Business Environment Profiles - New Zealand
Published: 30 August 2024
Real household discretionary income
80 $ billion
0.7 %
This report analyses aggregate real household discretionary income in New Zealand. The data for this report is sourced from Statistics New Zealand (Tatauranga Aotearoa). Discretionary income is measured as disposable income less 'necessary' household expenses. IBISWorld defines 'necessary' household expenses as all spending on food and non-alcoholic beverages; clothing and footwear; housing and household utilities; transport; health; and communications. The data is presented in 2021-22 dollars, converted using the consumer price index and is presented in financial years.
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IBISWorld forecasts real household discretionary income to decrease by 2.1% in 2024-25, to $79.5 billion. This estimated fall follows strong declines in recent years because of rising inflation and the removal of COVID-19 assistance measures in 2021-22 and 2022-23. Inflationary pressure has peaked, but it is set to remain high in 2024-25, encouraging household expenditure on essential items to rise at a faster rate than disposable incomes, eroding the share of income available for discretionary purposes. Transport costs remain high, exacerbated by ongoing disruptions to the global energy supply chain. As migration has rebounded from pandemic-era lows, housing costs are set to surge, especially in major cities like Auckland, where the rental vacancy rate is plummeting, putting sharp upward pressure on rents. Additionally, the labour market in New Zealand is expected to weaken, with unemployment set to rise. This will undermine wage growth, weighing on disposable and discretionary income during the year.
Factors that influence how much New Zealanders spend on necessary household expenses play a key role in determining real household discretionary income. For example, healthcare costs have increased over the past decade because of New Zealand's aging population. The COVID-19 pandemic accelerated this trend, generating a surge in overall healthcare spending. Transport and communications costs are also on the rise, although transport costs were heavily disrupted by travel restrictions associated with the COVID-19 pandemic. Expenditure on necessary clothing and footwear has risen sharply over the past decade, bolstered by the proliferation of online shopping. Yet, despite paying more overall, New Zealand households have been able to benefit from these trends, paying overall lower prices for a variety of retail products.
Over the past five years, real household discretionary income has grown, despite the fact that rising inflation has eaten into the gains generated by high levels of government stimulus, implemented following the COVID-19 outbreak. A sharp increase in social assistance payments and restrictions on some forms of discretionary spending led to a surge in disposable income over the three years through 2020-21. During that period, high population growth also helped to boost the total income in the country. Yet, in 2021-22, these trends reversed. Government stimulus was reigned in, and inflation surged during the 2022 calendar year. The New Zealand Central Bank responded by lifting the Official Cash Rate at the fastest rate in New Zealand's history, causing a surge in interest repayments for homeowners in New Zealand. Despite trending downwards, the persistence of inflation has hindered household discretionary incomes over the past four years. Overall, IBISWorld forecasts real household discretionary income to rise at a compound annual rate of 0.7% over the five years through 2024-25.
IBISWorld projects real household discretionary income to climb 2.3% in 2025-26, to $81.3 billion...
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