Who is better and who is worse four years after the outbreak of COVID? The financial picture may surprise you

A lot has happened to the economy since COVID hit, and reading the economic tea leaves has become more difficult.

Many of the gains for many Australians in 2020 and 2021 were artificial and did not last. For example, the COVID supplement temporarily called JobSeeker. JobKeeper paid workers what their employers could not.

As these measures have been unwound, earnings have softened, making it more difficult than usual to separate the economic signal from the noise.

But in a study just published in the ANU Center for Social Policy Research journal POLIS@ANU we have made an attempt.

We wanted to find out which types of households are expected to be financially better off and which worse off five years after the COVID outbreak, comparing 2024 to 2019.

We have adjusted income for living costs

We examined income after adjusting for changes in the cost of living. This means that if a household’s after-tax income has increased by 20%, but the cost of living has also increased by 20%, we have considered the financial standard of living as unchanged.

The tool we used was the ANU PolicyMod model of the Australian tax and transfer system, Australian Bureau of Statistics data on employment, demographics and prices and wages, and government data on taxes and payments.

We’ve also taken into account the income tax cuts and pay changes that start next month. Our estimates for December 2024 are projections based on assumptions in the budget for revenues and prices.

We find that overall living standards rose from 2019 to 2021, but then fell sharply in 2022 with a further small decline in 2023. Overall living standards were 0.6% lower in December 2023 than in December 2019 .

This year they are expected to rise to 1.3% higher than December 2019.

But it is an overall picture that erases the full story.

Earnings for high earners, low earners

The only groups whose standard of living increased significantly over the period were households with very low and very high incomes.

We divided the families into five “kuntles”. We called the fifth with the lowest income Quintile 1. The fifth with the highest income we called Quintile 5.

Quintile 1 standard of living rose 3.5%. The standard of living of Quintile 5 increased by 2.7%.

In contrast, the living standards of the second lowest quintile barely rose, and the living standards of the middle and upper middle quintiles actually fell.

Living standards of middle- and upper-middle-income Australians were lower at the start of 2024 than in 2019.

Low-income families fared relatively well in part because their payments were indexed to inflation. High-income families did well in part because they had investments that did well.

Where middle earners fared poorly, it was largely because they had mortgages. Where they did well, it seems, was because they were full homeowners and had other sources of investment income.

Loss for the mortgagee

The standard of living of mortgaged households fell by 5.6% between 2019 and December 2024.

In contrast, the standard of living of renters rose by 2.9%, while the standard of living of outright owners rose by 8.5%.

From sources of income, the standard of living of families whose main source of income was “other” (including investments) increased by 15.8%.

In contrast, the living standards of households relying on wages and the standards of those relying on government benefits changed little.

The standard of living of families headed by employers fell by almost 10%.

Perhaps for similar reasons, older Australians have done much better than working-age Australians, and younger Australians have done better than middle-aged Australians.

We also tested the breakdown of households by “financial well-being,” a composite measure of income, wealth, tenure, age, disability, and household type based on their statistical associations with the Bureau of Statistics’ measure of “financial stress.” .

The bureau’s measure includes the inability to raise emergency funds within a week and pay bills on time.

Again, we divided households into quintiles. We called the fifth quintile with the least well-being 1; the fifth with the highest Well-being Quintile 5.

The richest are better off

Households with the highest welfare did the best, finding themselves 6.2% better off by 2024.

The worst-off were those with second and middle welfare, who found themselves about 3% worse off.

Those with less well-being were 2.8% better off.

Overall, we have not found that household living standards have declined significantly since the onset of COVID.

But we can understand why some Australians, particularly middle-income Australians with mortgages and middle-aged Australians, think they have.

They fared poorly in 2022 and 2023 as mortgages rose. The least advantaged and most advantaged Australians fared better.

This article is republished from The Conversation under a Creative Commons license. Read the original article.