Cost-of-living concerns not going away, as household real incomes slump for eight quarters in a row
Mr Richardson said the tax cuts were a “Band-Aid”, and higher productivity growth would be needed to drive better living standards in the long run.
“In Australia these days, we spend our time grabbing bits of pie from each other rather than growing the pie, and at some stage we get what we deserve, and we’re getting the politicians that we deserve,” he said.
Mr Richardson said he did not expect real household incomes to return to their pre-pandemic level until 2027. Mr Smith is more optimistic, forecasting household incomes will recover to their December 2019 level by September 2025.
The figures underscore the political challenge facing the Albanese government, as polling consistently shows the rapid rise in the cost of living has become the single most important issue for voters.
The latest poll from The Australian Financial Review and Freshwater Strategy showed 69 per cent of voters listed cost of living as their top priority. The next greatest priority was housing and accommodation at 40 per cent, which was related to the cost of living.
Mr Smith said it was not surprising that households were under pressure.
“In the current environment, real household disposable income per capita is one of the best measures of how Australian households are feeling. It calculates income after taking account of inflation and population growth, and after taking account of taxes and mortgage payments,” he said.
“Households have been dealing with the cost of living challenges that elevated inflation and rising interest rates impose. At the same time, bracket creep is ratcheting up the average rate of tax paid, while aggregate measures of income and economic growth are being driven by population growth, not productivity.”
Mr Richardson said the decline in real incomes had been driven by high inflation, an increase in the personal tax take, and the rapid rise in interest rates hitting variable rate borrowers.
While households still have about three-quarters of the excess savings built up during the pandemic, Mr Smith said not all of these funds were available to be drawn down.
“Many households may have used these funds to pay off and discharge a mortgage or invest in illiquid assets, meaning the money cannot – or cannot readily – be accessed,” he said.
“Deloitte Access Economics therefore expects that the savings ‘buffers’ build up during the pandemic may not be fully spent by households and do not accurately reflect the financial position of the household sector.”
Outlook Economics director Peter Downes said some of the decline in household real incomes was due to idiosyncratic measurement issues, including a large swing in farm incomes and imputed superannuation interest receipts.
He noted that inflation-adjusted labour income had increased by more than other OECD countries and real household wealth was also 12 per cent higher than pre-pandemic levels, meaning consumers were not necessarily going backward on average relative to other advanced economies.
