Department of Premier and Cabinet
Cost of Living in Tasmania
companion report 1 - the datA
OCTOBER 2011
TABLE OF CONTENTS
INTRODUCTION 2
Costs – prices and expenditure 3
The CPI: measuring inflation and cost of living? 5
The Analytical Living Cost Indexes for Selected Australian Household Types 6
Price 7
Expenditure 11
RELATIVE PRICE INDEX 14
Introduction 14
Disproportionate impacts of price 15
Utilities 16
Food 20
Housing 21
Rent 23
Health 25
Transport 26
Urban Transport Fares 27
Education 28
Recreation 30
Alcohol and Tobacco 31
Cumulative impact of cost of living 33
Income modelling 36
Households at risk 42
The distribution of at-risk households 46
Conclusion 49
Introduction
Social and economic commentary on cost of living often focuses on consumption, referring to the rate of inflation, how this is used to set official interest rates, the rate of increase of incomes and costs, unemployment and workforce participation levels.
While useful as macro-economic indicators, their application to understanding micro-economic effects, at the household or local level, becomes problematic due to particular household characteristics being lost in aggregated data.
Cost of living is also a difficult concept to define and measure as it includes consideration of prices, income and economic resources, expenditure, financial stress and assumptions about standards of living.
Quantitative data on these measures provides an indication of overall trends, but it has limitations. Some datasets provide data only at the national level, making it difficult to draw conclusions about cost of living pressures specific to Tasmania. Also some of the data is dated and, as a result, may not fully capture the situation as it exists in 2011[1].
The aim in examining cost of living pressures in Tasmania was broken down into investigation of:
• cost, made up of price and expenditure;
• the Consumer Price Index (CPI) and its reference and use as a cost of living measure;
• household cost pressures and differences between Tasmania and Australia;
• cumulative impacts of multiple cost pressures;
• the financial resources available to Tasmanians and at-risk households; and
• the distribution of at-risk households in Tasmania.
This required analyses at the most disaggregated household level possible for Tasmania. Two analytical methods were used for the investigation and are covered in this report, these were:
1) data from the Relative Price Index (RPI) model, developed by Dufty and Macmillan[2], and the Stinmod and SpatialMSM model, developed by the National Centre for Social and Economic Modelling (NATSEM)
2) publically available data from the Australian Bureau of Statistics (ABS) contained in Appendix 1.
Although data from both methods are referenced in A Cost of Living Strategy for Tasmania, the Cost of Living Issues section of the Strategy relies on the first method, as it was designed to provide household expenditure and financial indicators at a disaggregated level, therefore meeting the aim of the analysis.
Importantly, the data points to households and places that face greater cost pressures than others, signposting where policy work needs to be directed. Although the analysis highlights that low income households face greater cost pressures, the data does not indicate why expenditure levels are higher for some households. The value of the analysis is to connect the data with other information sources of hardship, such as community sector reports, so the full picture is built on the impact of cost pressures on households. This qualitative analysis is covered in Companion Report 2 – Impacts and responses.
Costs – prices and expenditure
When broken down, household costs are made up of the amount or quantity of goods and services that a household purchases, multiplied by its price. Three main datasets that contribute to understanding costs are the ABS’ CPI and Household Expenditure Survey (HES), and indexes that combine these two together, such as the ABS’ Analytical Living Cost Indexes for Selected Australian Household Types[3] (ALCI), and the RPI.
Prices
To measure prices of any item, charges per unit of sale need to be measured, and what constitutes a charge and a unit. For example, to measure the price of electricity to a consumer, it needs to be established whether or not to include the cost of generation, delivery, and retail overheads, along an established position on a unit of electricity (usually a kilowatt hour – KWh). Other factors that can contribute to understanding a price for a service include charges for dis/connection, late payment fees and fixed charges to cover costs such as meters.
To compare actual prices across all the goods and services that households commonly consume is beyond the scope of this analysis. Therefore, this analysis looks at price-change through the CPI, focussing on the main price groups of the CPI basket and some sub-groups. This includes food and the major areas that governments have an oversight role in or directly deliver – housing, health, transportation and education. These five price groups are referred to as essential services. Within the CPI basket there are eleven price groups and many sub-groups, which are explained further below.
CPI Price groups, sub-groups and expenditure classes
The ABS uses a hierarchical classification method for grouping items within the CPI. The hierarchy starts with the ‘All groups’, which represents the complete ‘basket’ of goods and services that are sampled for price change each quarter and which represents the overall CPI. The categories of prices the ABS uses increases in detail and size as it is disaggregated into price groups, sub-groups, expenditure classes, elementary aggregates and finally prices.
Table 1 outlines the ABS CPI price categories for price groups, sub-groups and expenditure class levels.
Table 1: CPI classifications
|Price group / Sub group |Expenditure class |
|Food | |
|Dairy and related products |Milk, Cheese, Ice cream and other dairy products |
|Bread and cereal products |Bread, Cakes and biscuits, Breakfast cereals, Other cereal products |
|Meat and seafoods |Beef and veal, Lamb and mutton, Pork, Poultry, Bacon and ham, Other fresh and |
| |processed meat, Fish and other seafood |
|Fruit and vegetables |Fruit, Vegetables |
|Non-alcoholic drinks and snack food |Soft drinks, waters and juices, Snacks and confectionery |
|Meals out and take away foods |Restaurant meals, Take away and fast foods |
|Other food |Eggs, Jams, honey and sandwich spreads, Tea, coffee and food drinks, Food |
| |additives and condiments, Fats and oils, Food n.e.c. |
|Alcohol and tobacco | |
|Alcoholic drinks |Beer, Wine, Spirits |
|Tobacco | |
|Clothing and footwear | |
|Men's clothing |Men's outerwear, Men's underwear, nightwear and socks |
|Women's clothing |Women's outerwear, Women's underwear, nightwear and hosiery |
|Children's and infants' clothing |Children's and infants' clothing |
|Footwear |Men's footwear, Women's footwear, Children's footwear |
|Accessories and clothing services |Accessories, Clothing services and shoe repair |
|Housing | |
|Rents |Rents |
|Utilities |Electricity, Gas and other household fuels, Water and sewerage |
|Other housing |House purchase, Property rates and charges, House repairs and maintenance |
|Household contents and services | |
|Furniture and furnishings |Furniture, Floor and window coverings, Towels and linen |
|Household appliances, utensils and tools |Major household appliances, Small electric household appliances, Glassware, |
| |tableware and household utensils, Tools |
|Household supplies |Household cleaning agents, Toiletries and personal care products, Other household|
| |supplies |
|Household services |Child care, Hairdressing and personal care services, Other household services |
|Health | |
|Health services |Hospital and medical services, Optical services, Dental services |
|Pharmaceuticals |Pharmaceuticals |
|Transportation | |
|Private motoring |Motor vehicles, Automotive fuel, Motor vehicle repair and servicing, Motor |
| |vehicle parts and accessories, Other motoring charges |
|Urban transport fares |Urban transport fares |
|Communication | Postal, Telecommunication |
|Recreation | |
|Audio, visual and computing |Audio, visual and computing equipment, Audio, visual and computing media and |
| |services |
|Books, newspapers and magazines |Books, Newspapers and magazines |
|Sport and other recreation |Sports and recreational equipment, Toys, games and hobbies, Sports participation,|
| |Pets, pet foods and supplies, Pet services including veterinary, Other |
| |recreational activities |
|Holiday travel and accommodation |Domestic holiday travel and accommodation, Overseas holiday travel and |
| |accommodation |
|Education | Preschool and primary education, Secondary education, Tertiary education |
|Financial and insurance services | |
|Financial services |Deposit and loan facilities, Other financial services |
|Insurance services |Insurance services |
The CPI: measuring inflation and cost of living?
The CPI provides a general measure of the change in prices of goods and services purchased by Australian households and therefore the rate of inflation.
The CPI is regarded as Australia’s key measure of inflation. It measures the price inflation experienced by households and informs the community about changes to the real purchasing power of consumers' incomes[4].
Quarterly surveys for the CPI are conducted in capital cities to monitor inflation across the basket of goods and services. The CPI aims to represent the average expenditure, therefore it has to keep constant the composition of the basket as well as the quantities of the goods and services purchased. This is to ensure the CPI represents price and its movement over time as accurately as possible. The quantity weights are updated after each HES, through a CPI series update. The quantity weights are used to multiply the quarterly CPI price data to build price indexes for specific items, which in turn contribute to the overall Australian CPI.
The capital city indexes that contribute to the CPI measure price movements over time in each city individually and do not measure differences in retail price levels between cities. Additionally, there is currently no measure to capture price changes for rural or regional areas of Australia.
