The estimates of the cost of raising a child presented in this report have been calculated using the most up-to-date and sophisticated method available. These estimates update and extend the results published in Henman (2001) and Henman and Mitchell (2001) to account for changes in prices and government policy, most notably the introduction of the new tax system in July 2000.
3.1. The Background Research
The key features of the research conducted by the consultant are also those of SPRC (1998), on which the more recent work is heavily based.
Costs of children were estimated at two living standard levels:
- A ‘modest but adequate’ standard, which represents middle Australia. It ‘affords full opportunity to participate in contemporary Australian society and the basic options it offers. It is seen as lying between the standards of survival and decency and those of luxury … It attempts to describe the situation of a household whose living standards falls somewhere around the median standard of living experienced within the Australian community as a whole’ (SPRC 1998, p. 63); and
- A ‘low cost’ standard representing low-income households. Although this level allows for social and economic participation consistent with Australian community standards, it is a frugal level ‘below which it becomes increasingly difficult to maintain an acceptable living standard because of the increased risk of deprivation and disadvantage’ (SPRC 1998, p. 63).
That research involved the identification and costing of over 700 items of household goods and services required by each household type. The cost of household durables, such as furniture and white goods, were amortised over an assumed lifetime.
Over fifty household types were constructed by varying household composition (the number of adults and the number, age and sex of children), the employment status of adults and housing tenure.
Only four specific types of children were used in creating household types: a girl aged 3, a girl age 6, a boy aged 10 and a boy aged 14. Estimates have been calculated for households with up to five children.
Readers wanting a more detailed overview of the SPRC budget standards, which form the basis of the calculations in this report, are encouraged to read Henman (1998).
The cost of children estimates are the difference between the budget standards for households with and without children. These estimates have been calculated for each Australian capital city. When the cost of a child is not the first child, the cost is the marginal cost of adding an additional child.
3.2. How the Research Was Updated
The research in Henman (2001) and Henman and Mitchell (2001) has been updated to June quarter 2004 using published and unpublished Australian Bureau of Statistics (ABS Cat. No. 6401.0; 6403.0) data on changes in prices, specifically the CPI detailed items for each capital city. The budget standards components were updated using the most compatible sub-components of the CPI (cf Henman 2001).
Due to the complexity of measuring housing costs (see SPRC 1998), budget standards have only been calculated for private renters. Costs of private rental have been obtained from the Real Estate of Institute of Australia (REIA 2004).
All the updated Australia budget standards for each capital city are provided in Appendix tables A.1 to A.16.