Australian National Accounts: Distribution of Household Income, Consumption and Wealth methodology

The methodology used to compile the data in this release is based on the method (summarised below) in the Information Paper: Australian National Accounts, Distribution of Household Income, Consumption and Wealth, 2009-10.

Current price household estimates for income, consumption and wealth from the Australian System of National Accounts, 2019-20, for biennial years 2003-04 to 2019-20 were distributed for household distributional indicators based on ABS household surveys:

• Survey of Income and Housing (SIH) - biennial years from 2003-04 to 2017-18
• Preliminary SIH - 2019-20
• ABS Household Expenditure Survey (HES) - 2003-04, 2009-10 and 2015-16

For the biennial years 2003-04 to 2017-18, current price household estimates for income, consumption, gross saving and wealth were distributed for five household indicators: main source of income; equivalised disposable income quintiles; household composition; age of household reference person; and equivalised net wealth quintiles.

For 2019-20, current price household estimates for income, consumption and gross saving were distributed for equivalised disposable income quintiles.

Estimates for non-profit institutions serving households (NPISH) included in the household sector in Australian System of National Accounts (ASNA) were removed.

The household national accounts estimates for a particular year (macro) and the corresponding ABS household survey estimates (micro) were compared and coverage ratios (micro/macro) calculated. For some items, the macro and/or micro estimates were adjusted to derive the most relevant common scope for comparison. The corresponding micro household items were sub sectored into the following household groups: main source of income; equivalised disposable income quintiles; household composition; age of household reference person; and equivalised net worth quintiles.

The ASNA household components and aggregates were distributed to the five household groups:

• directly using the distribution of the equivalent micro component when the coverage ratio was considered adequate, for example, social assistance benefits
• indirectly by a related micro distribution when there was no direct micro distribution information for the national accounts item, for example the national accounts item non-life insurance claims was distributed using the micro distribution for total insurance premiums paid
• indirectly by creating a micro distribution ('synthesised') based on related micro distribution, for example, synthesised micro distribution was created for the national accounts item financial intermediation services indirectly measured (FISIM) for consumer loans
• by the corresponding aggregate distribution for income (disposable income), consumption (final consumption expenditure), assets (total assets) and liabilities (total liabilities), when micro distributions either directly or indirectly are not available. For these national accounts items, the inclusion or exclusion of the item did not impact on the distribution of the national accounts aggregates

Very remote communities (VRC) and people living in non-private dwellings (NPD) populations that were out of scope of the micro surveys were excluded from the ASNA estimates and distributed separately using data from the 2006, 2011 and 2016 ABS Census of Population and Housing. These distributions were then added to the ASNA distributions based on the micro surveys to obtain the final distribution of the ASNA household income, consumption and wealth estimates.

The October 2014 and November 2015 issues describe improvements to the original method, which include:

• models used to estimate gaps in micro distributional data, interpolation and extrapolation
• method in the construction of a time series
• how data captures demographic shifts
• strength and weakness of the time series
• incremental improvements to the original method

Users are encouraged to refer to these releases to obtain a complete understanding of the methodology.

The following improvements were made in this release.

Coverage ratios (micro/macro)

Household Final Consumption Expenditure - Health

The coverage ratio was improved by correcting a scope difference for health expenditure between the HES indicator and the ASNA estimate. The HES records expenditure on an "out of pocket" basis, that is, the difference between the cost of the health expenditure charged by the provider less the private health insurance refund. The ASNA records the cost of the health expenditure charged by the provider. The private health refund is recorded separately in the ASNA as a household claim on health insurance.

The private health refund was removed from the ASNA health estimates based on information from the Operations of Private Health Insurers Annual Report (Australian Prudential Regulation Authority) and subsequently distributed using HES health expenditure. The private health refund component was distributed using HES expenditure on premiums paid for hospital, medical and dental insurance.

Wealth - Currency and deposits

The coverage ratio for currency and deposit assets was improved by adjusting the SIH indicator for deposits (balance of accounts with financial institutions) to include mortgage offset accounts (which SIH has collected SIH since 2011-12). Mortgage offset accounts are classified in the ASNA as deposits.

