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Latest release

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

Reference period
2003-04 to 2017-18
Released
20/11/2018
Next release Unknown
First release

Methodology

This section presents a summary of the methodology used to create individual data points; a summary of the steps undertaken to enable the presentation of the data points in a time series, including a discussion on demographic shifts; and the strengths and weaknesses of the data presented in the publication.

Overview of methodology for individual data point

The methodology used to compile the individual data points in this publication is based on the methodology described in the Information Paper: Australian National Accounts, Distribution of Household Income, Consumption and Wealth, 2009-10 (cat. no. 5204.0.55.009). A summary of the methodology is as follows:

Current price household estimates for income, consumption and wealth from the Australian System of National Accounts, 2017-18 (cat. no. 5204.0), for biennial years 2003-04 to 2017-18 were distributed for five household distributional indicators based on data from the ABS Survey of Income and Housing (biennial years starting from 2003-04 to 2015-16) and ABS Household Expenditure Survey (2003-04, 2009-10 and 2015-16).

Estimates for non-profit institutions serving households (NPISH) included in the household sector in the cat. no. 5204.0 were removed from the household national accounts in this release.

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 income quintiles; household composition; age of household reference person; and equivalised net worth quintiles.

The Australian System of National Accounts (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 were 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; and
  • 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.


The 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.

For detail information regarding the methodology described above, please refer to Information Paper: Australian National Accounts, Distribution of Household Income, Consumption and Wealth, 2009-10 (cat. no. 5204.0.55.009), Chapter 4 - "Data Sources and Methodology: Distribution Methodology for Household National Accounts Estimates". Improvements to the original methodology were made in the October 2014 and November 2015 releases of this publication.

The methodology to construct data point for 2017-18 is discussed below in the section, Time Series Presentation.

Time series presentation

Periodicity

The time series presented in this release for distribution of the household income, consumption and wealth is biennial from 2003-04 to 2017-18. The decision to start the time series in 2003-04, and compile the estimates biennially up to 2017-18 was based on:

  • the availability of income and wealth modules from the ABS Survey of Income and Housing (SIH) for all seven data points from 2003-04 to 2015-16 for income, and 6 data points (excluding 2007-08) for wealth;
  • the availability of the improved income data collected through the SIH starting from 2003-04;
  • distributed data points being a minimum of two years from the 2006, 2011, 2016 ABS Census;
  • distributed data points being a minimum of two years from the 2003-04, 2009-10 and 2015-16 ABS Household Expenditure Survey (HES); and
  • availability of the micro Social Transfer in Kind (STiK) data for five data points from 2003-04 to 2015-16 (excluding 2005-06 and 2007-08).


Due to feedback from users for more timely household distributional data, this release includes extrapolated estimates for household distributional data for income, consumption and wealth for 2017-18. All distributional data points in the publication are benchmarked to the most recent issue (released 26 October 2018) of the Australian System of National Accounts, 2017-18 (cat. no 5204.0) and as a result the distributional data set for the 2017-18 data point is available approximately 5 months after the end of the reference year.

Models used to estimate data gaps in micro distributional data

The two options of linear interpolation (extrapolation) were applied in this release:

  1. three data point linear trend interpolation (extrapolation); and
  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 in particular if there are not large fluctuations between shares of the various indicators over time.

Improvements to the original methodology (October 2014 release) used to estimate data gaps in the micro distributional data were made in the November 2015 release, including a feasibility study of the extrapolation of the most recent year estimate from the SIH data. 

Models used for current release

Option (1) was applied to interpolate (extrapolate) the micro distributional indicators for consumption for the years 2005-06, 2007-08, 2011-12, 2013-14, and 2017-18 from HES. In general, it is assumed that consumption patterns of household tend to be fairly 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 income in 2017-18; wealth for the years 2007-08 and 2017-18; and STiK for the years 2005-06, 2007-08 and 2017-18. This method has the advantage of not generating negative vales, 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. The assumption regarding the stability of the shares is more than likely to be valid as the availability of the actual survey data used in the method is between 2 years from the interpolated (extrapolated) data point.

