Real household discretionary income

IBISWorld forecasts real household discretionary income to rise by 1.3% in 2025-26 to $567.0 billion. This expected uptick follows a sharp jump in household discretionary income in 2024-25 due to robust disposable income expansion outpacing spending on essential items. Notably, the Australian Government's electricity subsidies as part of the 2024-25 Federal Budget have caused household spending on electricity, gas and other fuel to contract in 2024-25. This trend, coupled with slowing inflationary pressures across other necessities, has placed downwards pressure on non-discretionary spending and lifted households' real household discretionary income that year. Although the electricity rebates are expected to expire by the end of 2025 and lift household energy spending, inflationary pressures are expected to moderate further across various essential items in 2025-26, sustaining growth in real household discretionary income.

Real household discretionary income rose strongly over the two years through 2020-21 as several government support packages supported discretionary income growth, including JobKeeper and JobSeeker. Additional measures, like early superannuation access and tax concessions, accelerated the rise in discretionary income over those two years. Lockdowns and remote work arrangements throughout the pandemic also reduced consumer transport and motor vehicle expenses, boosting discretionary income in 2020-21. However, as pandemic restrictions ended and employees returned to the office, spending on transport services soared over the four years through 2024-25, placing downwards pressure on discretionary income. Inflationary pressures also mounted, driving up essential expenses and weighing on household income over the past five years.

Real household discretionary income has fallen over the past five years. Despite rate cuts in February, May and August 2025, heightened interest rates in recent years have raised the cost of interest repayments, pushing down disposable incomes. This pressure has been exacerbated by inflation, which has raised the cost of living, eroding households' incomes after essential spending and limiting discretionary spending. Notably, the cost of many essential household items, like healthcare, has risen due to Australia's ageing population. Falling discretionary income can also be attributed to natural falls following artificial highs experienced thanks to pandemic-related government assistance. IBISWorld forecasts real household discretionary income to fall at a compound annual rate of 1.6% over the five years through 2025-26.