Although a detailed description of the limitations of the CPI as a cost of living index is provided in Appendix 1, the following points are relevant in summary of the limitations of the CPI.
The CPI is built to reflect national and capital city price movements, for this purpose it:
• is an average of prices across Australian capital cities;
• does not have representation from regional cities and towns;
• has a bias in sample size towards the largest capital cities; and
• sets variation in the quantity component of the expenditure equation and applies these as averages for all of Australia, when consumption will vary by household and location.
As the CPI measures average consumption for a notional household, it does not reflect how changes in prices impact differently on specific households, such as various income groups and family composition households, resulting from different patterns of consumption. Importantly, it does not reflect the disproportionate effect of the price rise in essentials on low income consumers. For different households in different stages of the lifecycle, these cost pressures can be considerable.
The CPI is often used as an indexation reference for various Commonwealth and State income support payments[5] and concessions. As discussed, inflation and cost of living indicators are two separate constructs, and the former does not match the impact that price and expenditure has on households and which income support and concession payments aim to assist.
The Commonwealth’s compensation package for the carbon price will also be indexed to the CPI. The Commonwealth notes that the impact of the carbon price is based on estimates for the average household, and that actual expenditure may vary depending on “household size, composition, expenditure preferences and energy sources”[6]. This analysis highlights the extent that indexation to the CPI will not meet expenditure for specific households.
The Analytical Living Cost Indexes for Selected Australian Household Types
The ALCIs[7] are specifically designed to measure changes in living costs for four selected population subgroups:
• Employee households[8];
• Age pensioner households[9];
• Other government transfer recipient households[10]; and
• Self-funded retiree households[11].
Main conceptual differences between CPI and ALCI
A living cost index reflects changes over time in the purchasing power of the after-tax incomes of households. It measures the impact of changes in prices on the out-of-pocket expenses incurred by households to gain access to a fixed basket of consumer goods and services.
The CPI, on the other hand, is designed to measure price inflation for the household sector as a whole and is not the conceptually ideal measure for assessing the changes in the purchasing power of the disposable incomes of households.
CPI estimates are calculated separately for each of the eight capital cities. While whole of population subgroup estimates for the ALCI can only be calculated at the national level, due to the small sample size.
The CPI uses an acquisitions approach, while the ALCIs use an outlays approach. In practice, for most goods and services purchased by the reference population, outlays and acquisition occur within a relatively short space of time. There are three areas of expenditure in which these conceptual approaches provide significantly different results[12]:
• purchase of dwellings
• purchase of durable items
• financial services and the use of credit.
Although the ALCIs are further detailed in Appendix 1, some of the main differences in item coverage are highlighted in Table 2 below.
Table2: Differences from CPI and ALCI
|Item coverage |CPI |ALCI |
|Net purchase of housing and the increase in volume of housing due to |Included |Not included |
|renovations and extensions | | |
|Interest paid on mortgages |Not included |Included |
|Maintenance costs and council rates |Included |Included |
|Consumer credit charges |Not included |Included |
|Insurance premiums paid by households less the amounts reimbursed by way of |Included |Not included |
|claims | | |
|Gross value of insurance premiums paid by households |Not included |Included |
Price
Jurisdictional price comparisons
Although jurisdictional comparisons for changes in price are covered in Appendix 1, some comparisons and explanation of CPI methodology is warranted.
The following uses electricity as an example of what constitutes a price and a unit for sale. The ABS obtains electricity charges quarterly from energy authorities, and both concessional and standard rates are priced. Current charges are applied to estimates of annual consumption to derive the annual payment in the current quarter's prices. Connection fees, delivery and similar charges are included as part of the price[13]. Therefore a calculation takes place to alter average annualised consumption of electricity and its price into quarters. The term ‘CPI price of electricity’ is therefore not strictly price, as would be seen on an Aurora bill, which indicates per unit charges for the different tariffs a customer uses.
Tasmania has the highest average consumption of electricity per capita, which would contribute to placing it as the highest in a jurisdiction comparison, as seen in Figure 1. Tasmania, along with other jurisdictions, has had large price changes in recent years. Most capital cities, except Darwin and Perth, have had increasing price movement in the last ten years that is substantially above the CPI. Hobart was no exception, and in 2010 and 2011 experienced a continued increase when other capital cities, such as Adelaide and Melbourne declined.
Figure 1: Inter-jurisdictional comparison of movement in electricity prices
[pic]
Another example of the difficulty of measuring prices is seen with hospital and medical expenses, an expenditure class of the Health price group. Once price and units of medical services are established, the issue of subsidies is examined. The ABS examines the medical services that are subject to subsidies under the Medicare Benefits Schedule, measured using administrative data and a sample of services seen as representative of the consumption of the population. Again, data is obtained quarterly and includes pricing data for services provided, bulk billing and rebates for services, so that net prices are shown[14]. Figure 2 indicates inter-jurisdictional price movements for hospital and medical services.
Figure 2: Inter-jurisdictional comparison of movement in hospital and medical prices
[pic]
Goods such as food present their own issues when considering the need to maintain the quality of goods within the CPI, as the CPI represents a ‘fixed-basket’ of goods and services. The term ‘fixed-basket’ is used as the ABS aims to keep the contents of the basket fixed, so that prices of group, such as food, is relative to the same group of food throughout the life of the index. For example, a brand of sauce may come and go over the life of the food index, but the sauce type needs to be replaced when it does, so the price contribution of sauce to the index can be maintained. Figure 3 compares food price changes between jurisdictions.
Figure 3: Inter-jurisdictional comparison of movement in food prices
[pic]
Tasmanian price movements
Over the past five years, the prices of some items in the CPI basket of goods and services have been flat or falling, while others have been rising. Due to factors such market demand being met through low-cost imports and Australia’s foreign exchange rate, some items such as new cars, furniture, electronic goods, TVs and computers, and clothing have either decreased or increased less in price than the overall inflation rate.
Figure 4 shows the difference in percentage between essential services and the Hobart CPI[15]. Housing has been disaggregated to show its sub-components of rents and utilities (which includes electricity, gas and other household fuels, and water and sewerage). Many essential services have increased above the CPI over the last five years (from the March 2006 to March 2011 quarters), with utilities increasing the most.
Figure 4: Difference in price change between the CPI and essential services
[pic]
When viewing other prices, high price increases for essential services are offset by prices in other areas that are below the CPI. This balances out the notional ‘average household cost’ represented by the CPI.
Figure 5: Difference in price change between the CPI and other price groups
[pic]
Expenditure
Households have varying expenditure patterns and varying capacities to absorb price increases. Households have different expenditure patterns based on the life cycle of its occupants, number of household members, location and financial resources. In order to maintain their standard of living, people change their spending habits when confronted with difficult cost choices. They ration or substitute, or sometimes go without. Australia has no true cost-of-living index that takes such actions into account.
The discourse on poverty, deprivation and cost of living includes the subjectivity on what is considered essential and therefore non-discretionary and discretionary spending. Community expectations have helped define what is acceptable for a modern standard of living. For example, while the CPI price groups of communications and recreation may be considered non-essential and therefore linked to discretionary spending, the internet (CPI group - communications) is important for accessing the increasing number of public and private services online and a holiday (CPI group - recreation) once a year is considered important in balancing work/life commitments and avoiding deprivation[16].
Figure 6 indicates expenditure patterns for the all-households group across the CPI price groups for Australia. The term all-households is used for expenditure data that has not been disaggregated into particular household types and it is the household type that represents the average expenditure.
Figure 6: Australian all-households expenditure
[pic]
When examining the housing sub-groups for Australian expenditure, Figure 7 shows the expenditure amounts as a percentage for the items constituting housing, which are, rents (4.8%), utilities (2.8%) and other housing (13.2%).
Figure 7 also shows the utilities sub-group for Australian expenditure. The expenditure percentages for the items constituting utilities are, electricity (1.6%), gas and other household fuels (0.5%), and water and sewerage (0.7%).
Figure 7: Australian expenditure, housing sub-groups and utilities expenditure classes
|[pic] |[pic] |
Figure 8 indicates expenditure patterns for the all-households group for Tasmania, which represents the average expenditure, across the CPI price groups.
Figure 8: Tasmanian all-households expenditure
[pic]
When examining the housing sub-groups for Tasmanian expenditure, Figure 9 shows the expenditure amounts as a percentage for the items constituting housing, which are, rents (3.4%), utilities (3.4%) and other housing (13.8%).
Figure 9 also shows that the utilities sub-group for Tasmanian expenditure is constituted from electricity (2.8%), gas and other household fuels (0.4%), and water and sewerage (0.1%).
