Real Household Discretionary Income

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.