Grim reality of Aussies’ savings revealed in Budget

A “very concerning development” for the nation’s economy has been revealed in the budget.

Australians are expected to spend and save less in what Treasurer Jim Chalmers has warned is a “very concerning development” for the nation’s economy.

Household consumption – the rate of average household spending in the economy – had been growing as Australia rebounded from the pandemic.

Over the 2022-23 financial year, Treasury has forecast consumption to grow to 6.5 per cent – higher than the 5.75 per cent estimated in April.

But higher prices and interest rates are expected to act as a drag on household budgets and their ability to spend.

Higher prices and interest rates are expected to act as a drag on household budgets and their ability to spend. Picture: NCA NewsWire / Luis Enrique Ascui

Forecasts for the next financial year, 2023-24, have been slashed from 3.75 per cent to 1.25 per cent as household spending shifts back to discretionary services.

Speaking to reporters in Canberra, the Treasurer said the drop was an “inevitable consequence” of rising interest rates and other global factors.

“One of the primary reasons the economy slows … is because of (household consumption),” Dr Chalmers said.

“I think that is a very concerning development.

“Consumption has been quite strong. Demand has been quite strong. You’ll see that in the retail figures. But you will see today in the (consumer) confidence numbers, they’ve really come off.

“That will have an implication for growth and that will have an implication for small businesses.”

The amount Australians are saving is also expected to drop, with the household saving ratio forecast to fall from “elevated levels” to 3.25 per cent.

“The near-term recovery in spending will largely be accommodated through a further sharp decline in the household savings ratio as households spend an increasing share of their income,” the Budget read.

“The normalisation of spending patterns and cost of living pressures are expected to see households save less out of their income.”

But that will not stop Aussies from spending big on international holidays.

Treasury estimates spending on overseas travel is expected to rise sharply in 2022-23, reflecting pent-up demand for international travel.

Originally published as Grim reality of Aussies’ savings revealed in Budget