Figure 9: Tasmanian expenditure, housing sub-groups and utilities expenditure classes
|[pic] |[pic] |
RELATIVE PRICE INDEX
Introduction
The RPI model utilises HES expenditure data by various income, family composition and tenure types, for Australia or Tasmania where HES sampling was sufficient for the ABS to supply expenditure data at its most disaggregated form[17].
The benefit of the model is that when used with CPI derived expenditure weights, the average expenditure of the RPI aligns to the CPI as a proof of concept. When the quantities are modified by HES expenditure data for particular households, the model provides indicative indexes of expenditure across the CPI basket for particular household types. Analysis of this expenditure provides a method for understanding cost of living pressures.
Unlike the Strategy, this report contains all RPI household types analysed for cost of living impacts. The strategy contains a reduced set of the full RPI households to provide a sample of household types across income source and level, tenure and family composition. The sample was also chosen to reduce the likelihood of representing the same or similar population cohort, as the households are not mutually exclusive.
There are six main groups of households used in this report, from which samples were used for the Strategy. Attachment 1 contains further detail on the household groups, their definitions and use in the Strategy. In summary, the groups are:
• The All-households type. This household represents the average expenditure for the specified region (Tasmania or Australia).
• Contribution of government pensions and allowances (GPA) to income group. The GPA household types include household expenditure divided into four categories, defined by the percentage that GPA’s contribute to the household’s income. The ranges are 1-20%, 20-50%, 50-90% and 90-100%. These households have a limit to the incomes they receive, for example the GPA, 90-100% household receives at least 90% of its income from pensions and allowances, which is means-tested by the Commonwealth to meet eligibility requirements.
• Income quintile and decile group. The quintile group has five household types within it, defined by income ranges (or quintiles). The lowest income range is the first quintile household, followed by the second, third, fourth and highest (fifth) quintile.
The decile group has ten households within it, which are also defined by income ranges. There are ten income ranges (or deciles), with the lowest income household being the first decile. This analysis does not use any of the individual decile households, it uses expenditure data for the combination of the second and third decile households, as this is accepted by the ABS to be the most accurate representation of low income households.
• The income source group. This group is defined by the source of income. This includes, households receiving different types of government pensions and allowances, income from a business, wages and salaries and other income sources, which includes superannuation. Again, households such those receiving government pensions and allowances would have limited income due to the eligibility requirements set by the Commonwealth.
• The family composition group. This group is defined by the family composition and includes couple and single families with or without dependent children.
• The tenure type group. This group is defined by the tenure of the household, which includes households that own or are purchasing their home, with and without a mortgage, and those households renting.
Disproportionate impacts of price
The following information explains household expenditure modelled through the RPI. As the RPI utilises CPI price data and HES expenditure data, the CPI price indexes and expenditure data are further explained below.
Price Groups
General observation of the CPI price groups show that:
• The Australian economy has seen long term general growth, therefore it is an inflationary, not deflationary economy. This means that many price indexes are increasing and the purchasing power of money is being de-valued. The rate of growth is an important economic indicator and is often measured as an annual percent change, which is an economic indicator referred to as the annual rate of inflation.
• According to Reserve Bank objectives, the desirable annual rate of inflation should be between 2% and 3%. Average annual movements in the CPI for both Hobart and for Australia have been broadly in line with this aim over the past five years . Inflation can impose additional cost burdens on households. Rises in inflation can reduce the purchasing power of money and put pressure on wages[18].
• The rate of change in an index is critical to understanding cost pressures. This is reflected in a price group’s rate of change over time, where a steady increase can strain household budgets. Volatility seen through jumps in price within a short period of time are price shocks, where a dramatic increase in price impacts on a household’s ability to cash flow costs during a short period of income. When price shocks are combined with any strain already underway, households with low financial resources are left with little to no capacity to absorb price movements, leading to financial crisis.
• The introduction of the Goods and Services Tax in June 2000 generated price increases across most groups.
• Indexes for regulated prices often appear stepped, as pricing policy is implemented from the beginning of the financial or calendar year. Other stepped price increases are due to the sampling of the CPI survey process, where annual prices are determined then divided into quarterly amounts to determine their contribution to a quarterly index. Notwithstanding the role of regulators, price change for essential services is often above the CPI for Australia.
• Although price groups sampled in the analysis are above the CPI, other price groups are below, generating the average that is the CPI.
To explain some of these points, the price movement for the housing sub-group of utilities is detailed below.
Utilities
Figure 10: Utilities CPI index, Hobart
[pic]
When looking at CPI time series data for Hobart from the March 1990 to March 2011 quarter (Figure 10) there are a number of general observations:
• The ABS collects electricity, gas, water and sewerage charges quarterly from the energy authorities and local councils, and both concessional and standard rates are priced. Connection fees, delivery and similar charges are included as part of the price of the utility service[19]. Current charges are applied to estimates of annual consumption of electricity, gas and water, which is then divided by four to determine a quarterly price. The dividing of the annual price into a quarterly price often gives the effect of a stepped approach to price increases for the indexes, as the same price is recorded for all quarters of a year.
• The gas and other household fuels expenditure class includes natural and LPG gas and firewood. There has been occasional price volatility throughout the index. Some of the volatility may have been influenced by regulation change (Commonwealth Government deregulating the wholesale price of LPG in Australia in January 1991), and increased demand for natural gas through distribution to households during the roll-out of stage two of the natural gas project in 2007.
• The magnitude of price increases varies by energy source, which will disproportionately impact households. For example, in the last 12 months, gas and other household fuels has increased in price by 2.1%, whereas electricity has increase by 15.9%. Those households that use firewood as an energy source for heating (combustion heaters) are impacted less than those consuming electricity as a heating energy source.
• Two of the largest price rises for electricity occurred in the March 2008 quarter (12.2% increase from the previous March quarter) and from the beginning of the 2010-11 financial year to March 2011 quarter (9.3%).
• There is still change in utility prices to be expected in Tasmania due to structural reform. For example, full price determination for water and sewerage (which will be determined by the Office of The Tasmanian Economic Regulator - OTTER) is due to commence on 1 July 2012, when, prior to this (the transition period), maximum increases were set by the Tasmanian Government through an interim price order. OTTER expects that full cost recovery will not be achieved for the three water corporations by the end of the transition period and prices may rise[20].
Expenditure
• The household types are not necessarily mutually exclusive between income source, income level and tenure and family composition households. Expenditure data for households in an income category could come from households of all types of family composition and tenure type. Similarly, households defined by family composition contain varying income levels and tenure type. Finally, tenure households contain all income levels and family composition types.
• There may also be crossover within households defined by income type. For example, due to the level of income, the expenditure of the household type Contribution of GPAs to Income-50% to less than 90% may also include expenditure data from Income quintile of household-Second and third deciles households.
• As there was a focus in the analysis on lower income households, the various household compositions were chosen to provide disaggregated views of household expenditure for analysis.
• The household that constitute the group of Contribution to GPAs to income… households are mutually exclusive within their own group. The quintile range of households represents expenditure data modelled for the full Tasmanian population, and are therefore exclusive by the income ranges that define them.
To explain some of these observations, the household expenditure patterns on utilities is detailed below. The analysis splits the households into income source/level and family composition/tenure. The following tables show expenditure patterns by household types from highest to lowest, with the sample sorted to include only those households expending more than the Tasmanian average, in this case, the average is 3.4% for utilities.
The tables show expenditure as a percentage of the total expenditure of the household, referred to as expenditure weights. They also show expenditure in dollar terms as average weekly household expenditure (AWHE)[21], which approximates dollars spent on the referenced item.
Table 3: Expenditure on utilities by income source and level household types
|Household type |Expenditure weights |AWHE – March 2011 |
|Contribution of GPAs to Income-90% and over |5.9% |$36.6 |
|Income quintile of household-Second and third deciles |5.0% |$40.8 |
|Income quintile of household-Lowest quintile |5.0% |$38.9 |
|Contribution of GPAs to Income-50% to less than 90% |4.8% |$42.3 |
|Government pensions and allowances-Unemployment/ sickness/ education allowance |4.6% |$35.8 |
|Government pensions and allowances-Age/disability pension |4.6% |$31.0 |
|Income quintile of household-Second quintile |4.0% |$43.6 |
|Government pensions and allowances-Other |4.0% |$37.1 |
|Contribution of GPAs to Income-20% to less than 50% |3.6% |$48.0 |
|Income quintile of household-Third quintile |3.6% |$44.2 |
|All households - Tasmania |3.4% |$43.6 |
|All households - Australia |2.8% |$45.3 |
Table 3 shows that the household Income quintile of household-Second and third deciles has 5.0% of its total weekly expenditure on utilities. This is 2.2% above the average expenditure for Australia. Although this household is second highest for expenditure weight, it spends more in dollar terms ($40.8) than the highest expenditure weight household, Contribution of GPAs to Income-90% and over ($36.6). This reflects differences in economic resources between households. The difference is not just influenced by incomes, the eligibility and take-up rate of subsidies and concessions can influence household economic resources. The implication of this is that low expenditure in dollars, does not necessarily mean that some households manage to find cheaper goods and services, but that major social interventions such as concessions, or in the health group, Medicare, are making important contributions to lowering costs.
