Stephen Johnson, Daily Mail Australian Economics Correspondent
Updated November 10, 2023 01:50, November 10, 2023 02:51
Australian incomes are in decline due to record levels of immigration and rising mortgage rates as higher inflation lowers wage levels.
After-tax income for households has fallen by 5.1% since Prime Minister Antony Albanese came to power, the worst fall in the developed world.
Soaring inflation means workers are suffering from lower real wages, while the Reserve Bank’s 13 interest rate hikes in 18 months are eroding the savings of people with mortgages. .
Australian borrowers are also much more likely to take advantage of variable interest rates, so a rise in central bank rates will cause more pain than in other rich countries.
Record immigration levels are also fueling Australia’s housing crisis, with net overseas arrivals exceeding 400,000 in the year to August and population growth at 2.2%, the highest in rich countries. It becomes.
Real disposable household income per capita in Australia fell by 5.1% in the last financial year, according to an analysis of OECD data. Australian Financial Review found.
By comparison, Canada, another country with high immigration levels, saw per capita income levels fall by 1.5% in the year to June.
In the United States, where immigration and population growth rates are much lower, disposable income levels rose by 3.5%.
AMP chief economist Shane Oliver said Australia’s largest population growth since the 1950s was having an economic impact on Australians.
“It’s gone too far these days,” he told Daily Mail Australia.
“We are experiencing the fastest population growth since the early 1950s.
“The problem is that when you have a large population increase and the problem of inflation at the same time, inflation will accelerate even more.
“The average person may be feeling the weight of rising interest rates and cost-of-living pressures. Any increase in total immigration will push up demand.”
Economist Saul Eslake, principal at Corinna Economic Advisory, agreed that Australia’s high immigration levels were contributing to inflation.
“Population growth is certainly contributing to inflationary pressures,” he told Daily Mail Australia.
“That is leading to inflation in both rental and home purchase costs.
“Immigrants who come here spend money because they demand different services just as they demand different goods.”
High inflation also means Australian workers are suffering a 1.8% reduction in real wages, as the 5.4% inflation rate is significantly higher than wage growth of 3.6%.
“Wages contribute more to inflation in these countries than in Australia,” Mr Eslake said.
“Real wages in those countries have not fallen as much as they have in Australia.”
The Reserve Bank of Australia raised interest rates this month for the 13th time in 18 months, taking the cash rate to 4.35%, its highest level in 12 years.
However, this is still lower than the 5% level in Canada and the 5.25-5.5% level in the United States.
Mr Eslake said Australia’s interest rates are lower than other rich countries because a higher proportion of borrowers have floating rates, which makes them more susceptible to immediate central bank interest rate hikes than in countries where fixed rates are more common. He said the effect was great.
“Fixed rate loans are much more common in most other comparable countries,” he said.
Australia’s household debt-to-income ratio is 197.6%, the highest in the world after Switzerland.
Due to soaring home loan interest rates, home loan interest rates are rising at a faster pace than bank deposit interest rates.
“The interest paid by borrowers is increasing much faster than the interest received by savers,” Eslake said.
“Second, net interest income decreased significantly as interest expense increased far more than interest income.”
Personal income tax as a share of total household income, excluding investment property and small business income, also reached its highest level in the June quarter since September 1998.
“Part of this is because people are being pushed into higher tax rates, but it’s also because the proportion of people working is at an all-time high,” Eslake said.
Real household disposable income fell by 4% in the year to March, the sharpest decline since June 1983, when Australia fell into deep recession.