Friday, April 17, 2009

Who's suffering? Not you, not me..

If you are still feeling wealthy despite the record collapse in Australian wealth, you may not have had that much to start with.

A Reserve Bank analysis published yesterday finds that while the benefits of Australia's decade-long explosion in wealth were spread widely, the costs of the year-long downturn have been borne disproportionately by Australia's very wealthy.

The Bank says Australia's distribution of wealth and income remained broadly stable as wealth soared up until the end of 2007.

But Australians in the mining states of Western Australia and Queensland did the best of all, enjoying extraordinary rates of growth in wealth of 20 per cent and 15 per cent per annum, mainly as a result of fast-growing property prices. By contrast wealth in Victoria and NSW grew at a more sedate 6 per cent per year.

The collapse in wealth throughout 2008 has been more narrowly based...

The Bank says it has been driven primarily by the share market, which collapsed 47 per cent and by superannuation, which collapsed in value 23 per cent. House prices collapsed more modestly, and mainly in the higher-priced suburbs.

The bank says real estate prices shrank 13 per cent in the top suburbs, only by 5 per cent in the cheapest ones.

It believes that wealthiest fifth of Australian households each lost an average of $348,000 during the past year. Each of the other households lost a smaller $33,000. Expressed another way, the Bank says the wealthiest one-fifth of Australian households accounted for 72 per cent of the total wealth destroyed.

Separately-released Reserve Bank figures point to increasing caution in the use of credit cards. The number of credit card purchases fell in January to be down 1.7 per cent over the year. In dollar terms the average credit card balance grew by just 2 per cent in the year to January, well below the rate of inflation and the slowest growth rate on record. Credit card cash advances dived 12 per cent.

"The new era of consumer conservatism is well and truly here to stay," said CommSec economist Savanth Sebastian. "The possibility of recession and concerns over job security will continue to weigh on spending decisions. The global economy is expected to remain in recession territory over the next year and as a result consumers will stay conscious of the need to spend within their means."

Bank impaired assets and bad debts grew strongly in the December quarter, climbing from 0.52 per cent of loans to 0.74 per cent, but total assets climbed far faster, by 5 per cent, as borrowers flocked to banks at the expense of non-bank lenders.

The National Australia Bank yesterday backed down on a decision to cut the interest rate charged on its teenage-directed smart junior saver account by the full 0.25 percentage point Reserve Bank cut in official interest rates.

"We got it wrong, we have listened, we acknowledge this is one we needed to review and we have reversed our decision," said NAB personal banking chief Warren Shaw.

The Bank had cut the rate paid to its teenage depositors despite passing on none of the cut to its borrowers.

NAB was not alone in slugging its depositors while failing to pass on the Reserve Bank's cuts to its borrowers. The ANZ and Westpac each cut their main variable deposit rates by the full 0.25 percentage points while passing on only 0.10 percentage points to mortgage holders.