Disposable income, also known as disposable personal income (DPI), is the amount of money that households have available for spending and saving after income taxes have been accounted for. Disposable personal income is often monitored as one of the many key economic indicators used to gauge the overall state of the economy.
Disposable income is an important measure of household financial resources. For example, consider a family with a household income of $100,000, and the family has an effective income tax rate of 25% (versus marginal tax rate). This household's disposable income would then be $75,000 ($100,000 – $25,000). Economists use DPI as a starting point to gauge households' rates of savings and spending.
Disposable income minus all payments for necessities (mortgage, health insurance, food, transportation) equals discretionary income. This portion of disposable income can be spent on what the income earner chooses or, alternatively, it can be saved. Discretionary income is the first to shrink amid a job loss, pay reduction, or economic downturn. As such, businesses that sell discretionary goods tend to suffer the most during recessions and are watched closely by economists for signs of both recession and recovery.
Disposable Income in Zimbabwe
In September 2020, the Minister of Finance and Economic Development, Mthuli Ncube, presented the Finance Bill in the Parliament of Zimbabwe that raised the income tax-free threshold to ZWL$25 000 up from ZWL5 000 with effect from August 2020. This was meant to minimise the tax burden and enhance disposable income, particularly given that most people were facing Covid-19 (Coronavirus) induced economic challenges.
As of October 2020 customer numbers at Simbisa Brands, the country's largest fast-food company, dropped 33.7% in the year to June 2020, the latest evidence of the collapse of disposable incomes. The company, which operates brands such as Chicken Inn, opened 14 new outlets in the country over the past year. However, as inflation hits incomes, fewer Zimbabweans are eating out. The impact of inflation (Zimbabwe Inflation Rates) was made worse by the COVID-19 lockdown, Simbisa said in its annual financial report to June 2020.