Option (1) was applied to interpolate (extrapolate) Census data that is used to construct the distributional data for the VRC and NPD populations. The total disposable income, total consumption and total net worth estimates for the NPD and VRC populations were approximately 1% 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.

Changing demographics over time

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.

In order to separate changes due to (a) and (b), the ABS applied a number of different methods to control for the demographic shift, that is item (b). For detail information regarding the different methods applied, see, Australian National Accounts, Distribution of Household Income, Consumption and Wealth, 2003-04 to 2011-12 (cat. no. 5204.0.55.011), Methodology - Changing Demographics Over Time. In this release, dollars per household were applied to account for demographic shifts. It should be noted that the ideal methodology to capture demographic shifts accurately is to undertake longitudinal (panel) surveys such as the Melbourne Institutes 'Household, Income and Labour Dynamics in Australia' (HILDA). However, it should be noted these types of surveys would be extremely expensive to undertake with the sample size required to produce robust detail distributional information such as what is produced by the current ABS micro surveys.

To assist users in understanding the size of the demographic shift, the tables below provide the proportion of households in each household distributional indicator.

Table 4.1 Proportion of households, by household indicator, 2003-04 to 2017-18

Income2003-042005-062007-082009-102011-122013-142015-162017-18
Total Number of Households
7 954 585
8 160 856
8 327 818
8 664 856
8 912 566
9 150 897
9 246 191
9 275 076
Main Source of Income (%)        
 Wages and salaries
56.0
57.6
60.1
59.5
59.8
59.8
59.3
59.8
 Income from Unincorporated Business
8.1
8.0
8.2
7.8
7.3
7.3
7.7
7.3
 Property income & Superannuation
8.6
8.8
8.4
7.9
8.5
8.5
7.7
7.0
 Government pensions & allowances
25.9
24.3
22.0
23.7
23.3
23.2
24.0
24.7
 Other
1.3
1.3
1.3
1.1
1.1
1.1
1.3
1.2
Household Composition (%)        
 Lone person under 65
16.4
16.6
16.1
16.1
15.7
15.7
15.0
15.3
 Lone person 65 and over
10.7
10.8
10.6
10.3
10.8
10.7
11.5
12.6
 One parent with dependent children
6.7
6.7
6.0
6.2
5.7
5.7
5.5
5.6
 Couple only, reference person under 65
17.2
16.8
17.2
16.9
16.2
16.2
15.1
15.9
 Couple only, reference person 65 and over
8.3
8.3
8.6
8.6
9.0
9.0
9.8
8.8
 Two adults or more with dependent children
27.2
26.4
26.8
26.8
26.8
26.8
28.2
26.2
 Other
13.6
14.4
14.7
15.1
15.9
15.9
14.9
15.6
Age of Reference Person (years) (%)        
 15-24
4.5
5.0
4.6
4.2
4.1
4.1
3.5
4.1
 25-34
17.8
17.2
16.3
16.4
16.0
16.0
16.0
16.0
 35-44
21.7
21.1
20.1
20.2
19.5
19.5
18.5
19.5
 45-54
20.2
19.9
20.2
19.9
19.9
19.9
19.5
19.9
 55-64
14.7
15.6
16.4
17.1
17.5
17.5
17.3
17.5
 65+
21.1
21.2
22.3
22.2
23.0
23.0
25.2
23.0
Equivalised Disposable Income Quintiles (%)
20.9
20.9
20.9
20.9
21.0
21.0
20.9
20.9
 Lowest
20.2
20.2
20.1
20.1
20.0
20.0
20.2
20.1
 Second
19.7
19.7
19.7
19.7
19.7
19.7
19.7
19.7
 Third  
19.6
19.6
19.6
19.6
19.6
19.6
19.6
19.6
 Fourth
19.6
19.6
19.7
19.7
19.7
19.7
19.7
19.7
 Highest        
Equivalised Disposable Net Worth Quintiles(%)        
 Lowest
20.9
20.9
20.9
20.9
21.0
21.0
20.9
20.9
 Second
20.2
20.2
20.1
20.1
20.0
20.0
20.1
20.1
 Third  
19.7
19.7
19.7
19.7
19.7
19.7
19.7
19.7
 Fourth
19.6
19.6
19.6
19.6
19.6
19.6
19.6
19.6
 Highest
19.6
19.6
19.7
19.7
19.7
19.7
19.7
19.7


