An economist’s surprising chart shows Australians are now far worse off than most of the developed world due to aggressive interest rate rises.
Gareth Aird, head of Australian economics at the Commonwealth Bank, produced the chart and noted that Australian households had typically seen their disposable income, after tax, fall by more than 5 per cent.
The opposite occurred in the United States and in most rich world nations of the Organization for Economic Cooperation and Development (OECD) and the G7.
“Real household disposable income per capita has contracted sharply in Australia due to negative real wage growth and rising housing interest payments and tax payments,” Mr Aird said.
“In contrast, real disposable income per person in households has increased over the past year in most OECD countries, particularly in the United States.”
A Commonwealth Bank economist has produced a graph showing Australians are far worse off than most of the developed world as a result of aggressive interest rate rises.
Gareth Aird, head of Australian economics at the CBA, said Australian households had typically seen their disposable income, after tax, fall by more than 5 per cent.
Unlike the United States and most of the developed world, almost all Australian borrowers now have a variable rate mortgage, meaning any increase in the Reserve Bank’s cash rate is automatically passed on through higher monthly payments. high.
The situation is very different in the United States, where almost all borrowers lock in their borrowing rates for 30 years, thanks to the government-sponsored companies Fannie Mae and Freddie Mac that guarantee mortgage financing.
But in Australia, monthly mortgage payments have risen 67.7 per cent since May 2022, as the Commonwealth Bank’s variable rate soared to 6.69 per cent, up from 2.29 per cent, for borrowers with a 20 percent deposit.
This has caused borrowers with the average mortgage of $600,000 to pay $18,744 more a year in payments, as their monthly burden has increased to $3,868, up from $2,306.
The jump came as the Reserve Bank raised interest rates 13 times in 18 months, taking the cash rate to a 12-year high of 4.35 per cent in November, following the most aggressive series of increases since 1989.
Aird this week warned of another possible interest rate rise in 2024 before Australians can expect rate cuts, with underlying measures of inflation above 4 per cent, or well above the RBA’s target of 2 to 3 per cent. hundred.
This would add another $100 a month to payments on a $600,000 mortgage, as the RBA cash rate rose to 4.6 per cent, a level not seen since late 2011.
“The short-term risk lies in a rise in interest rates,” he said.
The situation is so bad that one in five borrowers are now looking to buy somewhere cheaper, while 6 per cent are looking to move abroad, according to a survey of 2,554 Australians by financial comparison group Mozo.
While headline inflation rose 3.6 percent in the year to March, employees’ living costs rose 6.5 percent, reflecting the big rise in mortgage payments, new data from the Australian Bureau of Statistics published on Wednesday.
The Commonwealth Bank also noted that Australian households’ debt-to-income ratio of 185 per cent was among the highest in the world, as house prices rise by double digits over the year, or at a level of more than twice as much as salaries.
While headline inflation rose 3.6 percent in the year to March, employees’ living costs rose 6.5 percent, reflecting the big rise in mortgage payments, new data showed from the Australian Bureau of Statistics published on Wednesday.
“Australian households are among the most indebted in the world,” Mr Aird said.
‘This leaves them more exposed to rate increases than households in most other jurisdictions.
“Put another way, the high level of household debt relative to income increases the already more powerful transmission of upward movements in the cash rate to housing borrowers.”
Australian workers, from the beginning of 2021 to the end of last year, also suffered a cut in real wages because increases in their pay levels lagged inflation.
The end of low and middle income tax equalization in June 2022 also meant Australians had the fourth highest income tax burden among the 38 OECD member countries.
Australia’s 24.9 per cent level was surpassed only by Denmark (36 per cent), Iceland (27.3 per cent) and Belgium (26 per cent).
Daniel Wild, deputy director of the Institute of Public Affairs think tank, said Australia’s higher taxes were a threat to economic freedom.
“The more the government takes what workers earn, the less freedom they have to be able to support themselves and do things for themselves,” he told WhatsNew2Day Australia.
Daniel Wild, deputy director of the Institute of Public Affairs think tank, said Australia’s higher taxes were a threat to economic freedom.
The Commonwealth Bank also noted that Australian households’ debt-to-income ratio of 185 per cent was among the highest in the world, as house prices rise by double digits throughout the year, or at a level more than double that of salaries.
‘OECD figures show Australian workers are among the worst affected in the developed world.
“The latest figures are the nail in the coffin of Australia’s economic freedom.”
In 2022-23, personal income taxes raised $278.4 billion for the federal government, representing 45 percent of its $618.2 billion in revenue.
“As always, it is working and middle class Australians who are forced to do all the heavy economic lifting,” Wild said.
“It is these same Australians who are now saddled with ever-higher taxes that they simply cannot afford.”