Average family in the red just to get by

Skyrocketing living costs mean the average New Zealand family is going into the red simply to cover everyday expenses, according to detailed new analysis.

Where four years ago a family on the average income could each week expect to earn $23 more than it spent on its bills, that figure has now fallen below zero to $15 in the red.

People wanting to maintain the living standard they enjoyed four years ago are being forced into debt or must face the difficult task of sacrificing day-to-day items.

The research by Bernard Hickey, managing director of financial website interest.co.nz, puts a precise figure on the extent to which families are hurting as living costs outstrip income growth.

The gap means the government would have to deliver a $4 billion tax cut package to restore household budgets to 2004 levels, but neither Labour nor National is promising relief anywhere near that much.

The new figures come as the bad news rolls in thick and fast for New Zealanders on a budget: petrol was last week tipped to eventually hit $3 a litre; electricity costs are set to rise due to low hydro lake levels and the effects of carbon emission trading schemes; food prices are leaving supermarket shoppers gulping and interest rate jumps of recent years are beginning to bite as fixed mortgages expire.

Hickey shows weekly expenses for a household on the average income have risen by $193 since April 2004, while net income has increased by just $156 a week (based on gross incomes rising from $63,400pa to $72,000).

And it's not just middle income families struggling. A household on $92,000 has had a $217 jump in living costs leaving it $93 a week worse off. A family on $52,000, aided by Working for Families, will have suffered relatively less, but is still $14 worse off.

Hickey says struggling families will be chipping into the equity in their homes to plug the gap or stacking up debt on credit cards to make ends meet. And proposed tax cuts, estimated to give average earners an extra $20 a week, would only make a dent in the increased costs.

"Right now if people hadn't changed their spending habits they would be getting into debt," he said.

Yesterday neither Labour nor National were willing to reveal how much relief they were prepared to give households. Labour has been tipped to offer a tax cut package worth $1.5-$2.2 billion, well below the $4b Hickey estimates is required to restore household budgets to 2004 levels.

In a statement to the Star-Times, a spokesperson for Finance Minister Dr Michael Cullen said the government was very aware of the pressures on families and was working to address them. It would also seek advice over Hickey's figures.

A spokesperson for National said taxes and government spending had gone up under Labour while taxpayers had to tighten their belts but would only say that National's tax package would be unveiled in "due course".

Economist Brain Easton said while some people would indeed be worse off than they were in 2004, the situation would vary enormously from household to household. Families with lower mortgages or who had received higher than average wage increases were among those who could be better off than Hickey's figures suggested.

Hickey acknowledges his figures are based on averages, but points out that many of his estimates, including those for food costs, petrol consumption and the percentage owing on a household's mortgage, are conservative.

Hickey says new data from banks support his claim that families are balancing the household budget by increasing mortgage or credit card debt.

Mortgage lending is growing faster than transactions in the housing market, which indicates mortgage growth is being driven by people topping up existing loans. And Reserve Bank figures show the percentage of credit card debt that was interest-bearing jumped to 71.2% in February, up almost 3% from the previous month. This is the biggest increase since early 2005.

* DATA SOURCES

Financial commentator Bernard Hickey built a picture of the average family using official data and making conservative assumptions about costs.

All comparisons are made between April 2004 and April 2008.

The "average household" is a family with two children earning the average household income ($63,400 in 2004; $72,000 in 2008).

Food costs sourced from Household Economic Survey.

Petrol costs based on consumption of 35 litres/week.

Mortgage costs based on $170,000 mortgage on a median-priced house in April 2004.

- © Fairfax NZ News