The number of households in the equivalised income and net worth quintiles when distributed to the in scope micro survey population was 20% of households for each quintile. However, when the VRC and NPD populations (out of scope for the micro surveys) are included, the proportion of households in each quintile marginally moves away from 20% as illustrated in the table above.

Time series analysis included in the release

The release includes the following tables to:

  • analyse how household distributional groups have contributed to total growth of income, consumption and wealth - electronic table 9. This 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;
  • remove demographic shifts, the method used in this release is dollars per household - electronic table 3 and 4;
  • analyse household groups per household growth in income, consumption and wealth - electronic table 10;
  • analyse contributions by component (income, consumption and net worth) to a household group's growth per household of gross disposable income, house final consumption expenditure, net worth and actual final consumption - electronic table 5 to 8; and
  • 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 - electronic table 11.
     

Strengths and weaknesses of time series

To enable users to interpret the data of the time series, the strengths and weaknesses of the time series are presented below.

Strengths

The time series of the distributed household income, consumption and wealth data:

  • is benchmarked to the aggregates published in Australian System of National Accounts, 2017-18, (cat. no. 5204.0), which enables users to interpret household distributional data within the broader context of published estimates on the Australian economy such as gross domestic product (GDP);
  • includes household distributional data for 2017-18, available five months from the end of the reference year, and therefore is the most up to date distributional data on households publicly available;
  • is complete and consistent for the years presented, where data was missing linear interpolation and extrapolation modelling techniques have been implemented;
  • is based on and expands upon work undertaken in an Organisation for Economic Cooperation and Development (OECD) and Eurostat (European Union statistical commission) expert group for measuring disparities in a national accounts framework. As a result, the data set produced for this publication should be comparable with the distribution of household income, consumption and wealth in a national accounts framework performed by members of this expert group; and
  • may be extended with future data points and revised with new source data, enabling a more accurate and longer time series. The time series is based on robust methodology formulated through an international expert group, with the availability of new source data from ABS micro surveys (Survey of Income and Housing and Household Expenditure Survey) and revised aggregate data from the ASNA, the data presented in this release may be easily revised and updated with future data points.
     

Weakness

A major weakness of this data set are the relatively long intervals between collection years for the Household Expenditure Survey (HES) and, to a lesser extent, the Census of Population and Housing (Census). As a result:

  • due to the availability of only three time periods for the HES (2003-04, 2009-10 and 2015-16) and the unavailability of proxies for the time periods in between, the missing source data had to be interpolated or extrapolated. While linear movements were assumed for the purpose of interpolation and extrapolation, care should be taken when looking at the distributions of household consumption items for 2005-06, 2007-08, 2011-12, 2013-14 and 2017-18, as this assumption may not be accurate. An additional limitation on extrapolation is the estimates are based on past observations, increasing the possibility of error caused by the actual movement deviating from the past movement; and
  • due to the unavailability of data on the distribution of household income, consumption and wealth items for populations living in Very Remote Communities and in Non-Private Dwellings, estimates had to be made for these items using ABS Census data. However, as this issue only affected about 2% of households the impact of the missing source data is assumed to be very small.
     

The unavailability of the 2007-08 (wealth only) and 2017-18 SIH data, means that the missing micro data points are modelled. Similar to the model used for the missing years of HES data, the models to estimate the SIH data are based on past observations, increasing the possibility of error caused by the actual movement deviating from the past movement.

Due to the inclusion of the VRC and NPD populations into the distributed estimates from the surveyed population, the number of households in each of the income and net worth quintiles does not equal 20%. After the addition of the distributed estimates for VRC and NPD, the quintile proportion ranges from 19.6% to 21.0%. Please see Table 4.1 above for more detail.

