The ability of income to translate into better health depends, among other things, on the extent to which spending affects various family members and the amount of resources left over after various expenditures. For example, if spending (either in health or other expenditure) enhances the well-being of all family members, then expenditure can be said to provide ‘public goods’ within the family. Alternatively, expenditure may provide purely private benefits for a particular family member. Obviously, the relationship between income and expenditure depends crucially upon the proportion of public goods in household spending. Equivalent income measures control for the extent of consumption of public goods, which may vary with family size and composition. This was a feature of the previous analysis of Indigenous health expenditure which applied the Henderson measure of equivalent income to account for such issues (Deeble et al. 1998).

In testing for equity in health expenditure, it is necessary to compare observed health expenditures for Indigenous people with outlays on health for other Australians in the same income group. One constraint on establishing a precise comparison in the Deeble et al. (1998) analysis was the lack of data consistency. The problem was that information on Indigenous incomes was drawn from the 1994 National Aboriginal and Torres Strait Islander Survey (NATSIS), while data on non-Indigenous incomes were derived from the 1990 NHS.

In the present study, estimates of both Indigenous and non-Indigenous income and health service utilisation are derived using data from the same source. This is possible for the first time because the 1995 NHS included a question on Indigenous status. The availability of a common source of data ensures that the following analysis has a higher level of methodological consistency than was previously possible. Perhaps, most importantly, the availability of Indigenous utilisation data from the 1995 NHS provides for the calculation of standard errors on the estimates, thereby enabling the significance of differences in expenditure by income to be tested. Once again, this represents an advance on previous analysis of expenditure by income.

The 1995 NHS data also provide income data adjusted using the ABS’s version of the simplified Henderson equivalence scales. Since any one of a number of equally plausible equivalence scales may be chosen, it is necessary to consider whether our results are affected by using alternative scales. The equivalence scales used in this report therefore cover the full range of possibilities from all expenditure being on public goods (raw income) to the other extreme where all expenditure is on private goods (per capita income).