Aussies are saving the bulk of their tax cut income boost

James Thornhill
10:30am October 25 2024

Consumers are opting to save most of their extra income coming from Stage 3 tax cuts in the face of cost-of-living pressures, according to data from the Westpac-Data X Consumer Panel. 

Westpac economists estimate that the tax cuts boosted disposable income by a total of $6.4 billion over the three months to September. The average increase in income across the Panel was $604 per person.

Yet households only spent around 16 per cent of that and saved the rest, based on the Consumer Panel findings. 

“The Westpac–DataX Consumer Panel confirms that, so far, the Stage 3 tax cuts have been slow to translate into an increase in spending. Most consumers have instead opted to increase their rate of saving into deposits and offset accounts and pay down debt,” says Jameson Coombs, an economist at Westpac.

The news will be welcomed by the Reserve Bank, which had been wary of the risk that an upturn in spending would delay the timetable for returning inflation to its 2-3 per cent target band.

“While it might be that the spending response takes a while to come through, our results also suggest that some of the upside risks to consumption that the RBA has previously highlighted are not coming to pass,” Coombs says.

The Consumer Panel, developed by Westpac’s data analytics service DataX, uses de-identified data from over a million customers to give a timely and detailed picture of Australia’s consumer finances. 
 

Spending still rose by 1.5 per cent in the September quarter on a seasonally adjusted basis – the strongest quarterly rise in two years – driven by more spending on transport and travel, entertainment and recreation, and on dining out.

However, while that equates to an average increase in spending of around $138 per person, Coombs notes that it’s much less than the average cumulative tax benefit from Stage 3 of $604 (or $595 seasonally adjusted).

Meanwhile, Coombs says it’s probably no coincidence the September quarter saw the largest quarterly net inflow into savings and offset accounts since the September quarter of 2021. 

The September quarter also saw the largest average decline in mortgage balances in two years, suggesting higher additional principal repayments. 

“The upshot is that households are using the improvement in disposable income to rebuild their flow of savings and pay down mortgage debt rather than materially increasing their spending, as least for now,” says Coombs. 

With Christmas just around the corner, and consumer sentiment beginning to improve, Westpac economists will be watching closely for signs of a spending pick-up in the final months of the year. 

To read Jameson’s full note, visit WestpacIQ. 

James Thornhill

James Thornhill was appointed as editor of Westpac Wire in May 2022. Prior to joining the bank, he was a business and financial journalist with more than two decades of experience with international newswires. Most recently, he was a resources correspondent for Bloomberg, covering the mining and energy sectors, and previously reported on a broad range of topics from economics and politics to currency and bond markets. Originally from the UK, he’s had stints working in London, New York and Singapore, but is now happily settled in Sydney.

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