Income Decomposition of Australian Household 2016

Using the latest dataset from ABS and the STINMOD+ model, we are able to analyse the income composition of Australian households living in private dwellings. We compare the source of income by five different levels of gross household income (before tax and transfer). Our modelling suggests that the bottom 20% heavily relies on government payments, as their private income (such as wage, investment earnings) on average contributes to about 3% of the household disposable income while the income taxes are mostly paid by the households in the top two quintiles.

There is also a considerable gap between the absolute income level. The lowest 20% of households has an average net income of less than $30,000 while the highest 20% of households has an net income of more than $200,000 annually. It should be noted that the households are ranked by their gross income which means the lower income groups have a higher proportion of smaller households, e.g. single person households, than the higher income groups.

In terms of tax and transfer, our modelling suggests around 45% of Australian households receive more welfare benefits (including rebates) than the amount of income tax (including Medicare) they contribute. Note this does not necessarily mean these households do not pay net tax at all. They may still contribute to the tax revenue via other channels, e.g. GST, land tax etc.

If we look at the income source by family type, it is not surprising that lone-parent families are the ones most dependent on the government payment.

Modelling Methodology

The model used for estimating the impact of the budget measure is a microsimulation model called STINMOD+. Microsimulation models apply the Commonwealth Government tax and transfer rules to data at the individual and household level. This means complex Government Tax/Transfer policies can be modelled, incorporating complex interactions between different policies. The same kind of models are used extensively by the Commonwealth Government in Australia, and government worldwide. STINMOD+ primarily focuses on the ‘day after’ impact of a policy. The analysis in this case does not include the second round impact such as behaviour shifts. This is the same type of model as used by the Commonwealth to estimate the impact of proposed tax/transfer policies.

Data used in this work is derived from multiple sources, including the ABS Survey of Income and Housing, Household Income and Labour Dynamics of Australia, ATO Taxation Statistics – Individual sample files, ABS Labour Force Survey and various other statistics published by the ABS.

Please note these estimates may be different from the actual characteristics of the population because of sampling and non-sampling errors in the microdata and because of the assumptions underlying the modelling techniques. The microdata used does not contain any information that enables identification of the individuals or families to which they refer.

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