Interest rate cuts only benefit the wealthy, report reveals

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Interest rate cuts are only benefitting the top 20% of households, a new report has revealed.

According to the SAS-NATSEM Household Budget Report for December 2014, a 25 basis point interest rate cut largely benefits high income households. 

The report calculates that households with a disposable income in the top 20% are, on average, better off by $536 per year compared to the lowest 20%, who are only better off by $38.

Renter households gain only $48 per year, while purchaser households gain an average of $616 per year. 

Overall, the report reveals that just over half (54%) of households can expect to gain from a reduction in interest rates. 

Of this, wealthier families are far better off with 71% of higher income households gaining a benefit compared to just 28% of low income households. Nearly half of all Australian households (45%) are worse off, while 1% will not affect at all.    

However, SAS-NATSEM notes that its analysis is based on some assumptions which affect results. It is assumed that a 25 basis point reduction is passed onto all loans, not just home loans, and deposit accounts. It is also assumed that the pass through is immediate and there are no ‘second round’ impacts such as changes to the economy.

 

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