Table 4 shows expenditure on utilities by family composition and housing tenure. Single parent families have higher expenditure weights than the average for Australian and marginally higher than the average for Tasmania. House owners without mortgages are the only tenure type to be expending above the average for Tasmania and Australia.
Table 4: Expenditure on utilities by family composition and tenure household types
|Household type |Expenditure weights |AWHE - June 2011 |
|One parent, one family households with two dependent child only |3.8% |$42.3 |
|Lone person household |3.7% |$29.9 |
|One parent, one family households with one dependent child only |3.6% |$36.4 |
|Tenure Type-Owner without a mortgage |3.5% |$40.6 |
|All households - Tasmania |3.4% |$43.6 |
|All households - Australia |2.8% |$45.3 |
Electricity is an expenditure class of the utilities sub-group. Although the analysis was conducted at the price group and sub-group level, some prices at the expenditure classes were included due to high price movements or their fundamental requirement as an essential. The expenditure class of electricity falls into this category. The example continues in Table 5, which has been sorted to include only those households expending more than the Tasmanian average on electricity, at 2.8%. The households with highest expenditure weights are low income households, lead by Contribution of GPAs to Income-90% and over. 60% of Tasmanian households expend above the average, represented in the lowest, second and third quintiles.
Table 5: Expenditure on electricity by income level and source household types
|Household type |Expenditure weights |AWHE - March 2011 |
|Contribution of GPAs to Income-90% and over |4.9% |$31.7 |
|Income quintile of household-Second and third deciles |4.1% |$34.4 |
|Income quintile of household-Lowest quintile |4.0% |$32.2 |
|Contribution of GPAs to Income-50% to less than 90% |3.9% |$35.2 |
|Income quintile of household-Second quintile |3.4% |$38.4 |
|Contribution of GPAs to Income-20% to less than 50% |3.2% |$43.7 |
|Income quintile of household-Third quintile |3.1% |$40.2 |
|All households - Tasmania |2.8% |$38.1 |
|All households - Australia |1.6% |$25.0 |
The following analysis continues the explanation of price movement and household expenditure levels across the essential services and concludes with recreation and alcohol and tobacco. In policy discussions on deprivation, recreation is often seen as essential, particularly as computers are required to online services and information sources. Alcohol and tobacco is included as it is a relevant public health issue in Tasmania.
Food
Price
Figure 11 shows that the Hobart fresh food index has moved away from the Australian CPI since 2002, and at close to 20 points above by 2011. Food prices are market driven, and one of the most exposed groups to price volatility due to climate events. This is seen in the fresh food index with high fluctuations in price during 2006-2007 when drought, floods and cyclone Larry impacted on food production.
Figure 11: Fresh food CPI index – Hobart
[pic]
Expenditure
Food is one of the main contributors to the CPI and RPI indices, seen through the high expenditure weight across both Tasmanian and Australian all-households groups in Table 6. The average Tasmanian expenditure is higher than that for Australia, with a 2.4% difference. The lowest, second, third and fourth quintiles (80% of the population) all expend marginally higher than the average on food. The top five households in the table are all low income households. The high expenditure on food for low income households, and the high volatility in price means the food group could be one of the hardest household costs to manage.
Table 6: Expenditure on food by income source and level household types
|Household type |Expenditure weights |AWHE - March 2011 |
|Contribution of GPAs to Income-90% and over |21.3% |$112.0 |
|Income quintile of household-Second and third deciles |20.5% |$141.3 |
|Contribution of GPAs to Income-50% to less than 90% |19.7% |$146.0 |
|Government pensions and allowances-Other |19.3% |$153.4 |
|Government pensions and allowances-Age/disability pension |19.0% |$107.9 |
|Income quintile of household-Third quintile |18.0% |$188.8 |
|Income quintile of household-Lowest quintile |17.5% |$115.8 |
|Government pensions and allowances-Unemployment/ sickness/ education allowance |17.3% |$112.9 |
|Income quintile of household-Second quintile |16.9% |$157.8 |
|Income quintile of household-Fourth quintile |16.9% |$240.9 |
|Contribution of GPAs to Income-20% to less than 50% |16.8% |$187.5 |
|All households - Tasmania |16.0% |$176.3 |
|All households - Australia |13.6% |$175.8 |
When looking at expenditure on food by family composition and tenure type (Table 7), the only composition based household expending above the Tasmanian average is One parent, one family households with two dependent child only.
Table 7: Expenditure on food by family composition and tenure household types
|Household type |Expenditure weights |AWHE - March 2011 |
|One parent, one family households with two dependent child only |17.3% |$160.8 |
|Tenure Type-Owner without a mortgage |16.8% |$167.8 |
|Tenure Type-Renter |16.6% |$151.1 |
|All households - Tasmania |16.0% |$176.3 |
|All households - Australia |13.6% |$175.8 |
Housing
Price
Figure 12 shows the price group of housing, which includes rents, utilities (covered already) and other housing. Although the utilities index is substantially higher than the housing index, the latter closely follows one of its sub-group items, the other housing index. This indicates other housing has the largest contribution to the housing price group, as seen in figures 7 and 9.
Figure 12: Housing CPI index – Hobart
[pic]
Expenditure
The Income quintile of household-Second quintile household proportions nearly a third (30.6%) of its total expenditure on housing. A range of low to middle income households have expenditure weights above the average for Tasmania. As the sub-group ‘other housing’ is a large contributor to the housing group, and other housing includes house purchase, property rates and charges and repairs and maintenance, these households are likely to be house purchasers.
Table 8: Expenditure on housing by income level and source household types
|Household type |Expenditure weights |AWHE - March 2011 |
|Income quintile of household-Second quintile |30.6% |$292.6 |
|Contribution of GPAs to Income-1% to less than 20% |27.5% |$408.0 |
|Government pensions and allowances-Unemployment/ sickness/ education allowance |25.3% |$169.5 |
|Contribution of GPAs to Income-90% and over |24.1% |$130.0 |
|Income quintile of household-Lowest quintile |23.3% |$158.2 |
|Contribution of GPAs to Income-20% to less than 50% |22.6% |$259.1 |
|Income quintile of household-Second and third deciles |22.1% |$156.9 |
|Income source of household-Wage and salary |21.7% |$353.9 |
|Government pensions and allowances-Age/disability pension |21.3% |$124.0 |
|Contribution of GPAs to Income-50% to less than 90% |21.1% |$160.6 |
|Income source of household-Own unincorporated business income |20.9% |$314.1 |
|All households - Tasmania |20.5% |$231.9 |
|All households - Australia |20.8% |$274.9 |
Table 9 shows that Lone person households are expending over 6% more than the national and State averages, with single and couple families around 4-5% more. The high expenditure in dollar terms for Couple with three or more dependent children only ($520) is likely due to larger houses to accommodate family size, therefore leading to higher housing costs.
Table 9: Expenditure on housing by family composition and tenure household types
|Household type |Expenditure weights |AWHE - March 2011 |
|Lone person household |27.1% |$191.3 |
|One parent, one family households with one dependent child only |25.9% |$225.0 |
|Couple with three or more dependent children only |24.8% |$520.0 |
|One parent, one family households with two dependent child only |23.7% |$227.0 |
|Tenure Type-Owner with a mortgage |23.5% |$381.8 |
|Tenure Type-Renter |23.1% |$215.4 |
|Couple with one dependent child only |21.3% |$350.5 |
|All households - Tasmania |20.5% |$231.9 |
|All households - Australia |20.8% |$274.9 |
Rent
The price index for rent is shown in Figure 12. The rent index includes both public and private rent costs, therefore price comparison between these two is not possible.
Expenditure
The average expenditure on rent for Tasmania is lower than that of Australia. Although rent expenditures are up to 7% higher for some low income households, it is difficult to gauge the actual impact of rent as all of the households in Table 10 would include various tenure types, including house owners.
