New data from the Australian Bureau of Statistics reveals average household incomes have fallen over the past two years and remain almost flat in real terms since the global financial crisis hit in 2008. While this stagnant growth has also seen income inequality decrease marginally over the past two years, wealth inequality continues to grow as the booming housing market sees wealth grow on the back of households taking on more debt than ever before.
Every two years the ABS conducts a survey of household income and wealth. The latest survey, covering 2015-16, reveals that average gross annual income of Australian households fell from $110,565 in 2013-14 to $109,668:
But this doesn’t tell us a great deal about standards of living as that figure is just an average of all households and doesn’t take into account the different sizes of each household.
A single person on $109,668 and a family of four living on the same amount might both be households on the average income, but clearly the single person has a much higher standard of living.
That is why the ABS also calculates the equivalised household disposable income, which takes into account the size of households and taxes paid. In 2015-16, the average annual equivalised household disposable income was $52,468 – down on the $53,508 in 2013-14 and little changed from the $51,064 in 2007-08:
In the two years from 2013-14 to 2015-16 only households in the lowest and the second-highest income quintiles saw their income grow – up 0.2% and 0.7% respectively.
Households in the richest 20% saw their income fall by 4.4% – marking a continuation of the lean income growth for the richest since the GFC hit in 2007-08:
It has meant that in the past two years, income inequality has generally fallen, although it still remains well above where it was prior to the mining boom years:
In 2015-16, the richest 20% held 39.8% of the total household income – down from its 40.8% share in 2013-15 but above the 39.5% share in 2011-12:
The middle-income 20% of households in Australia held around 17% of total income – a level relatively stable since 2007-08.
But how much income you need to be in a middle-income Australian household depends on the size of your household.
While the average equivalised disposable income in 2015-16 was $52,486, the median income is lower because higher incomes skew the average upwards.
The median income marks the points at which 50% of households earn more and 50% earn less. For a single person the median disposable income is $44,356 – equivalent to earning around $52,900 before tax.
But if you are a family of four you need to earn more money to have a similar standard of living as that single person – you have more mouths to feed, more people to clothe, keep warm, etc.
For a family with two adults and two children under 15, the median household income is $93,475. Using the standard 70/30 income split that would mean one adult earns around $84,700 before tax while the other earns $29,800.
Conversely, a family of four in the richest 10% has a disposable income of $186,186 – for a 70/30 split of one parent on $189,000 and the other earning $70,000:
These also reveal that scares about growing welfare dependence really need to be consigned to the dustbin.
For the first time in the survey’s history, more than half of all Australian households gained less than 1% of their income from government pensions and allowances. While there was an increase in the share of households that receive over 90% of their income from pensions (to be expected given the ageing population), anyone looking for signs of Australians becoming increasingly dependent upon welfare will struggle to find the facts matching their myths:
The proportion of households whose main source of income is pensions and allowances has fallen steadily since the depth of the GFC in 2009-10 and the current level is the second lowest ever recorded:
But while incomes have been stagnant, household wealth has not been. In 2015-16, the average net worth of all Australian households was $519,800, up from $467,100 in 2013-14:
Unlike with income, wealth increased across all households – except the lowest quintile – due largely to increases in the value of property and driven by large increases in debt.
In 2015-16, the median level of debt was greater than annual income for the first time. It also saw a record level of households with debt greater than three times their income – a key indicator of “over indebtedness”:
It has led to a situation where more households than ever before hold a mortgage – 37%, up from 32% at the start of the century, but where the number of households who have paid off their mortgage has shrunk – from 38% in 2000-01 to now just 30%:
But while home ownership on average has fallen, it hasn’t for the highest-income households. Seventy-eight per cent of households in the highest-income quintile either owned their home outright or were paying off a mortgage – the largest amount this century. By contrast, households in the median-income quintile are less likely to be home owners than any time since 2000:
The level and growth of wealth highlights that while income growth and inequality might be flat, wealth inequality has skyrocketed in the past decade:
The net worth of households in the 90th wealth percentile (ie wealthier than 89% of households) has risen 33% compared with 20% for median households.
It leaves us with a situation where the richest 20% hold 40% of total household income, but 63% of household wealth. Conversely, while the poorest 20% have 8% of the nation’s income, they don’t hold even 1% of its wealth:
The latest income and wealth survey does give some succour to the treasurer’s suggestion that inequality is improving – or at least not getting much worse.
Mostly, however, inequality has improved because the incomes of richer households has fallen by more than median households, rather than the preferred case of all incomes rising, but with median low incomes rising faster.
But on wealth side, the picture remains very much that of a divided nation.
Wealth driven by high debt levels and rising house prices has been good for those already in the properly market but flat incomes combined with rising property prices has lowered the home ownership rates of median and low-income earners – thus further exacerbating the disparity of wealth across the nation.
- Greg Jericho is a Guardian Australia columnist
