️ Highlights:
1. Real household disposable income per capita in Australia has experienced a record collapse, dropping by 5.8% over the year. This decade’s growth in per capita household disposable income is even lower than the previous decade, averaging only 0.62% per year.
2. Real per capita household consumption has also fallen by 1.9% in the year to September, despite the household savings rate reaching its lowest level since December 2007.
3. The volume of domestic consumption by Australian residents has decreased by 0.6% in the September quarter, while spending by non-residents, including international students and tourists, has increased by 4.4%.
4. Household spending on goods has declined more significantly than spending on services. One reason for this contraction is that households are allocating more money towards interest repayments.
5. Housing debt servicing costs have risen, with dwelling interest payable increasing by 7.6% over the quarter and reaching a massive 173.3% rise from its pandemic lows. This has led to Australia’s debt servicing ratio reaching record highs. Additionally, record tax payments and rising rents contribute to the challenging financial situation for households.
Analyzing the Recent Economic Data and Its Impact on Australian Families
Recent data from the Australian Bureau of Statistics (ABS) for the September quarter paints a concerning picture for Australian households. The most alarming aspect is the unprecedented decline in real household disposable income per capita, which plummeted by 5.8% over the year. This decline is part of a worrying trend, with the last decade already recording the lowest average growth in per capita household disposable income in history at just 0.96% per year. The current decade is on track to fare even worse, averaging a mere 0.62% yearly growth.
A Decade-Long Stagnation in Living Standards
The data reveals that Australia’s real per capita household disposable income has regressed to levels last seen in December 2011, during the Rudd/Gillard government years. This regression indicates a stagnation in material living standards over a decade.
Sharp Decline in Household Consumption
Compounding the issue, real per capita household consumption fell by 1.9% in the year to September. This drop occurred despite the household savings rate plunging to its lowest since December 2007, at 1.1%, just before the Global Financial Crisis. The decline in savings has been a key factor propping up household spending, with a high likelihood of this measure turning negative in the coming year.
Differential Impact on Goods and Services Consumption
Further insights from CBA’s national accounts data show a 0.6% decrease in the volume of domestic consumption by Australian residents over the September quarter. In contrast, spending by non-residents, including international students and tourists, increased by 4.4%. Notably, the contraction in household spending has been more pronounced for goods than for services.
Rising Housing Debt Servicing Costs
A significant factor in the reduced household spending is the increasing proportion of income dedicated to interest repayments. Housing debt servicing costs have risen both in dollar terms and as a share of household disposable income. Dwelling interest payable saw a 7.6% increase over the quarter, following a 12.4% rise in Q2 2023, culminating in a staggering 173.3% increase from pandemic lows.
Record High Debt Servicing Ratio and Tax Payments
Australia’s debt servicing ratio, encompassing both principal and debt repayments, has reached new record highs. This increase, combined with record tax payments and a sharp rise in rents, sets the stage for a potential financial crisis for many Australian households.
Conclusion
The latest economic data from the ABS highlights the growing financial challenges faced by Australian households. With a significant decline in disposable income, reduced savings, and increased debt servicing costs, many families are experiencing heightened financial pressure. This situation calls for careful consideration and potential intervention to support those most affected and to prevent further escalation of these financial strains.