Table 10: Expenditure on rent by income source and level household types
|Household type |Expenditure weights |AWHE - March 2011 |
|Government pensions and allowances-Unemployment/ sickness/ education allowance |10.8% |$72.4 |
|Contribution of GPAs to Income-90% and over |10.4% |$56.0 |
|Income quintile of household-Second and third deciles |8.4% |$59.4 |
|Income quintile of household-Lowest quintile |7.0% |$47.7 |
|Government pensions and allowances-Age/disability pension |5.9% |$34.5 |
|Contribution of GPAs to Income-20% to less than 50% |5.1% |$58.5 |
|Income source of household-Wage and salary |4.5% |$73.6 |
|Contribution of GPAs to Income-50% to less than 90% |4.4% |$33.2 |
|Income quintile of household-Second quintile |4.1% |$39.7 |
|Income source of household-Own unincorporated business income |3.5% |$53.5 |
|All households - Tasmania |3.4% |$38.0 |
|All households - Australia |4.8% |$63.3 |
Table 11 gives the closest measure of the impact of rent on a household’s budget, as it includes the tenure type renters, which by definition, does not incur costs for house ownership.
Similar to income defined households above, the other family composition households would also have varying expenditures on rent due to mixed tenure types influencing expenditure levels.
Table 11: Expenditure on rent by income source and level household types
|Household type |Expenditure weights |AWHE - March 2011 |
|Tenure Type-Renter |19.6% |$183.9 |
|One parent, one family households with one dependent child only |13.9% |$121.6 |
|One parent, one family households with two dependent child only |11.7% |$112.2 |
|Lone person household |9.0% |$63.9 |
|Couple with one dependent child only |3.8% |$61.9 |
|All households - Tasmania |3.4% |$38.0 |
|All households - Australia |4.8% |$63.3 |
Health
Price
Figure 13 shows that the index for health is influenced upwards by the high increase and contribution of health services to the total health price, while pharmaceuticals continues to cycle close to the CPI. The ‘jagged-tooth’ appearance of pharmaceuticals is likely caused by the sampling of data throughout the calendar year. Prices decrease during this period due to subsidisation through the Pharmaceutical Benefits Scheme, as thresholds for expenditure on pharmaceuticals are reached. The health index includes both public and private health costs, therefore price comparison between these two is not possible.
Figure 13: Health CPI index – Hobart
[pic]
Expenditure
On average, Tasmanian households have health expenditure weights at 1.4% higher than the average for Australia. Table 12 indicates that the mixed income household of Contribution of GPAs to Income-20% to less than 50% has the highest expenditure at 3.6 above the Australian average and the highest dollar expenditure. The difference between the high expenditure in weight and dollar terms for households Government pensions and allowances-Age/disability pension and Income quintile of household-Third quintile likely points to the need to spend high for the former, due to declining health through age, and the capability to spend high for the latter, due to higher financial resources.
Table 12: Expenditure on health by income source and level household types
|Household type |Expenditure weights |AWHE - March 2011 |
|Contribution of GPAs to Income-20% to less than 50% |6.5% |$72.4 |
|Government pensions and allowances-Age/disability pension |6.1% |$34.7 |
|Income quintile of household-Third quintile |5.4% |$56.7 |
|Contribution of GPAs to Income-50% to less than 90% |5.0% |$36.8 |
|Income quintile of household-Second quintile |4.9% |$45.4 |
|Income source of household-Own unincorporated business income |4.8% |$69.9 |
|Income quintile of household-Second and third deciles |4.6% |$31.5 |
|All households - Tasmania |4.3% |$47.5 |
|All households - Australia |2.9% |$37.9 |
Table 13 indicates that home owners have a higher proportion of expenditure on health. Couples without dependants also tend to have a higher expenditure on health, likely due to financial capacity, while lone person households spend high and have low financial capacity (see table 24).
Table 13: Expenditure on health by family composition and tenure household types
|Household type |Expenditure weights |AWHE - March 2011 |
|Tenure Type-Owner without a mortgage |6.0% |$59.5 |
|Couple only |5.7% |$72.3 |
|Lone person household |5.2% |$36.1 |
|Couple with one dependent child only |4.6% |$73.8 |
|All households - Tasmania |4.3% |$47.5 |
|All households - Australia |2.9% |$37.9 |
Transport
Price
The index for transport has closely followed the prices for private motoring, as the latter is the major contributor in expenditure (92%) to the overall Transport index. Notwithstanding this, the sub-price group of urban transport fares, which consists of buses and taxis in Tasmania, is subject to Government price regulation and exceeds other indices by nearly 100%.
Figure 14: Transport CPI index – Hobart
[pic]
Expenditure
Table 14 indicates that when all compositions are combined, there are only three household types expending above the Tasmanian average for transport. Private motoring and urban transport fares have been included to indicate the proportions they contribute to the total expenditure weight of Transport. Private motoring includes car purchase, therefore it is unsurprising that Income quintile of household-Fourth quintile – a middle to high income bracket household, is leading transport expenditure.
Table 14: Expenditure on transportation by all household types
| |Transportation |Private motoring |Urban transport fares |
|Household type |Weights |AWHE - March 2011 |
|Government pensions and allowances-Unemployment/ sickness/ education allowance |0.8% |$5.3 |
|Income source of household-Wage and salary |0.6% |$10.0 |
|Government pensions and allowances-Age/disability pension |0.4% |$2.4 |
|Income quintile of household-Highest quintile |0.4% |$7.3 |
|Government pensions and allowances-Other |0.4% |$3.4 |
|Income source of household-Other income |0.4% |$5.3 |
|All households - Tasmania |0.3% |$3.0 |
|All households - Australia |0.4% |$4.8 |
Table 16 shows that Lone person households, likely to be constituted of older people (see commentary for Table 24), expends the most on fares, followed by households with dependent children.
Table 16: Expenditure on transport fares by family composition and tenure household types
|Household type |Expenditure weights |AWHE - March 2011 |
|Lone person household |0.6% |$4.4 |
|One parent, one family households with one dependent child only |0.6% |$5.0 |
|Couple with one dependent child only |0.5% |$8.5 |
|One parent, one family households with two dependent child only |0.5% |$4.3 |
|Couple only |0.5% |$5.7 |
|Tenure Type-Renter |0.4% |$3.3 |
|All households - Tasmania |0.3% |$3.0 |
|All households - Australia |0.4% |$4.8 |
Education
Price
Figure 15 shows that the price index for education in Tasmania has steadily outpaced the CPI for Australia since 1990 (an additional 77.9%). The price indexes for the education sub-groups are lower than the CPI as their reference base is June 2000. The stepped nature of the education index reflects that fees are set at the beginning of the calendar year. The price for education includes both public and private education costs, therefore price comparison between these two is not possible.
Figure 15: Education CPI index – Hobart
[pic]
Expenditure
Table 17 shows that when looking at expenditure weights, Tasmania is very close to the Australian average (all households are within 1%). The dollar expenditures also closely aligned to the weights, indicating that household expenditure in weight and dollar terms are similarly proportioned. The exception is the highest household by expenditure weight – Income source of household-Wage and salary, which expends slightly lower in dollar terms than Income quintile of household-Highest quintile. All of these households would not be considered as low income households (Income decile of household-Second and third deciles has an expenditure weight of 0.2%, reflecting subsidisation of costs to low income households).
Table 17: Expenditure on education by income source and level household types
|Household type |Expenditure weights |AWHE - March 2011 |
|Income source of household-Wage and salary |2.2% |$35.2 |
|Income quintile of household-Highest quintile |2.1% |$35.7 |
|Contribution of GPAs to Income-1% to less than 20% |2.1% |$30.1 |
|Income source of household-Own unincorporated business income |2.0% |$29.0 |
|Income quintile of household-Fourth quintile |1.4% |$20.8 |
|All households - Tasmania |1.4% |$15.3 |
|All households - Australia |1.3% |$16.8 |
Table 18 shows the degree that larger families have higher education costs. The household Couple with three or more dependents has over double the expenditure in dollar terms than other households. The fact that households defined by composition, including types such as One parent, one family households with two dependent child only have higher expenditures than income based households, may be reflecting that the eligibility requirements of the Student Assistance Scheme includes an income test and does not factor household size (households defined by family composition and tenure include all income levels).
Table 18: Expenditure on education by family composition and tenure household types
|Household type |Expenditure weights |AWHE - March 2011 |
|Couple with three or more dependent children only |4.3% |$89.0 |
|One parent, one family households with two dependent child only |3.2% |$30.3 |
|Couple with one dependent child only |2.3% |$37.8 |
|One parent, one family households with one dependent child only |1.5% |$12.9 |
|All households - Tasmania |1.4% |$15.3 |
|All households - Australia |1.3% |$16.8 |
Recreation
Price
Figure 16 outlines the various price groups that contribute to the recreation index for Hobart. Although the index for books, newspapers and magazines is 40.2 points higher than the Hobart CPI, most price items contributing to the recreation index are below the Hobart CPI by approximately 46 points. Audio visual and computing is the one index that has decreased dramatically over the reference period, reflecting the continuing trend for increasing quality and decreasing price for technology goods.
