2011-12: The year we saved big time, and went backwards

Australian households stashed away a record $70 billion during the past financial year, pouring extra funds into banks and term deposits, yet when the financial year ended they were $6 billion poorer than when they started.

The latest financial accounts from the Bureau of Statistics show per capita wealth slid 2 per cent over the year to June and 11 per cent over five years to June, all because of falling share prices.

The rout has since been reversed. Share prices have climbed 6 per cent since the start of July. But the uneven performance of the sharemarket has encouraged Australians to park more of their savings in cash and park more in the bank than ever before.

Households held a record $726.6 billion in cash and deposits at the end of June, accounting for 23.7 per cent of their financial assets - up from 21.9 per cent a year before.

“It’s a safe haven approach, a knee jerk reaction to uncertainty,” says Commonwealth Securities chief economist Craig James.

“It gets down to confidence. People know about what been happening in Europe, they know about the United States, and they know about China. So with deposit rates so high why wouldn't you be putting anything extra you had into term deposits?”

It’s not only households. The ABS figures show superannuation funds had 15.9 per cent of their assets stored in cash at deposits at the end of June - the highest proportion on record and roughly double the long-term average of 8.5 per cent...

Private non-financial companies had a near-record 45.4 per cent of their financial assets stored in cash and deposits, well above the long run average of 39 per cent.

Foreigners have been buying shares where Australians have not, lifting their ownership of the Australian share market to 47.2 per cent, the highest stake in 20 years. Foreign holdings of Australian government bonds eased back to 78.2 per cent from the record 79.8 per cent in March.

Per capita net financial wealth slipped from $65,044 to $63,675 over the financial year, despite increased saving. The figure excludes wealth held in the form of real estate
but is weighed down by loans secured against real estate.

“What’s encouraging for people who are paying off their own homes is that home prices went up in September, and that the share market has been climbing. Household wealth could pick up,” Mr James said.

“And time cures all ills. If we get some good news out of the United States and out of China and if people don’t focus so much on Europe and if the Australian economy continues to track along nicely people might start to feel wealthy again and put more of their money back to the share market.”

In today's Age


Related Posts

. Where we are. The economy in seven magnificent graphs

. "Saving is the new spending" - it's a great new ad

. We think the rich are too rich. But they're even richer..

5232.0

Read more >>

BRW Rich 200: Congratulations Therese Rein

My favourite multimillionaire

Former prime minister Kevin Rudd may for the moment no longer be A-list material, but his wife Therese Rein today joins one of the most exclusive clubs of them all.

Weighing in at $210 million she elbows her way into the BRW Rich 200 list at position 199.

Being a woman puts her in even rarer company. Only 16 women feature in the Business Review Weekly Rich 200, up from 15 last year.

Rarer still, she’s done it herself. BRW editor in chief Kate Mills says most of the people in the list do it from inherited wealth.

Even Gina Rinehart, the richest woman in the world with $18.87 billion (who again tops the list) did it after inheriting $75 million and mining royalties.

“That should not take away from Gina’s achievement,” says Ms Mills. “She could have done nothing, she could have taken the money and lived a good and happy life. We celebrate the fact that she didn’t. She took on a male-dominated industry and now she sits on top of it.”

Ms Rinehart yesterday suffered an unusual setback, being passed over for a seat on the board of Fairfax Media, publisher of BRW and The Age. The seat went to accountant James Millar, a former head of former Ernst & Young. Ms Rinehart owns 12.8 per cent of Fairfax.

“Therese is different from Gina,” say Ms Mills. “It is very difficult to build up enough wealth to get on the list within a generation. That’s why there are so many families and dynasties on it"....

“Mining magnate Nathan Tinkler is an exception. He has build massive wealth in a single lifetime, but he has done it in a booming sector. Therese is in the welfare sector, it isn’t booming and it is regulation-driven. Every time a law comes out about occupation health and safety, organisations like Therese Rein’s think there is going to be work out there explaining it to people.”

The size of Ms Rein’s wealth was unclear until the election of her husband’s government in 2007 forced her to sell the Australian arm of her employment services agency for what BRW believes was $170 million.

“Not all of that went to her, some of it would have been covered by debt,” says Ms Mills who will not confirm whether she spoke to Ms Rein in preparing the list. “In some ways it is what she did next that was more extraordinary. She went to United Kingdom and took advantage of opportunities opening up under the Blair Labour government and then under the Cameron conservatives.”

