Aussie savings sink to the lowest level in 16 years after Labor axed tax relief for millions during cost-of-living crisis

Australian savings rates are at the lowest level in 16 years after Labor declined to extend the low and middle-income tax offset during a cost of living crisis.

Official national accounts showed house savings plunged to just 1.1 per cent in the September quarter of 2023, down from 2.8 per cent in the June quarter.

This was the lowest savings ratio since December 2007.

Soon after Labor came to power, in the September quarter of 2022, the savings ratio was at seven per cent when Australians still had money left over from lockdowns to cope with the earlier interest rate rises.

The Australian Bureau of Statistics said less income was now left over 'in the absence of the low and middle income tax offset' along with higher interest payments on home loans, as many ultra-low fixed rates expired.

Former Liberal treasurer Josh Frydenberg extended the tax offset by a year to end on June 30, 2022 but his Labor successor Jim Chalmers chose not to extend it, citing inflationary pressures.

But on Wednesday Dr Chalmers admitted low savings were a sign of Australians under pressure.

'Well, I think the household savings ratio is one of the ways that we know that people are doing it especially tough,' he said.

'People are in aggregate saving a little bit, no longer saving a lot. 

'We have seen that number come down in recent times. 

'We don't need that number to tell us that people are doing it tough, but it's another indication that they are.'

Under the discontinued low and middle income tax offset, 10million 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 offset plus a one-off $420 cost of living payment.

Mr Frydenberg announced the $420 payments in the March 2022 Budget, his last, weeks after Russia's Ukraine invasion pushed up crude oil prices and led to an inflation climb.

The tax offset, originally introduced in the October 2020 budget, offered $675 for those earning less than $37,000.

The Reserve Bank left rates on hold on Tuesday at a 12-year high of 4.35 per cent but this followed 13 increases in 18 months.

Its Financial Stability Review for October predicted an increase in financial stress.

'Incidences of severe financial stress are expected to increase but remain limited to a small share of housing borrowers,' it said.

Since May 2022, monthly repayments on a variable rate mortgage have surged by 67.7 per cent as rates climbed from levels starting with a 'two' to levels closer to seven per cent. 

The Reserve Bank is also expecting 1.3million ultra-low fixed rate mortgages to expire in 2023 and 2024, which will see borrowers pushed on to a much higher 'revert' variable rate unless they could refinance. 

Inflation in October moderated to an annual pace of 4.9 per cent but it remains well above the RBA's 2 to 3 per cent target, with electricity bills climbing by 10.1 per cent and gas going up by 13 per cent.