Australian Households Face Challenges as GDP per Capita Declines for 6th Straight Quarter

Australia’s Gross Domestic Product (GDP) per capita was down for the sixth consecutive quarter, falling by 0.4 percent. Excluding the COVID-19 pandemic period, annual economic growth was the lowest since 1991-92 financial year, which included the gradual recovery from the 1991 recession.

However, the last quarter reported some growth with GDP rising by 0.2 percent in the June quarter of 2024 and by 1.5 percent in the 2023-24 financial year.

“The Australian economy grew for the 11th consecutive quarter, although growth slowed over the 2023-24 financial year,” said Katherine Keenan, Australian Bureau of Statistics (ABS) head of national accounts while releasing the latest GDP numbers on Sept. 4.

Commenting on the numbers, Treasurer Jim Chalmers said the outcome is the inevitable consequence of global economic uncertainty, persistent, moderate inflation, and higher interest rates. However, he added that in the context of a really difficult global economic environment, “any growth in our economy is welcome growth.”

“We know people are doing it tough. We know growth in our economy is soft and subdued, and that’s why our responsible economic management and striking all of the right balances is so important,” he said.

Meanwhile, Shadow Treasurer Angus Taylor said that sixth consecutive quarter of the household recession is the longest since the data began 50 years ago.

“We have not seen this since we kept records on GDP per capita and since the early 1970s, we have not seen a period where we have had 18 months of negative GDP per capita,” he said.

“It is also clear that real, disposable incomes—the standard of living of households in Australia—continues to go backwards. It has fallen almost 9 percent now since Labor came to power. That is an extraordinary situation.”

Household Spending Fell Following 2 Quarters of Growth

Household spending fell by 0.2 percent, detracting 0.1 percentage points from GDP growth.

“Spending on many discretionary categories fell in the June quarter. This followed a relatively strong result in the March quarter, which included a number of sporting, gambling, and music events. The strongest detractor from growth was transport services, particularly reduced air travel. This was the first fall for this series since the September 2021 quarter,” Keenan said.

Furnishings and household equipment rose 4 percent as households took advantage of end-of-year sales. This was partly offset by food (-1 percent) with households spending less on groceries.

Household Saving Ratio Remained Subdued

Despite a rise in household income, increasing spending, taxes, and interest payments have left households with little to save, resulting in a low saving ratio.

The ratio, which measures the proportion of disposable income that households save, remained steady at 0.6 percent in the June quarter.

However, the ratio’s annual figure was 0.9 percent, marking the lowest level since 2006-07. This indicates that households are spending nearly all their income, leaving little for savings.

Gross disposable income, which is the total income households have after taxes, grew by 0.9 percent in the June quarter, slightly outpacing the 0.7 percent rise in household spending.

Over the year, income grew by 4.1 percent, but household spending grew faster at 5.9 percent. This contributed to the low saving ratio.

Increase in Government Spending

Despite all the factors, government spending saw an increase of 1.4 percent. National non-defence spending drove the growth this quarter and grew for the seventh consecutive quarter.

“The rise in June was due to continued strength in social benefits programs for health services. State and local expenditure also contributed to growth with a rise in employee expenses,” Keenan said.

The report also revealed that investment fell for the third consecutive quarter by 0.1 percent in the June quarter.

In the private sector, new machinery and equipment fell 1.6 percent, driven by reduced agriculture and retail investment. This was partly offset by ownership transfer costs, which rose 3.9 percent with strong activity in the property market.

Despite three quarters of falls, annual growth in total investment was 4.1 percent.

Drivers of Income Growth

The growth in gross disposable income was mainly driven by a 1 percent increase in employee compensation (wages and salaries).

However, this was partly offset by a 3.1 percent increase in income tax, meaning that a larger portion of income went to taxes, reducing the net income available for saving or spending.

Over the year, income growth was supported by a 7.3 percent rise in wages and a significant 39.3 percent increase in interest received by households.

However, this income growth was offset by a 10.9 percent rise in income taxes and a 36.1 percent increase in interest paid on mortgages, which reduced the amount of disposable income available.