Figure 16: Recreation CPI index – Hobart
[pic]
Expenditure
Table 17 indicates that the households with medium to high incomes, are expending the most on recreation in Tasmania, ranging from 0.3% below to 1.9% above the average for Australia. It also shows that the Tasmanian average is marginally below the average for Australia.
Table 17: Expenditure on recreation by income source and level household types
|Household type |Expenditure weights |AWHE - March 2011 |
|Income source of household-Other income |14.1% |$145.0 |
|Income quintile of household-Highest quintile |14.0% |$194.2 |
|Income source of household-Wage and salary |12.3% |$159.3 |
|Income quintile of household-Third quintile |11.8% |$100.7 |
|All households - Tasmania |11.3% |$101.5 |
|All households - Australia |12.1% |$126.8 |
Table 18 indicates that couples, house owners and families with dependents all expend close to the average, with Couples with three or more dependent children only expending the most in dollar terms.
Table 18: Expenditure on recreation by family composition and tenure household types
|Household type |Expenditure weights |AWHE - March 2011 |
|Couple only |13.0% |$135.1 |
|Tenure Type-Owner without a mortgage |12.8% |$103.8 |
|Couple with three or more dependent children only |12.4% |$205.8 |
|One parent, one family households with two dependent child only |12.3% |$93.2 |
|All households - Tasmania |11.3% |$101.5 |
|All households - Australia |12.1% |$126.8 |
Alcohol and Tobacco
Alcohol and tobacco are included below to indicate the households that expend proportionally more than the average. Appendix 1, discusses alcohol and tobacco in price and expenditure further.
Price
Figure 16 indicates that the alcohol and tobacco index has been above the CPI for most of the reference period and that although tobacco contributes less to the combined index, it is 213% above the Hobart CPI. Therefore consumption of both alcohol and tobacco will represent a high cost to households expending above the average. Arguable by design, as both goods have price regulation to deliver price signals to consumers.
Figure 16: Alcohol and tobacco CPI index – Hobart
[pic]
Expenditure
Both income and composition/tenure households are combined in Table 19 due to low numbers of households expending above the Tasmanian average. The average expenditure weight for Tasmania is 0.6% higher than the Australian average. There is also a mix of low to high income households within a close range of expenditure by weight. However, in dollar terms, expenditure ranges from $30.1 – $109, indicating variation in the price of the goods purchased.
Table 19: Expenditure on alcohol and tobacco by all household types
|Household type |Expenditure weights |AWHE - March 2011 |
|Income quintile of household-Highest quintile |6.2% |$109.0 |
|Income quintile of household-Second and third deciles |5.9% |$42.3 |
|Contribution of GPAs to Income-90% and over |5.5% |$30.1 |
|Government pensions and allowances-Unemployment/ sickness/ education allowance |5.3% |$35.6 |
|Income quintile of household-Fourth quintile |5.2% |$77.4 |
|Tenure Type-Renter |5.1% |$48.0 |
|Income quintile of household-Third quintile |5.0% |$54.2 |
|All households - Tasmania |4.9% |$56.4 |
|All households - Australia |4.3% |$58.1 |
Cumulative impact of cost of living
Low income households are particularly vulnerable to cost of living pressures, seen through steady price squeezes and sudden shocks in essential services. While most people are affected by cost of living changes, it is appropriate that policy attention focuses on the most vulnerable. Price squeezes and sudden shocks often leave low income households left with little warning and capacity to absorb price changes, leading to rationing and substitution.
When there are few options to substitute, households have to resort to rationing, at times reducing consumption to below acceptable levels of living. When households cannot ration or substitute any further, there is no capacity to absorb cost increases, and households require assistance from extended networks and through the social safety net, including emergency relief services.
The evidence in this report enables review of government income support, concessions and regulated pricing regimes, to take into account that households are disproportionately impacted by costs. This requires household based analysis by location to uncover the quantum of hardship being faced in our communities and design appropriate policy responses.
The RPI research shows the households that are disproportionately impacted by high expenditure and price across the essential services of food, housing, health, transport and education[22].
As seen previously, tables 20 and 21 splits households by income source/level family composition/tenure, and provides expenditure as a percentage of total expenditure (expenditure weight) and in dollar terms, as average weekly household expenditure (AWHE). The top three expenditure weights are highlighted for reference using shaded squares, with the darkest shade applied to the highest weight. Although an approximation, dollar figures are net of tax and concessions, therefore represent actual expenses to households.
Table 20: Expenditure on essential services by RPI household types of income source and level
| |
|Median income ($'s) |
|Median income ($'s) |
|Median income ($’s) |
|Median income ($’s) |
|Median income ($’s) |
|Median income ($’s) |
|Median income ($’s) |
|Median income ($’s) |
|Median income ($’s) |
|Median income ($’s) |598.0 |776.0 |689.0 |745.0 |
|Household Type |% |$ |$ |% |
|Income quintile of household-Second quintile |62.2 |577.5 |517 |111.7 |
|Contribution of GPAs to Income-1% to less than 20% |61.6 |879.2 |NA |NA |
|Contribution of GPAs to Income-90% and over |60.1 |311.7* |NA |NA |
|Income quintile of household-Lowest quintile |59.9 |389.4 |359 |108.5 |
|Couple with three or more dependent children only |59.1 |1,196.6 |NA |NA |
|Contribution of GPAs to Income-50% to less than 90% |59.1 |430.8* |NA |NA |
|Income decile of household-Second and third deciles |58.8 |400.7 |435 |92.1 |
|One parent, one family households with one dependent child |57.3 |479.3 |539 |88.9 |
|only | | | | |
|Government pensions and allowances-Age/disability pension |57.2 |320.6 |430 |74.6 |
|Government pensions and allowances-Other |57.2 |448.5 |445 |100.8 |
|One parent, one family households with two dependent child |56.9 |525.4 |460 |114.2 |
|only | | | | |
|Tenure Type-Renter |55.9 |501.9 |NA |NA |
|Income source of household-Own unincorporated business income |55.8 |804.8 |687 |117.1 |
|Tenure Type-Owner with a mortgage |55.6 |864.5 |NA |NA |
|Income source of household-Wage and salary |55.0 |861.5 |851 |101.2 |
|All households - Tasmania |55.0 |594.0 |698 |85.1 |
|Tenure Type-Total home owners |54.7 |680.1 |NA |NA |
|Couple with one dependent child only |54.6 |862.3 |913 |94.5 |
|Couple only |54.2 |679.3 |745 |91.2 |
|Income quintile of household-Third quintile |53.7 |555.5 |708 |78.5 |
|Tenure Type-Owner without a mortgage |53.5 |519.5 |NA |NA |
|All households - Australia |51.2 |647.8 |825 |79 |
NA – Not applicable due to insufficient data.
Some households, such as Government pensions and allowances-Unemployment/sickness/ education allowance face higher expenditure than income, possibly causing household financial stress. Households slightly above or below 100% are likely to be reducing consumption of essential and non-essential services to manage budgets. It is important to note that income is only one measure of financial capacity, as it does not include assets, and that other support exists, such as concessions, emergency relief and other community service support. These contribute to total resources available to households, although dependency, particularly on emergency relief, could be a significant issue.
So far, micro-economic factors such as specific household expenditure patterns, price changes across essential services and incomes have been analysed to build a picture of what is occurring underneath macro-economic indicators such as the CPI.
It is clear that households spending more than the average face a greater cost pressure, particularly when prices increase rapidly, and that this is a critical point of debate when there are cost pressures for low income households across essential services.
It is worth returning to the CPI with the analysis, by comparing the CPI to household expenditure across the complete basket of goods and services (all price groups), not just essential services. This can be achieved by building separate price indexes for household costs over time, which is the methodology used for the creation of the RPIs.
The annual change in the CPI is referred to as the rate of inflation, which shows the change in price for purchasing a fixed basket of goods and services. The rate of inflation is a reflection of the change in the value of money within Australia. For example, increases in inflation reflect a decrease in the value of money, as more money is required to purchase the same amount of goods and services. In general terms, the CPI shows changes in costs to all households when purchasing the CPI basket of goods and services.
By comparison, the household based RPIs use the same basket of goods and services as the CPI and the same price data for these goods and services. However, the RPI uses different quantity levels for goods and services. Quantity data is taken for particular household types and is not adjusted, as it is for the CPI, to keep the quantities of the basket constant over the life of the index. This means the RPI incorporates current prices and reflects changes in spending patterns (quantities) for different households as prices increase or decrease over time. In general terms, the RPI shows costs and changes in costs for a specific household when purchasing the CPI basket of goods and services (See Appendix 2 for more detail).
Figure 17 shows five income source/level households that have been identified through the analysis so far as at-risk to cost pressures across the essential services.
