Real household discretionary income

IBISWorld forecasts real household discretionary income to decrease by 2.5% in 2025-26, to $79.6 billion. This decline in discretionary income is largely a follow-on impact of slow disposable income growth. Throughout the first two quarters of 2025-26, the unemployment rate has increased from 5.1% to 5.3%, placing downwards pressure on real household discretionary income. According to RBNZ's Monetary Policy Statement from November 2025, the unemployment rate is expected to remain around this mark for the remainder of 2025-26, limiting potential discretionary income growth throughout the second half of the year. Simultaneously, compulsory expenditure, led by housing and household utilities spending, has trended upwards in the first quarter of 2025-26, placing further downwards pressure on discretionary income.

Factors that influence how much New Zealanders spend on necessary household expenses play a key role in determining real household discretionary income. For example, healthcare costs have increased over the past decade because of New Zealand's aging population. The pandemic accelerated this trend, generating a surge in overall healthcare spending. Transport costs have also risen, largely driven by strong positive growth in retail petrol prices. Expenditure on necessary clothing and footwear has risen sharply over the past decade, bolstered by the proliferation of online shopping.

Over the past five years, real household discretionary income has contracted, largely due to the fact that high inflation and cost-of-living pressures have eroded the gains generated by high levels of government stimulus implemented during the pandemic. A sharp increase in social assistance payments and restrictions on some forms of discretionary spending led to a surge in disposable income over the three years through 2020-21. During that period, high population growth also contributed to boosting the country's total income. Yet, in 2021-22, these trends reversed. Government stimulus was reigned in and inflation surged during the 2022 calendar year. The New Zealand Central Bank responded by lifting the Official Cash Rate at the fastest rate in New Zealand's history, causing a surge in interest repayments for homeowners in New Zealand. As a result, real household discretionary income fell sharply over the two years through 2022-23.

In 2023-24, the cash rate remained stable at 5.5% for more than 3 quarters of the year. While this kept mortgage repayments high, real GDP growth supported expansions in disposable income, which in turn led to strong growth in real household discretionary income. However, this trend reversed in 2024-25, as output growth stagnated and total disposable income grew relatively slowly. Inflationary pressure remained high, encouraging household expenditure on essential items to rise at a faster rate than disposable incomes, partially eroding the share of income available for discretionary purposes. Non-discretionary expenditure on housing costs continued to surge, as the rental market remained tight, putting upward pressure on rents. Additionally, the labour market in New Zealand continued to weaken, with unemployment growth undermining wage growth, weighing on disposable and discretionary income. Overall, IBISWorld forecasts real household discretionary income to fall at a compound annual rate of 2.1% over the five years through 2025-26.