It could be argued that the time series (electronic Table 1, 2, 9 and 11) represents static points of cross sectional data and therefore falls short of a strictly defined time series such as a time series from a longitudinal study (e.g. Melbourne Institute HILDA survey). That is, the data in these electronic tables do not account for demographic shifts in the time series which a longitudinal study would capture. Please refer to section above on "Changing Demographic Over Time " for the method used to capture demographic shifts in this release.

Finally, users are encouraged to read Chapter 4, "Methodological Issues", in the Information Paper: Australian National Accounts, Distribution of Household Income, Consumption and Wealth, 2009-10 (cat. no. 5204.0.55.009), to understand the issues in constructing a household distributional data set for a single time point.

Revisions

Revisions of estimates from the previous release are due to:

  • the implementation of revised national accounts aggregates from Australian System of National Accounts, 2017-18 (cat. no. 5204.0);
  • the implementation of revised national accounts data from Australian National Accounts: Finance and Wealth, June Quarter 2018, used to construct detail components for the national accounts net worth aggregates; and
  • new 2015-16 SIH, HES and Census data points impacting on linear interpolation methodology.

Bibliography

List of ABS publications

Glossary

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Actual individual consumption

To allow for the fact that the consumption of goods and services by households may be paid for, in cash or in kind, by the general government sector an alternative measure of consumption called actual individual consumption has been defined. It is measured by first separating government final consumption expenditure (GFCE) into individual and collective consumption. Individual consumption refers to services that are provided by general government to households which are consumed individually, for example health and education. Collective consumption, on the other hand, relates to the provision of public services such as policing and defence. Household actual individual consumption is measured as household final consumption expenditure plus individual consumption within GFCE. General government actual consumption is measured as GFCE less individual consumption. Actual consumption is a particularly useful measure for international comparison since countries often have different systems for providing individual services.

Compensation of employees

The total remuneration, in cash or in kind, payable by an enterprise to an employee in return for work done by the employee during the accounting period. It is further classified into two sub-components: wages and salaries; and employers’ social contributions (payments by employers which are intended to secure for their employees the entitlement to social benefits, such as employer superannuation contributions).

Currency and deposits

Currency consists of notes and coins that are of fixed nominal values and are issued or authorised by the central bank or government. For Australia the currency asset refers solely to domestic currency. There is little foreign currency in general circulation, and significant holdings are classified as foreign deposits. Deposits include both transferable and other deposits. Transferable deposits comprise all deposits that are exchangeable for bank notes and coins on demand at par and without penalty or restriction, and directly usable for making payments by cheque, draft, direct debit/credit or other direct payment facility. Other deposits comprise all claims, other than transferable deposits, that are represented by evidence of deposit. Typical forms of deposits that should be included are savings deposits (which are always non-transferable), fixed term deposits and non-negotiable certificates of deposit.

Final consumption expenditure

Final consumption expenditure is net expenditure on goods and services by persons and expenditure of a current nature by private non-profit institutions serving households. This item excludes expenditures by unincorporated businesses and expenditures on assets by non-profit institutions (included in gross fixed capital formation). Also excluded is expenditure on maintenance of dwellings (treated as intermediate expenses of private enterprises), but personal expenditure on motor vehicles and other durable goods and the imputed rent of owner occupied dwellings are included. The value of 'backyard' production (including food produced and consumed on farms) is included in household final consumption expenditure and the payment of wages and salaries in kind (e.g. food and lodging supplied free to employees) is counted in both household income and household final consumption expenditure.

Gross disposable income

Gross disposable income is gross household income less income tax payable, other current taxes on income, wealth etc., consumer debt interest, interest payable by unincorporated enterprises, net non-life insurance premiums and other current transfers payable by households.

Gross mixed income

The surplus or deficit accruing from production by unincorporated enterprises. It includes elements of both compensation of employees and operating surplus (returns on capital inputs).

Gross operating surplus - dwellings owned by persons

Dwelling "GOS" is the surplus resulting from deduction of intermediate inputs from output. Output is the sum of actual and imputed rent on dwellings owned by households. Intermediate inputs are the goods and services consumed in the process of production (for example maintenance costs and body corporate fees). These inputs exclude property income payments such as interest.

