Rising Non-Discretionary Costs Tighten Household Budgets in New Zealand

New Zealand households are feeling the strain as non-discretionary expenses continue to climb, squeezing budgets and forcing consumers to cut back on discretionary spending. According to Centrix’s latest Credit Indicator, consumer arrears fell slightly in June, but the rate of improvement has plateaued, signaling ongoing financial pressure.

Keith McLaughlin, managing director of Centrix, explained that while consumers have been managing their non-discretionary expenses effectively, the recent increase in mandatory costs—such as insurance, property rates, and utility bills—is beginning to erode their financial stability. “We’re just starting to see the flow-through of these increased costs,” he said. “It’s making it harder for arrears to drop significantly.”

Despite these challenges, McLaughlin expressed confidence that consumers are adapting. “I think there’s just that little blip where there’s been a bit of an increase in pressure on the household budget,” he noted. Meanwhile, mortgage arrears have declined for the second consecutive month, a trend he attributes to the reductions in the Official Cash Rate (OCR) over the past year.

“We’re finding interest rates are returning to a lower base than they have been,” McLaughlin said. “That has enabled mortgage holders to maintain their payments.” However, he cautioned that rising costs in insurance, power, and property rates are offsetting the benefits of lower interest rates, making it difficult for households to feel the relief.

Small businesses, particularly in the hospitality sector, are also struggling. McLaughlin highlighted that many small businesses are relying on home equity to fund operations, as consumer spending remains cautious. “We’re really quite concerned about that,” he said. “Consumer spending is still quite cautious, and I think that’s having a flow-on impact into the cash flow on those small businesses.”

Construction remains the hardest-hit industry, with 755 companies liquidated in the past year—an increase of 48% compared with the previous year. Inland Revenue has also seen a spike in applications for company liquidations, with the tax agency responsible for a significant portion of these cases.

McLaughlin emphasized that the hospitality sector is now the second-largest contributor to business liquidations. “This is a clear sign that the industry continues to struggle with rising operating costs and shifting consumer spending patterns,” he said.

As the economic landscape continues to evolve, the pressure on both households and small businesses is expected to persist. Consumers are advised to remain vigilant with their spending habits, while businesses must find innovative ways to adapt to the current financial climate.