Periodicity

Time series presented in this release:

• household income, consumption and gross saving from 2003-04 to 2019-20 (biennial) for equivalised disposable income quintiles
• household income, consumption, gross saving and wealth from 2003-04 to 2017-18 (biennial) for household groups: main source of income; equivalised disposable income quintiles; household composition; age of household reference person; and equivalised net worth quintiles

The release includes 11 data tables:

• current price household estimates for income, consumption and wealth distributed by main source of income; equivalised income quintiles; household composition; age of reference person in household; and equivalised net worth quintiles (Table 1)
• share of total household estimates for income, consumption and wealth distributed by main source of income; equivalised income quintiles; household composition; age of reference person in household; and equivalised net worth quintiles (Table 2)
• that analyse how household distributional groups have contributed to total growth of income, consumption and wealth. The table includes demographic shifts such as the increase in the number of households in a particular household group, as they are an important driver to total growth (Table 9)
• that remove demographic shifts; the method used in this release is dollars per household (Tables 3 and 4)
• that analyse per household growth in income, consumption and wealth (Table 10)
• that analyse contributions by component (income, consumption and net worth) to a household group's per household growth of gross disposable income, household final consumption expenditure, net worth and actual final consumption (Tables 5 to 8)
• that analyse the impacts of redistribution policies such as income tax, social assistance benefits and social transfers in kind, and the effectiveness of the policies over time (Table 11)

Specifically, in this release:

• Tables 1,2,3,4 and 11 include estimates for income, consumption and gross saving for 2019-20 for equivalised disposable income quintiles. Tables do not include any estimates for 2019-20 by household indicators main source of income, household composition, age of household reference person, and equivalised net wealth quintiles
• Tables 5,6,7,9 and 10 include analysis for all relevant items by all household indicators biennially and for the total 14-year period (2003-04 to 2017-18)
• Tables 5,6,7,9 and 10 include analysis for equivalised disposable income quintiles for 2017-18 to 2019-20 and for the total 16-year period (2003-04 to 2019-20) for relevant income items, consumption items and gross saving
• Table 8 includes analysis for wealth items by all household indicators biennially and for the 14-year period (2003-04 to 2017-18)

Table 1 shows the availability of the micro source data used to construct the 2003-04 to 2019-20 data points.

Models used to estimate data gaps in micro distributional data

The two options of linear interpolation (extrapolation) were considered for this release:

1. three data point linear trend interpolation (extrapolation)
2. two data point average growth rate of the total household micro estimate, with the average growth applied to the average share over three data points of the household indicator (e.g. quintiles)

Both option (1) and (2) are simple methodologies, and work effectively if the historical data is stable over time and there are not large fluctuations between shares of the various indicators over time.

Option (1) was applied to interpolate (extrapolate) the micro distributional indicators for consumption for the years 2005-06, 2007-08, 2011-12, 2013-14, 2017-18 from HES. In general, it is assumed that consumption patterns of households tend to be relatively stable over time, and this method has the advantage of capturing the systematic pattern (i.e. movements up or down) of distributional information over time.

Option (2) was applied to SIH to interpolate (extrapolate) the micro distributional indicators for wealth for the year 2007-08; social transfers in kind (STiK) for the years 2005-06, 2007-08 and 2019-20, and income tax for 2019-20. This method has the advantage of not generating negative values, works adequately for when the distributed pattern is not linear over time and assumes that the shares of the distributional indicators are stable over time.

Census data is used to construct the distributional data for the VRC and NPD populations. Option (1) was applied to interpolate (extrapolate) Census data for the years 2003-04, 2007-08, 2009-10 and 2013-14. Census 2016 was used for 2015-16, 2017-18 and 2019-20. The total disposable income, total consumption and total net worth estimates for the NPD and VRC populations were approximately 3% of the total Australian aggregates of income, consumption and net worth for all data points. The impact of the methodology chosen to interpolate (extrapolate) would be minimal on the final Australian National Accounts distributional estimates.

Methods used for 2019-20 equivalised disposable income quintiles

The preliminary data from 2019-20 Survey of Income and Housing provided a subset of the final data due for release at the end of 2021. Data excluded from preliminary SIH include taxes on income and STiK.