Income tax payable

Income tax consists of taxes on the income of households and taxes on wealth which are levied regularly (wealth taxes which are levied irregularly are classified as capital taxes and are recorded in the sectoral capital accounts).

Insurance technical reserves

Insurance technical reserves comprise financial assets that are reserves against reserves outstanding risks, reserves for with-profit insurance, prepayments of premiums and reserves against outstanding claims. Insurance technical reserves may be liabilities not only of life or non-life insurance enterprises (whether mutual or incorporated) but also of autonomous pension funds, which are included in the insurance enterprise sub-sector, and certain non-autonomous pension funds that are included in the institutional sector that manages the funds. Insurance technical reserves are subdivided between net equity of households on life insurance reserves and on pension funds, and prepayments of premiums and reserves against outstanding claims.

Interest payable

Household interest payable mainly consists of interest payable on loans on dwellings (mortgages).

Loans and placements

Loans are borrowings which are not evidenced by the issue of debt securities, and are not usually traded and their value does not decline even in a period of rising interest rates. Placements are customers’ account balances with entities not regarded as deposit-taking institutions. Examples are account balances of State and local public non-financial corporations with their central borrowing authorities, of public sector pension funds with their State Treasuries, and 11am money placed with corporate treasuries.

Property income receivable

Property income receivable is the income receivable by the owners of a financial asset or a tangible non-produced asset in return for providing funds. Household property income mainly consists of dividend and interest income earned directly and through superannuation and insurance reserves.

Residential dwellings and land

Residential dwellings and land is the portion of dwellings and land primarily used as household residences. Dwellings are buildings that are used entirely or primarily as residences, including any associated structures, such as garages, and all permanent fixtures customarily installed in residences. Houseboats, barges, mobile homes and caravans used as principal residences of households are also included, as are historic monuments identified primarily as dwellings. The costs of site clearance and preparation are also included in the value of dwellings. Land consists of the ground, including the soil covering and any associated surface waters, over which ownership rights are enforced and from which economic benefits can be derived by their owners by holding or using them.

Shares and other equity

Equity has the distinguishing feature that the holders own a residual claim on the assets of the institutional unit that issued the equity. Equity represents the owner’s funds in the institutional unit. Equities are sub-divided into listed shares and unlisted shares; both types of shares are negotiable and so are classified as equity securities.

Social assistance benefits

Includes current transfers to persons from general government in return for which no services are rendered or goods supplied. Principal components include: scholarships; maternity, sickness and unemployment benefits; family allowances; and widows', age, invalid and repatriation pensions.

Social transfers in kind

Social transfers in kind are individual goods and services provided to individual households by general government units and non-profit institutions either free or at prices that are not economically significant, examples are education and health services.

Superannuation benefits received (memorandum item)

Superannuation benefits received are recorded in this information paper as a memorandum item of the household income account. Superannuation benefits received in the ASNA are treated as financial transactions of households and are not recorded as income; instead they are recorded in the financial account and balance sheet.

Abbreviations

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ABSAustralian Bureau of Statistics
ADIadjusted disposable income
AICactual individual consumption
ASNAAustralian System of National Accounts
COEcompensation of employees
FISIMfinancial intermediation services indirectly measured
HESHousehold Expenditure Survey
HFCEhousehold final consumption expenditure
HILDAHousehold, Income and Labour Dynamics
G-20Group of Twenty
GDIgross disposable income
GFCGlobal Financial Crisis
GFCEgovernment final consumption expenditure
GMIGross mixed income
GOSGross operating surplus
ITRinsurance technical reserve
MSImain source of income
NPDnon-private dwellings
NPINon-Profit Institution
NPISHnon-profit institution serving household
NSOsnational statistical offices
OECDOrganisation for Economic Cooperation and Development
RBAReserve Bank of Australia
SIHSurvey of Income and Housing
SNASystem of National Accounts
STiKsocial transfers in kind
VRCvery remote communities