The Australian National University’s (ANU) Centre for Social Research & Methods estimates that household income has increased by 8.5% over the last three years. However, the increase in the cost of living over this period means that real income per person has fallen by 2.9%. The analysis also shows that so-called bracket creep saw personal income tax payments rise by 20% to $57.4 billion over the three years to 2018, while total disposable income increased by just 7.1%. From The Australian:
The average household has seen no gains in their after-tax income since the end of 2010, as the economy was emerging from the global financial crisis.
An analysis of living standards by the ANU’s Centre for Social Research and Methods shows the fall in the past three years was greater than during the last recession in 1991-92.
…living standards peaked in 2011. There was no improvement for the next four years, but incomes started falling behind rising living costs from late 2015 onwards.
The below charts from the National Accounts confirms the picture painted by ANU.
First, real average compensation per employee has fallen 4.7% since March 2012:
Second, real household disposable income per capita has fallen by 1.3% since December 2011:
The decline in real household income helps to explain why MB is so pessimistic on household consumption, which accounts for around 55% of Australia’s domestic demand.
As their incomes have fallen, households have drawn down on their savings – as illustrated by the household savings rate falling to its lowest level since the Global Financial Crisis:
However, the drawing down of savings is clearly unsustainable, and at some point soon, this process will have to stop or go into reverse.
In fact, with Australia’s housing market now plummeting alongside household wealth, the savings rate will very likely begin to rise. And this process will necessarily dampen consumption.
The Australian consumer is on life support.
