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Australian Government Coat of Arms

Budget | 2014-15

Budget 2014-15
Australian Government Coat of Arms, Budget 2014-15

Statement 4 (continued)

Living standards in Australia

A major goal of policy is to improve the level and sustainability of living standards of all Australians.

Income is one of the most important determinants of living standards. Increasing real incomes allow people the capacity to buy more goods and services, and save and invest, as well as more freedom to choose how to spend their time. Income growth also means that potentially more tax revenue is available to provide government services and income support.

Australians' incomes per person are now relatively high in comparison to most Organisation for Economic Cooperation and Development (OECD) economies (Chart 1). Average income levels per person were around $34,500 in 2012. In the past two decades, average incomes have grown in dollar terms by around $12,000 (after discounting for the effects of inflation), and at annual rates that are among the fastest in the OECD.

Chart 1: Comparison of 2012 national income per capita

The chart shows both absolute and annual average growth in GNI per capita of OECD countries between 1992 and 2012, expressed in 2005 international dollars weighted for purchasing power parity. Australia's national income per capita, measured in this way, grew by 12,033 dollars, at an annual average rate of 2.17 per cent. These figures place Australia amongst the top nations for the period.

Note: Annual average growth refers to the growth rate in income, measured in 2005 international dollars weighted by purchasing power, from 1992 to 2012. Data for New Zealand are from 1991 to 2011.

Source: World Bank.

[View chart data]

Australia's income growth has been broadly shared across the Australian population, with households across the income distribution experiencing broadly similar rates of income growth (after taxes and transfers) over the past two decades.

This growth in incomes has contributed to higher living standards over time, and relative to other countries.

Indicators of Australians' life expectancy, education levels and the quality of our urban environment all improved over the past decade.1 International comparisons of living standards indicate that Australians have among the highest living standards in the world, and that these high standards of living are shared relatively equitably across the community in comparison to other advanced countries.2

Our high standards of living did not come about by accident.

In significant part, they reflect a range of reforms taken by governments, particularly during the 1980s, 1990s and early 2000s that led to improvements in the economy's productive capacity and the competitiveness of businesses, as well as greater openness to overseas markets and capital.

It also reflects behavioural responses to those policy changes that saw employers and employees having greater flexibility in negotiating how income gains are shared, and reforms that have supported higher, and better skilled, participation in the workforce.

1 ABS, 2013.

2 OECD, 2013. Australia has ranked second (after Norway) on the United Nations Human Development Index since 2000. The ranking remains second (again, after Norway) when the measure is adjusted for inequality, whereas the United States slips 13 places to 16th (United Nations, 2013).