Taxes on income

There was a 1% real increase in taxes on income between 1998-99 and 2003-04. Estimates of income tax were modelled in both the studies based on income data collected in the Household Expenditure Survey and the relevant taxation legislation. The Medicare levy surcharge, telephone allowance and the medical expenses rebate components of the tax model were imputed in the 1998-99 study, but there was insufficient information available in 2003-04 to impute them.

Taxes on production

Appendix 4 outlines the new methodology introduced in 2003-04 to calculate taxes on production. This methodology has also been applied to 1998-99 to produce the estimates of taxes on production shown in table A5.1. While the data shown in table A5.1 show similar amounts estimated for taxes on production, it is estimated that the unallocated amount of taxes due to underestimation of expenditure in the HES increased from about $6 billion (in 2003-04 dollars) in 1998-99 to about $15 billion in 2003-04, or about $22 per week per household. The effect was partially offset by an increase in taxes on production included in Household Final Consumption Expenditure (HFCE) due to the introduction of The New Tax System (TNTS) in 2000.

Final income

Final income in 2003-04 cannot be directly compared with the 1998-99 figure since all the comparability issues outlined previously impact on this aggregate.

COMPARISON OF INCOME DISTRIBUTION

A5.2 Distribution of household income, benefits and taxes, by Equivalised private income quintile
			Equivalised private income quintile
			Lowest quintile	Second quintile	Third quintile	Fourth quintile	Highest quintile	All households	Second and third deciles
			%	%	%	%	%	%	%
Income share
	Private income
		1998-99	-	8.0	16.3	26.1	49.6	100.0	3.5
		2003-04	0.8	8.9	17.0	25.7	47.6	100.0	4.3
	Social assistance benefits in cash or kind
		1998-99	39.3	24.2	15.5	12.2	8.8	100.0	33.4
		2003-04	41.1	23.0	15.5	11.5	9.0	100.0	33.1
	Total taxes
		1998-99	5.4	8.4	14.6	23.1	48.5	100.0	6.5
		2003-04	5.6	9.0	15.4	23.3	46.7	100.0	6.8
	Final income
		1998-99	13.1	14.1	16.7	21.8	34.3	100.0	13.9
		2003-04	14.0	14.2	17.0	21.2	33.5	100.0	14.1
	Equivalised private income
		1998-99	0.6	8.6	17.3	26.6	46.9	100.0	3.6
		2003-04	0.9	9.6	17.9	25.9	45.7	100.0	4.4
	Equivalised final income
		1998-99	12.7	15.0	17.8	22.3	32.3	100.0	13.6
		2003-04	13.2	15.1	18.1	21.6	32.1	100.0	13.9
- nil or rounded to zero (including null cells)

Table A5.2 compares households income shares for quintile groups between 1998-99 and 2003-04. The quintile groups are formed by ranking households according to their equivalised private income and dividing them into five equal groups.

Private income was more equally spread across the equivalised private income quintiles in 2003-04 than in 1998-99. The lowest three quintiles received greater shares of private income in 2003-04 and the highest two quintiles received lesser shares. The difference in quintile shares shown in private income were reduced by government benefits and taxes so that final income is more evenly distributed than private income in both years.

Final income follows a similar pattern to private income, with final income in 2003-04 being slightly more evenly distributed across the quintiles than in 1998-99. If the level of unallocated taxes on production in 2003-04 had been similar to that estimated for 1998-99, it is likely that final income estimates would have been more evenly distributed.

The share of government benefits going to the lowest and highest quintiles has increased since 1998-99 while the shares going to the remaining quintiles has fallen. Taxes are more equally distributed in 2003-04, with the share of taxes paid by the lower four quintiles increasing and the share paid by the highest quintile decreasing.

Part of the change in the distribution of income is due to the effects of changes over time in household size and composition. When adjustments are made for household size and composition, the change in the spread of both private and final income is reduced. The share of equivalised final income going to the lowest quintile is 4% higher than in 1998-99 (compared with 7% for final income) and the share of equivalised final income going to the highest quintile is similar to 1998-99 (compared with a 2% fall for final income).