Australian savings rates are at their lowest level in 16 years after Labor refused to extend low and middle income tax offsets amid a cost-of-living crisis.
Official national accounts show that housing savings fell to just 1.1 percent in the September quarter of 2023, down from 2.8 percent in the June quarter.
This was the lowest savings rate since December 2007.
Shortly after Labor came to power, in the September quarter of 2022, the savings rate hit seven percent, with Australians still having money left over from lockdowns to cover previous interest rate increases.
The Australian Bureau of Statistics said there is now less income left 'in the absence of low and middle income tax offset', along with higher interest payments on home loans, as many ultra-low fixed interest rates expired.
Former Liberal Treasurer Josh Frydenberg extended the tax offset for a year to end on June 30, 2022, but his Labor successor Jim Chalmers opted not to extend it, citing inflationary pressures.
But on Wednesday Dr Chalmers admitted low savings were a sign Australians were under pressure.
“Well, I think the household savings rate is one of the ways we know people are having a particularly hard time,” he said.
Australian savings rates are at their lowest level in 16 years after Labor refused to extend low and middle income tax offset (shown is a stock image of Australian coins)
'People save a little bit in total, but not much anymore.
'We have seen that number drop recently.
“We don't need that figure to say that people are having a hard time, but it is an indication that they are.”
Under the halted low and middle income tax offset, 10 million Australians earning up to $126,000 were entitled to some form of relief.
Those earning $48,000 to $90,000 received $1,500, consisting of the $1,080 compensation plus a one-time payment of $420 for living expenses.
Mr Frydenberg announced the $420 payments in the March 2022 budget, his final weeks after Russia's invasion of Ukraine sent crude oil prices soaring and led to a rise in inflation.
The tax offset, originally introduced in the October 2020 Budget, offered $675 for those earning less than $37,000.
The Reserve Bank left interest rates unchanged on Tuesday at a twelve-year high of 4.35 percent, but this followed thirteen increases in eighteen months.
The October Financial Stability Review predicted an increase in financial stress.
Treasurer Jim Chalmers admitted the low savings levels were a sign Australians are under pressure
“The number of cases of severe financial stress is expected to increase, but will remain limited to a small proportion of home borrowers,” the report said.
Since May 2022, monthly repayments on a variable rate mortgage have increased by 67.7 percent, while interest rates rose from levels starting with a 'two' to levels closer to seven percent.
The Reserve Bank also expects 1.3 million ultra-low fixed rate mortgages to mature in 2023 and 2024, pushing borrowers into a much higher 'revert' variable rate unless they can refinance.
Inflation fell to an annual rate of 4.9 percent in October, but remains well above the RBA's target of 2 to 3 percent, with electricity bills rising 10.1 percent and gas bills 13 percent.