Figure 17: Five income source/level households with the highest costs
[pic]
All households are spending above the CPI levels for Tasmania and Australia, with some households noticeably higher. For example, the following gives the difference in index points between the households and the CPI for Australia:
• Unemployment/sickness/education allowance: 2.2
• Age/disability pension: 3.3
• Second and third deciles: 6.9
• Contribution of GPAs to Income-50% to less than 90%: 5.7
• Contribution of GPAs to Income-90% and over: 6.2
The differences to the CPI are important as the Commonwealth adjusts most pensions and allowances, and the carbon price compensation, to its rate of increase[32]. Therefore, households earning within the second and third deciles and which are in receipt of a pension or allowance may be receiving income below expenditure levels.
Table 18 shows households by family composition and tenure type. Most households have been experiencing higher costs than those indicated by the CPI for Australia and Tasmania.
Figure 18: Five family composition/tenure type households with the highest costs
[pic]
The household One parent, one family households with one dependent child only is the only household with total spending below both the Tasmanian and Australian CPI. The following gives the difference in index points between the households and the CPI for Australia:
• Lone person household: 3.0
• One parent, one family households with one dependent child only: -1.5
• One parent, one family households with two dependent child only: 1.9
• Renter: 2.4
Both tables indicate the growing gap between households experiencing higher than average costs when compared to the CPI, and when sharp increases and decreases have placed squeezes and price shocks on household budgets. For example, the increase in six quarters across all indexes from March 2007 to September 2008 was approximately 12 points. This rate of increase was higher when compared to the increase for eight quarters, from September 2008 to September 2010, which increased approximately eight points across all indexes.
The distribution of at-risk households
Understanding cost pressures on different households in Tasmania is important, so is understanding the distribution of at-risk households within Tasmania. Understanding where households are that face the greatest cost pressures is important for both its communities and for policy makers. For example, some households that expend high on transport are particularly exposed to fuel and passenger transport price movements, which in turn contributes to ‘access costs’ for services such as education and health. Similarly, households in areas of poor supply of fresh fruit and vegetables and that spend high on food, and low on health services, may highlight where policy effort should focus, and which households are in most need to support food security.
The distribution of households has been modelled through population projections[33] conducted by NATSEM for the Cost of Living Strategy. Table 27 shows the Local Government Areas (LGAs) that have the highest level of households that spend the most on essential services. The LGAs were determined using the following method:
• the proportion each household contributes to the LGA population was calculated;
• the highest five households that constituted the greatest proportion of the LGA population were counted (colour-shaded) for 2011 and 2016; and
• the LGAs that had two or more of the five households for 2011 were included in the table.
Table 27: Local government areas with the highest proportion of at-risk households
| |Second and|Age/disabi|Unemployment/ sickness/ |Other income|Lone person |
| |third |lity |education allowance |support |household |
| |deciles |pension | | | |
|Break O'Day |4 |4 |George Town |4 |3 |
|Brighton |4 |3 |Glenorchy |2 |2 |
|Burnie |2 |3 |Kentish |2 |1 |
|Central Coast |2 |2 |Launceston |2 |1 |
|Central Highlands |3 |1 |Sorell |2 |2 |
|Devonport |3 |2 |Tasman |2 |5 |
The modelling indicates some LGAs will undergo demographic change between 2011 and 2016. The greatest change will be in Tasman, which has two high expenditure households in 2011 (Government pensions and allowances-Age/disability pension and Government pensions and allowances-Unemployment/sickness/education allowance), is estimated to have five in 2016 (Second and third deciles, One parent, one family households with one dependent child only, Lone person households, Government pensions and allowances-Age/disability pension and Government pensions and allowances-Unemployment/sickness/education allowance).
Policy makers could examine data on household differences when considering regulated prices, service delivery and concessions, to represent the interests of households close to, or in crisis. The data used in this analysis could be used as a baseline to develop further analysis.
Conclusion
The aim of examining cost of living pressures in Tasmania was conducted by assessing the application of existing measures, including the Relative price Index, Consumer Price Index and the Analytical Living Cost Indexes. This included discussion of what constitutes household costs and a summary of prices and expenditure by households across the essential services of food, housing, health, transportation and education.
Some of the households with the highest cumulative cost pressures across essential services are:
• Contribution of GPAs to Income-90% and over
• Contribution of GPAs to Income-50% to less than 90%
• Income decile of household-Second and third deciles
• One parent, one family households with one dependent child only
• Lone person household
• Government pensions and allowances-Age/disability pension
• One parent, one family households with two dependent child only
• Government pensions and allowances-Unemployment/ sickness/ education allowance
This report explains why the use of the CPI as a cost of living indicator and for indexation of pricing policy and pensions and allowances is deficient. It shows that household costs often extend well above the CPI for essential services, and for some households, costs across all price groups are also above the CPI.
The report provided detail on the financial resources available to at-risk households and shows their distribution by local government area using income and population modelling undertaken by NATSEM.
The information compiled for this report has application beyond cost of living analysis and provides new data capability to assist policy makers across a range of policy settings. The work enables understanding of how price movements in essential services are likely to impact and vary by State and Territory, and by population group and place in Tasmania to inform targeted government interventions.
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The table below shows the correlation between the households used in the Strategy and those referred to in this report and defines each household.
Households referred to in the Strategy
|Strategy document |RPI household |Definition |
|Average (Tasmanian or |All households (Tasmania or |Expenditure aggregated to represent all expenditure across all households. |
|Australian) |Australia) |All-households represents the average expenditure for the specified region. This |
| | |household includes all income ranges. It is important to note that this group |
| | |represents the average expenditure of all households, not the expenditure of the |
| | |average household. The former is defined by the average expenditure pattern, the |
| | |latter could be defined by dominant household characteristics, such as the average|
| | |family composition or average income source/type. |
|Not included |Contribution of GPAs to |Households receiving Commonwealth Government income support payments through |
| |Income-1% to less than 20% |pensions and allowances totalling between 1% of household income to less than 20% |
| | |of household income. |
|Not included |Contribution of GPAs to |Households receiving Commonwealth Government income support payments through |
| |Income-20% to less than 50% |pensions and allowances totalling between 20% of household income to less than 50%|
| | |of household income. |
|Workers with income |Contribution of GPAs to |Households receiving Commonwealth Government income support payments through |
|support |Income-50% to less than 90% |pensions and allowances totalling between 50% of household income to less than 90%|
| | |of household income. |
|Not included |Contribution of GPAs to |Households receiving Commonwealth Government income support payments through |
| |Income-90% and over |pensions and allowances totalling between 90% of household income to 100% of |
| | |household income. |
|Not included |Income quintile of |The division of the total household expenditure into five categories based on |
| |household-Lowest quintile |income ranges. The lowest or first income quintile includes those with the lowest |
| | |and negative incomes. It does not necessarily represent all low income households,|
| | |as some high expenditure patterns within this quintile indicate high financial |
| | |resources. |
|Not included |Income quintile of |The division of the total household expenditure into five categories based on |
| |household-Second quintile |income ranges. If the middle quintile is considered the median income quintile, ie|
| | |it has an even number of income categories above and below it, then the second |
| | |quintile represents expenditure from households below the median quintile. |
|Not included |Income quintile of |The division of the total household expenditure into five categories based on |
| |household-Third quintile |income ranges. The third quintile represents expenditure from households at the |
| | |centre of the income distribution, or the median income quintile. |
|Middle to high incomes|Income quintile of |The division of the total household expenditure into five categories based on |
| |household-Fourth quintile |income ranges. The fourth quintile represents expenditure from households one |
| | |quintile higher than the median income quintile – the third quintile. |
|High incomes |Income quintile of |The division of the total household expenditure into five categories based on |
| |household-Highest quintile |income ranges. The fifth quintile represents expenditure from households at the |
| | |top fifth or the highest income range. |
|Low incomes |Income decile of |Households within the income ranges of the second and third deciles for |
| |household-Second and third |equivalised disposable income. The second and third deciles are a combined income |
| |deciles |range from ten income ranges (deciles) of the region. The ABS recommends reference|
| | |to the second and third deciles for low income earners as the lowest household |
| | |incomes in the first decile often have business incomes at negative or close to |
| | |zero levels. Although incomes for these households are very low, high expenditure |
| | |levels for some households indicate that the first decile does not accurately |
| | |reflect the actual financial resources available. |
|Pensioners |Government pensions and |Households in receipt of the Commonwealth Government Age Pension and Disability |
| |allowances-Age/disability |Support Pension. Income is limited by the eligibility requirements of the specific|
| |pension |pensions and allowances. |
|Unemployed |Government pensions and |Households in receipt of the Commonwealth Government unemployment, sickness and |
| |allowances-Unemployment/ |education allowances. This income is limited by the eligibility requirements of |
| |sickness/ education allowance|the specific pensions and allowances. |
|Not included |Government pensions and |Households that receive family income support – parenting payment, maternity |
| |allowances-Other |payment and Family Tax Benefit. This income is limited by the eligibility |
| | |requirements of the specific pensions and allowances. |
|Business owners |Income source of |Households earning income from the business activities of own, unincorporated |
| |household-Own unincorporated |businesses. This household includes all income ranges. |
| |business income | |
|Wage earners |Income source of |Households receiving income from wages and salaries. This household includes all |
| |household-Wage and salary |income ranges. |
|Not included |Income source of |Households receiving income from superannuation or other private income. This |
| |household-Other income |household includes all income ranges. |
|Lone person |Lone person household |Single family households where the principle person is single. This household |
| | |includes all income ranges. |
|Single parents - small|One parent, one family |Single family households where the principle person is single and has one |
|family |households with one dependent|dependent child. This household includes all income ranges. |
| |child only | |
|Single parents - |One parent, one family |Single family households where the principle person is single and has two |
|medium family |households with two dependent|dependent children. This household includes all income ranges. |
| |child only | |
|Not included |Couple only |Single family households where the principle person is part of a couple |
| | |relationship. This household includes all income ranges. |
|Couples - small family|Couple with one dependent |Single family households where the principle person is part of a couple |
| |child only |relationship, with one dependent child. This household includes all income ranges.|
|Couples - large family|Couple with three or more |Single family households where the principle person is part of a couple, with |
| |dependent children only |three or more dependent children. This household includes all income ranges. |
|Not included |Tenure Type-Owner without a |Households that own their residence as a tenure type. This household includes all |
| |mortgage |income ranges. |
|Not included |Tenure Type-Owner with a |Households that are purchasing their residence as a tenure type. This household |
| |mortgage |includes all income ranges. |
|Renters |Tenure Type-Renter |Households that are renting as a tenure type. This household includes all income |
| | |ranges. |
1. Analysis of ABS cost of living data, 2011
2. Dufty and MacMillan, 2011, The Relative Price Index, The CPI and the implications of changing cost pressures on various household groups
3. NATSEM, 2011 Cost of living indicators for Tasmania
4. NATSEM, 2011 Estimating the Spatial Distribution and Characteristics of Households in Tasmania[pic][pic][pic][pic][pic]
-----------------------
[1] The ABS has a number of surveys that were released in 2011. Initial results from these surveys were included in A Cost of Living Strategy for Tasmania. However, this data was not available in time for complete analysis and inclusion in the 2011 Tasmanian Cost of Living Strategy.