Due to the exclusion of taxes on income, the national accounts items were distributed into equivalised gross income quintiles from the preliminary SIH indicators. The national accounts times series for income quintiles requires equivalised disposable income quintiles, that is, income including the payment of income taxes. To transform the quintiles from a gross income to a disposable income basis a modification factor was applied. The modification factor was derived by dividing a SIH income item on a disposable income quintile basis by the equivalent item on a gross income quintile basis using 2017-18 data. The SIH income item for 2019-20 on a disposable income quintile basis is then derived by multiplying the modification factor by the 2019-20 estimate of the SIH income item on a gross income quintile basis. An example of the derivation is shown in Table 2.

When analysing household groups on the basis of their equivalised income, users need to be aware household income can vary systematically for lifecycle reasons and cyclical reasons such as significant economic shocks. The impacts of the COVID-19 pandemic and the Australian government policy response during 2019-20 may be classified as an economic shock as it resulted in significant impacts on household income in a short timeframe. To facilitate comparison between household groups across time, households should ideally be ranked in terms of their usual income (without economic shocks).

The ABS published the preliminary 2019-20 SIH data in Household Financial Resources, June 2020. The income items in this release were published by equivalised private income quintiles (which excludes social assistance benefits). This was done to minimise the effect of households temporarily moving between quintiles due to impacts of COVID-19 and subsequent government support payments.

The difference between private income and the gross income (starting point for the national accounts quintile estimates) is that gross income includes social assistance benefits and net imputed rent. Table 3 provides an indication of the extent to which households shifted between quintiles due to the economic shocks caused by the COVID-19 support payments. The differences in the shares of gross income between equivalised private income quintiles and equivalised gross income quintiles is significantly greater in 2019-20 when compared to 2017-18, reflecting a greater degree of shifting between quintiles in 2019-20. For example, in 2019-20 there was a significant shift away from the lowest quintile.

Household Final Consumption Expenditure (HFCE)

Shares for all categories of HFCE were held constant to 2017-18 shares. Extrapolating estimates for 2019-20 using option (1) is only suitable when consumption patterns of households are assumed to be relatively stable over time, the impacts of COVID-19 pandemic on consumption made this assumption no longer relevant. Further, due to difficulties in estimating the impacts of COVID-19 on consumption behaviour within the income quintiles, it was considered the best option was to keep the 2017-18 consumption shares.

Other adjustments

Adjustments to estimates were also made:

• to account for lower data quality of some items in the preliminary 2019-20 SIH data
• to ensure better coherence and consistency with aggregate national accounts estimates
• to account for differences in scope between SIH and national accounts
• based on economic intelligence of the Australian economy derived from reports from the media, government and market economists

Final estimates for 2019-20

The full suite of 2019-20 current price household estimates for income, consumption and wealth by the five household distributional indicators will be available later this year or early next year following the release of the final Survey of Income and Housing for 2019-20.

When distributional data across different years is compared, it is important to note that the change in the estimate is impacted by (a) changes in the household's income (consumption and wealth) and (b) change due to more households in the distributional group. To assist users to understand these demographic changes, Table 4 shows the proportion of households in each group over time.

Revisions of estimates from the previous release are due to:

• the implementation of revised national accounts aggregates from Australian System of National Accounts, 2019-20
• the implementation of revised national accounts data from Australian National Accounts: Finance and Wealth, June Quarter 2020, used to construct detailed components for the national accounts net worth aggregates
• incorporation of 2017-18 SIH data
• improvements made to the original method (described above)
• correction in the method used to derive the distribution of interest receivable and interest payable on dwellings

• Australian National Accounts: Finance and Wealth, June 2020
• Australian National Accounts: Non-Profit Institutions Satellite Account, 2012-13
• Australian System of National Account, 2019-20
• Australian System of National Accounts: Concepts, Sources and Methods, 2015
• Census of Population and Housing
• Government Benefits, Taxes and Household Income, Australia. 2015-16
• Household Expenditure Survey, Australia: Summary of Results, 2015-16
• Household financial resources, June 2020
• Household Income and Wealth, Australia, 2017-18
• Working Papers in Econometrics and Applied Statistics: No 2002/1 Experimental Estimates of the Distribution of Household Wealth, Australia, 1994 to 2000