Report: Discretionary income set to keep shrinking
New research from IBISWorld shows that Australians will have less to spend on shopping, entertainment and other “nice-to-haves” for the second year in a row.
The study suggests spiralling gas and electricity prices, rent and dwelling costs, and private health insurance premiums will shrink the amount of spare cash Australians have in 2017-18.
Analysts predict a 3.2 per cent decline in discretionary income in the current financial year, following a 2.3 per cent fall in 2016-17. This is the first time since 1992 that discretionary income is expected to decline for two years in a row in Australia.
(IBISWorld measures discretionary income as take-home pay from wages and other income, less any necessary household expenses such as food, clothing, rent/mortgage payments, transport, electricity, gas, healthcare, communications and insurance costs.)
“Sluggish wage growth and a rise in the cost of living are expected to place additional stress on the ability of Australian households in several different income brackets to pay for discretionary goods and services,” said Nick Tarrant, IBISWorld senior industry analyst.
Unavoidable costs, which IBISWorld defines as necessary household expenses, are forecast to rise by 3.0 per cent in 2017-18, far outstripping anticipated disposable income growth of 1.0 per cent in the same year.
Meanwhile, analysts suggest electricity and gas prices will climb by 12.0 per cent in 2017-18, as increased costs from rising LNG exports and the closure of antiquated coal-fired power stations are passed on to consumers.
Healthcare costs are forecast to rise by 4.4 per cent, as Australia’s ageing population places increased pressure on the system, along with soaring premiums for private health insurance services.
Rent and dwelling costs are also forecast to grow by 3.3 per cent, due to strong competition for rentals and pressure on the key metropolitan areas of Sydney and Melbourne caused by increases in the population living there.
Tarrant said discretionary income growth in the past was largely supported by Australia’s expanding population, driven by net migration, but income per capita has been falling since 2011-12, as the economy has struggled to transition from its reliance on the mining sector.
“Rising unemployment and a long-term decline in weekly hours worked have also reduced incomes on a per capita basis,” he concluded.