[2] Dufty, G & MacMillan, I. 2011, The Relative Price Index, The CPI and the implications of changing cost pressures on various household groups.
[3] Australian Bureau of Statistics, 2011, Analytical Living Cost Indexes for Selected Australian Household Types, Dec 2010 (cat. no. 6463.0)
[4] Australian Bureau of Statistics, 2006, A Guide to the Consumer Price Index, 15th Series, 2005 (cat. no. 6440.0)
[5] Information from , accessed on 25 February 2011: “Most payments are adjusted in line with the Consumer Price Index (CPI) but other payments are adjusted by changes in legislation. At the same time the maximum rate of payment is changed, the single rate of pension payments is also checked. If necessary, the single payment rate is increased to make sure it does not fall below 27.7% of the Male Total Average Weekly Earnings (MTAWE) figure.“
[6] . Accessed on 6 September 2011.
[7] Australian Bureau of Statistics, 2011, Analytical Living Cost Indexes for Selected Australian Household Types, Dec 2010. Cat. no. 6463.0.
[8] Employee households are those households whose principal source of income is from wages and salaries.
[9] Age pensioner households are those households whose principal source of income is the age pension or Veterans Affairs pension.
[10] Other government transfer recipient households are those households whose principal source of income is a government pension or benefit other than the age pension or Veterans Affairs pension.
[11] Self-funded retiree households are those households whose principal source of income is superannuation or property income and where the household Expenditure Survey (HES) defined reference person is ‘retired’ (not in the labour force and over 55 years of age.
[12] For a discussion of the relationship between the ALCIs and CPI, see Australian Bureau of Statistics 2011, Analytical Living Cost Indexes for Selected Australian Household Types, Mar 2011; Explanatory Notes (cat. no. 6463.0).
[13] Information Paper, Consumer Price Index: Concepts, Sources and Methods Australia, ABS, 2009 Cat. 6461.0. Page 61.
[14] Information Paper, Consumer Price Index: Concepts, Sources and Methods Australia, ABS, 2009 Cat. 6461.0. Page 66.
[15] Percentage change of the CPI deducted from the change in the price group.
[16] Just over 60% of those surveyed considered a one week holiday away from home a year as important in Saunders’ et al study on deprivation. See Saunders, P., Naidoo, Y., and Griffiths, M., Towards New Indicators of Disadvantage: Deprivation and Social Exclusion in Australia, Social Policy Research Centre, November 2007.
[17] A range of the RPI households use Australian expenditure weights multiplied by Tasmanian prices to determine household costs, due to limitations in the Tasmanian sample sizes in the HES.
[18] Australian Bureau of Statistics 2010, Measures of Australia’s Progress, Sep 2010: Inflation (cat. no.1370.0)
[19] ABS, Consumer Price Index, Concepts, Sources and Methods, CAT 6461.0, 2009.
[20] “Relative to the previous 10 per cent annual price caps, the five per cent caps and Government assistance, which ceases on 30 June 2012, has the effect of increasing pressure for price increases after that time and/or prolonging the period in which full cost recovery can be achieved.” OTTER News, Office of the Tasmanian Economic Regulator, March 2011, page 2.
[21] The Average Weekly Household Expenditure (AWHE) indicates in nominal dollar terms the amount that the households would spend per week if prices were inflated to March 2011 CPI quarter prices. These are approximate and were calculated through inflating expenditure dollars from 2005 HES data (concorded to CPI price groups) by the change in the relevant CPI price indexes.
[22] Households expending above the average was determined by comparing the total expenditure percentage across the essential services to that of the average for Tasmania. Australian average (all households expenditure) figures are included for comparison, along with both Tasmanian and Australian CPI figures.
[23] NATSEM research conducted for the Social Inclusion Unit, DPAC.
[24] All tenure type and GPA households, and have been omitted due to insufficient data. The lowest quintile household has been omitted due to the ABS preferring the second/third decile as representative of low income households.
[25] Median income to Australian average is not highlighted as it is the median income in percentage terms.
[26] Tasmania’s median income is close to equal to all jurisdictions at the third quintile, before dropping off for the fourth and highest quintile, indicating a general spread of income in the lower centre income ranges (second and third quintiles).
[27] The proportion of working age parents in Tasmania with any dependent children is: age under 35 – 31.1% and age 35-44 – 45.5%. Household Income and Income Distribution, Australia - Detailed tables, 2009-10. Cat 6523.0.
[28] Net worth, often referred to as wealth, is the value of a household's assets less the value of its liabilities. Assets can take many forms including, dwellings and their contents, vehicles, and machinery and equipment used in businesses owned by households, computer software and artistic originals, business inventories of goods, land, bank deposits, shares, superannuation account balances, and the outstanding value of loans made to other households or businesses.
[29] Household Income and Income Distribution, Australia - Detailed tables, 2009-10, ABS (cat 6523.0 ).
[30] It is also important to note that ABS data was used in the comparison and that it advises that comparing expenditure and income data is problematic due to variations in the sampling and modelling of income across populations.
[31] Results were excluded for those households with very high expenditure and comparatively low income. Highlighting either a data inconsistency, or significant non-income financial resources. The only household of this type was Couple with three or more dependent children only.
* These households receive most of their income from income support and are therefore likely to have low incomes. They have been highlighted as at-risk, but are not analysed further due to insufficient data.
[32] When pensions and allowances are checked against the CPI, if necessary, the single pension payment rate is increased to make sure it does not fall below 27.7% of the Male Total Average Weekly Earnings figure. The partnered payment rate is also increased as a proportion of the single rate.
[33] ABS population data was used to model Tasmania’s population by household type for 2006, 2011 and 2016. A number of benchmarks were used for the population modelling, including the projections of the Tasmanian Demographic Change Advisory Council (DCAC).
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cumulative impact single parents pressures pensioners
workers with income support disadvantage lone person aged and disability unemployed couples medium families small family data essential services
relative price index carers disproportionate distribution of price expenditure safety net Government pensions and allowances contribution of income support to household income cost of living measuring price movement defining the pressures low expenditure and low income poverty line
household distribution and population communities
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- new york department of banking and insurance
- department of banking and insurance nj
- department of elementary and secondary ed
- colorado department of health and environment
- department of business and regulation