Ratio of Credit Card Debt to Discretionary Income

IBISWorld forecasts the ratio of credit card debt to discretionary income to increase by 0.40 percentage points in 2023-24, to 6.6%. Real household discretionary income is projected to decline in 2023-24 following the winding down of COVID-19 wage subsidy packages in the previous years. Rising interest rates, as the RBNZ raises the cash rate, are also expected to increase the amount of income consumers direct towards mortgage repayments in the current year. Consumers are also anticipated to face higher prices for many goods, with inflation reaching placing upward pressure on credit card balances. With COVID-19 restrictions largely removed, households are also likely to spend more on discretionary expenses, such as food services, travel and recreation, further supporting growth in credit card debt balances.

The ratio of credit card debt to discretionary income fell significantly in 2020-21 as discretionary income increased over the year. The New Zealand Government implemented several measures in 2020-21 due to the COVID-19 pandemic, including a 0.75 percentage point reduction in the cash rate in March 2020 and a stimulus package that assisted in covering the wages of employees for businesses that were struggling but continued to retain staff. In addition, COVID-19 measures led to a fall in discretionary spending, reducing credit card debt balances.