Real household discretionary income in Australia - Data and Analysis (1960-2033)

IBISWorld forecasts real household discretionary income to rise by 2.6% in 2025-26 to $594.3 billion. Strong employee compensation and a robust job market have raised wages, pushing up real household disposable income, which flowed through to discretionary income. Data from the ABS showed that over the 12 months through March 2026, rent and dwelling services accounted for 35.5% of total essential household expenses, followed by food and insurance, which accounted for 15.1% and 12.8%, respectively. The proportion of income spent on essential items like food has dipped from 15.4% to 15.1% over the 12 months through March 2026, and hasn't kept pace with income growth, driving up overall real household discretionary income this year. According to ABS's data, the food and non-alcoholic beverages group consumer price index rose 2.8% in year-on-year terms in April 2026, down from the 3.1% in March 2026 and the group's slowest rise since December 2021. This will likely contribute to an uptick in discretionary income for the rest of the year. Among all essential items, spending on electricity and gas, which account for around 3.7% of total essential spending, has soared by 11.3% over the same period. This was largely driven by the expiry of the Australian Government's electricity rebates introduced in the Federal Budget 2024-25, offsetting further increases in discretionary income this year.Real household discretionary income rose strongly over the two years through 2020-21, as several government support packages boosted discretionary income, including JobKeeper and JobSeeker. Additional measures, like early superannuation access and tax concessions, accelerated the rise in discretionary income over those two years. Lockdowns and remote work arrangements throughout the pandemic also reduced consumer transport and motor vehicle expenses, boosting discretionary income in 2020-21. However, as pandemic restrictions ended and employees returned to the office, spending on transport services soared at an annualised 33.3% over the five years through 2025, placing pressure on discretionary income downwards. Still, the Victorian government's free public transportation scheme, which lasted from April 2026 to May 2026, as well as half-price on public transport for the remainder of the year, will slightly weigh on households' expenses on transport services in the June 2026 quarter and the remainder of 2026.Inflationary pressures mounted, driving up essential expenses and weighing on household income over the past five years. Despite rate cuts through August 2025, heightened interest rates in recent years have raised the cost of interest repayments, pushing down disposable incomes. This pressure has been exacerbated by inflation, which has raised the cost of living, eroding households' incomes after essential spending and limiting discretionary spending. Notably, household spending on healthcare has risen at an annualised rate of 9.0% over the five years through 2025, driven by soaring healthcare costs and Australia's ageing population. Falling discretionary income can also be attributed to natural declines following artificial highs driven by pandemic-related government assistance. IBISWorld forecasts real household discretionary income to fall at a compound annual rate of 0.7% over the five years through 2025-26.