An interesting article published in The New Daily by journalist Alan Austin “It’s official. Regular Australians are getting poorer” argues that household income is declining. The measure used is gross disposable household income (GDHI), an aggregate measure of income.
This is an overview of the components of GDHI, taken from ABS 5216.
Austin states the data is released quarterly in the financial national accounts (ABS 5232) but is actually released earlier in the national accounts (ABS 5206). There are some problems with the data Austin uses.
First, the time series in the financial national accounts only begins in 1989Q3, is original and does not include measures of interest paid, the latter of which is essential in developing an accurate measure of household income. This is the methodology used by authorities in statistical development, for instance, the RBA and BIS.
The series in the national accounts, however, begins in 1959Q3, is available in original, seasonally-adjusted and trend terms, and includes measures of interest paid. This is superior to the GDHI time series in the financial national accounts.
Unfortunately, some of the commentary in the article examines the changes in GDHI in original and nominal terms, which is not overly accurate given the volatility in original time series and the effects of consumer price inflation. Austin, however, does later comment on the data in real terms.
The graph illustrates the trend in real GDHI from 1981Q3 onward but tells us little unless it is compared to the number of households. While the ABS has various estimates of households on an annual basis, a quarterly series would be preferable.
Our estimations demonstrate that the stock of residential dwellings, incorporating a 5 per cent markdown, is remarkably close to ABS approximations of households. This makes sense as households occupy dwellings with a small remainder of dwellings held vacant.
The next graph demonstrates real GDHI divided by the estimate of households from 1981Q3 onward (LF Economics’ quarterly time series of dwellings begins in this quarter, even though GDHI is available from 1959Q3 onward).
Three periods are obvious. The first is from 1981Q3 to 1996Q3, where real GDHI per household was flat. This likely stems from high inflation eroding nominal wages and employer contributions, and the high unemployment due to the two recessions.
The second period between 1996Q3 and 2009Q2 demonstrates a strong rise in real GDHI per household from $93k to $130k on an annual basis. Remember, this is income per household, not per capita or wage earnings (average weekly earnings).
The third phase is from 2009Q2 onward. Although the mining boom helped the economy recover from the GFC, it was short lived with a peak of $136k in 2012Q2, and has since declined. It is currently $131k as of 2017Q1, retracing to 2010Q4. As a measure of living standards (there are many others), Australian households have not improved their financial circumstances for seven years.
Although population growth (and hence households) adds to GDHI, it has now resulted in low wage growth, which has pulled GDHI down to 2% annual growth in nominal terms (in aggregate terms, wage growth is best indicated by compensation of employees). With inflation running at a similar rate, real GDHI is around zero.
The benefit to GDHI from population growth is overwhelmed in per household terms. This is the legacy of our out-of-control immigration program (population quantitative easing or PopQE).
There are of course other factors causing low wage growth, such as extreme private indebtedness, financialisation, anaemic economic growth and lack of productivity-enhancing reforms. This includes a government unwilling to take on concentrations of capital where productivity is declining.
As the economy continues to stumble onward, the effects of poor wage growth, inflation and PopQE will continue to pull real GDHI per household down. There is little evidence to suggest real GDHI per household will rise considerably in the future, thus endangering our living standards.