Tax cuts and falling interest rates have turned around a slide in the average New Zealand household's finances, boosting the chances of an economic recovery as the rest of the world stumbles into recession.
Research by interest.co.nz has found tax cuts from October 1 and a beefed up Working for Families package have added around NZ$33 a week in after tax income to the average family, while a drop in interest rates has generated an average benefit of $47 a week. The net result, after accounting for higher food and other living costs, is a $60 improvement in finances between the second half of calendar 2008 and the first half of calendar 2008.
The average household's finances had deteriorated significantly between 2004 and 2008 as rising interest rates, higher petrol prices and higher food prices slashed the weekly budget balance to a deficit of $15 in early 2008 from a surplus of $23 in 2004.
The figures are calculated using Household Economic Survey data and assumed a NZ$73,440 average household income with a two child family and a NZ$170,000 mortgage.
A table detailing the average household's fortunes is below.
[TABLE=5]1. Average annual household income from June 2004 Household Economic Survey (HES). Household income for 2008 equals June 2007 HES plus wage growth of 3.5% for H1 and 5.5% for H2. Mortgage equals $170,000, which is 70% of the median property as measured by REINZ for April 2004. 2. Average household after tax income calculated from IRD calculators, including a Working for Families payment for 2 children of $63 in 2008. Figures take into account tax changes and Kiwisaver after October 1. 3. Petrol costs assumes 35 litres per family and $1.13 a litre in April 2004, $1.89 a litre in April 2008 $1.78 on Oct 31 (MED official measures) 4. Food costs use figure in Household expenditure survey, plus Stats NZ measured food price inflation since June 2007. 5. Average mortgage costs equals 70% LVR mortgage on median house price for April 2004 (REINZ figures) Mortgage rate of 6.9% in 2008 and 9.7% in April 2008. 8.25% in November 2008. This is from our sourcing. 6. Other living costs sourced from QES from 2004, inflated at CPI growth rates since June 2007.