Real household disposable income

IBISWorld forecasts real household disposable income to rise by 0.4% during 2024-25 to total $211.1 billion. The likely easing of high inflationary pressures and the cost-of-living crisis is underpinning the increase in real household disposable income in the current year. However, a recovering labour market is pushing up the unemployment rate, constraining growth in disposable incomes in 2024-25.

Real household disposable income has fluctuated over the past five years due to COVID-19 pandemic-related disruptions and its after-effects on the economy. The New Zealand Government (Te Kawanatanga o Aotearoa) implemented several measures to reduce the number of job redundancies made during the COVID-19 pandemic. This includes a 0.75 percentage point reduction in the cash rate in March 2020 and the Wage Subsidy Scheme that assisted in covering the wages of employees working for struggling businesses that sought to retain staff. While domestic restrictions in New Zealand were lifted in June 2020, sporadic outbreaks and temporary lockdowns constrained trade for many businesses, particularly those in the tourism and hospitality sectors. These lockdowns limited businesses' confidence to hire staff. The Trans-Tasman bubble, established in April 2021, provided some short-term relief to these sectors, supporting growth in disposable income. However, the travel bubble was suspended in July 2021.

Economic uncertainty coming out of the pandemic and high inflationary pressures resulted in disposable incomes falling over the three years through 2023-24. Acute skill shortages in the New Zealand labour market caused a rise in average weekly earnings. This has contributed to growth in disposable income on a per capita basis. In addition, the substantial cash rate cuts over the two years through 2020-21 reduced interest payments on mortgages, which is one of the largest deductions when calculating disposable income. Subsequent hikes in cash rates have, therefore, weighed on disposable income growth. Overall, IBISWorld forecasts real household disposable income to rise at a compound annual rate of 1.0% over the five years through 2024-25.