On the subject of income, welfare support and spending

Will negative wage growth, the acute poverty of jobless people combined with the avarice of employers and punitive federal government policy intesect to create a perect storm which will see household spending fall this year?   

Current state of play......

ABC News, 23 February 2019:

Rather, Dr Lowe saw stagnant household incomes is a much bigger threat to consumer spending, and thus to the 60 per cent of the economy based on it.

"Aggregate household income used to grow at 6 per cent, it's growing sub-3," he told the MPs on the committee.

"That's a big difference, and you accumulate that over three or four years and income is 8, 10 or 12 per cent lower than it otherwise would have been.

"Many people borrowed assuming their incomes would grow at the old rate and they haven't.

"They're having more difficulty, they've got less free cash and so they can't spend, so this is why I've put so much emphasis on the need for a pick-up in wage growth."

Dr Lowe told the committee he has been using speeches to try and lift wage expectations, while the RBA has been keeping interest rates low and stable for an extended period of time to relieve the pressure on households.

The RBA governor said, while the strategy seems to be working — with unemployment down at 5 per cent and wage growth starting to pick up from recent lows — he could use a bit more help from the Fair Work Commission and employers.

Fair Work last year awarded a 3.5 per cent pay rise for those on the minimum wage and linked awards, and Dr Lowe said that was a "sensible and right policy" and a similar increase this year "makes a lot of sense".

"If workers get their normal long-run share of that [productivity increase] then their real wages should rise by 1 per cent a year," he said.

Financial Review,  7 February 2019:

Consumer anxiety has reached its highest level in three years, with households spending less on discretionary items as they worry about their finances and the future.

The National Australia Bank consumer anxiety index rose to 62 points in the December quarter, and close to 40 per cent of those surveyed said they had experienced financial hardship during the quarter – the highest level in two years.

Households said they had pulled back their spending on things like travel, eating out and entertainment due to heightened anxiety about their financial conditions.

The primary causes of anxiety through the December quarter were how to finance one's retirement and how to provide for one's family's future....

"What's happening here is you haven't got much wages growth, you're paying off utilities, you're paying off debt, and you're doing things that you have to do."

Mr Oster said after doing all those things, there wasn't much money left for households.

Anxiety about job security reached its highest level since 2016, and 50 per cent of homes in hardship found their financial position impacted by high utility bills.

The Guardian, 17 September 2018:

A proposal to increase Newstart allowance by $75 a week would lead to a boost in consumer spending, creating more than 10,000 jobs and lifting wages, a new report shows.

The report by Deloitte Access Economics, released on Monday morning, said the policy to increase the incomes of more than 700,000 people by $10.71 a day would cost the federal budget $3.3bn a year.

But a “prosperity dividend” would see the government collect an extra $1bn in taxes as a result of a stronger economy, and the proposal was also projected to create 12,000 extra jobs in 2020-21 and increase wages by 0.2%.

It comes amid debate about the rate of Newstart, which at $272.90 for a single person has not risen in real terms in more than two decades. It will increase by $2.20 this week as a result of indexation.

The Australian Council of Social Service (Acoss), business groups, unions and a former prime minister, John Howard, have all argued for an increase, but the government has so far dismissed those calls….

The bulk of the economic benefits from increasing the payment would go to the bottom 5% of Australian income earners, who would receive “six times the dollars going to the highest income quintile”. The “poorest of the poor” would receive 28 times the relative boost to their disposable incomes, than the top income quintile.

Regional areas “most in need of help” would be key winners from increased spending….

The current rate is the equivalent to living on $38.99 a day. The report said a single person who also receives the maximum rent assistance and the energy supplement would be living on about $49.24 a day.

Previous research has shown that those on Newstart live on as little as $17 a day after their housing expenses and bills.

ABC NEWS, 9 September 2018:

It may not have garnered the same attention as the surprisingly strong second-quarter GDP growth, but an equally striking fact in last week's national accounts was household savings had just hit a post-GFC low.

It is not a new phenomenon. The household saving ratio — or the ratio of households' net saving to disposable income — has been shrinking since 2014.

What makes the latest figure uncomfortable is that there is now little fat left to trim, and on current trends households will be spending more they earn.

The ability of the Australian economy to keep growing in the face of a number of challenges in recent years owes a fair bit to the savings so prudently built up after the sobering experience of the GFC.

As JP Morgan's Tom Kennedy points out, the persistent decline in savings since 2014 has been an important part of Australia's real GDP growth performance, helping offset some of the spending drag associated with record low wages growth and an unemployment rate that has yet to fire up wages.

While the correlation between savings and spending is far from perfect, Mr Kennedy has drilled down into the figures, and is worried.