“In the past year she has done an employment services deal with Cameron’s government worth $1.4 billion over five years. The UK arm of her firm Ingeus is a joint venture with the consulting firm Deloitte, so the income will be shared.”

“She has ridden on the back of what you might call the outsourcing of the state, things such as welfare to work programs. It has happened throughout the West, and Ingeus is now in eight nations.”

Ms Mills is farm from certain Ms Rein will stay in the list. There’s a lot of movement at the bottom as some people join the top 200 and the wealth of others slip below it. The top is more stable, although even there there are surprises. Mining entrepreneur Clive Palmer slipped around $1 billion in the latest survey following a number of deals that didn’t work out.

In an extreme sense membership of the list is voluntary. Some years ago when BRW approached philanthropist Dick Smith to confirm his wealth for the list he said he would would give away assets rather than be on it, which he did, slipping below the cut-off point.

In today's Age


BRW Top 5

Name WEALTH INDUSTRY
Gina Rinehart $29.17 b Resources
Ivan Glasenberg $ 7.40 b Resources
Frank Lowy $6.47 b Property
Andrew Forrest $5.89 b Resources
Anthony Pratt & family $5.45 b Manufacturing, investment

Women – Top 5

NAME WEALTH INDUSTRY
Gina Rinehart $29.17 b Resources
Angela Bennett $2.03 b Resources
Vicky Teoh $525 m Technology
Charlotte Vidor $485 m Property
Imelda Roche $440 m Property

Families – Top 5

NAME WEALTH INDUSTRY
Smorgon $2.63 b Investment, property
Liberman $2.20 b Investment
Besen $2.15 b Property, retail
Wright $1.95 b Resources
Myer $1.94 b Retail, property



Related Posts

. My incredible day at work - Rudd's departure, as seen by my mobile phone

Read more >>

The new rich. They're less rich, except in Western Australia

What’s rich?

Low income (Average, bottom 20% of households)

$360 per week

Middle income (Average, middle 20% of households)

$1323 per week

High income (Average, top 20% of households)

$3942 per week

Low wealth (Average, bottom 20% of households)

$31,829

Middle wealth (Average, middle 20% of households)

$427,168

High wealth (Average, top 20% of households)

$2.2 million

Mean gross household income, Mean household net worth 2009-10, ABS 6523.0

The global financial crisis has knocked a hole in Australian incomes and spread wealth more evenly, except in Western Australia.

The latest biennial income distribution report from the Bureau of Statistics shows every income band but the lowest went backwards before inflation in the two years to 2009-10; all but the bottom band suffering from a weaker share market and lower capital gains, with the bottom band propped up by an over-the-odds pension increase.

The average income earned by a household in the top 20 per cent slipped from $4136 per week to $3942 after adjusting for inflation.

The average mid-range household income slipped from $1356 to $1323.

At the bottom the average household income climbed from $350 per week to $360.

Total disposable income fell for the first time in 14 years.

The Bureau’s measure of inequality shows incomes being spread more evenly in every state but one... In Western Australia the income earned by the top 20 per cent of households surged 8.7 per cent over and above the rate of inflation pushing up the average for a high income household from $4309 per week to $4682 per week, or $243,464 per year.

By contrast the incomes in every other band in Western Australia slipped pushing up the state’s inequality index 5 per cent.

Western Australia has the highest and most uneven incomes of any state and Tasmania the lowest and most even.

NSW is the second highest earning state followed by Queensland and Victoria.

The typical Melbourne income is $1,422 per week; the typical income in the rest of the state $964 per week.

Wealth is distributed far less evenly than income with an typical household in the top 20 per cent laying claim to $2.2 million in savings and a typical household in the bottom 20 per cent owning just $31,829.

Households that rent earn less and have less saved up than households who own their homes outright. A typical renting household has amassed $158,406, a typical mortgagee household $769,848 and a typical household which has paid off a mortgage $1.8 million.

The proportion of Australians who own their homes outright has slid to its lowest since the survey began in 1994. Around 32.6 per cent of households owned outright in 2009-10, down from 33.2 per cent in 2007-08 and 41.8 per cent since the surveys began after slipping in each one.

The proportion of households with mortgages climbed to an all-time high of 36.2 per cent, as the proportion of renters slipped from 29.7 to 28.7 per cent, making households more exposed than ever before to changes in mortgage rates.

Separate building approval figures show just 7600 private sector houses were approved in July, almost unchanged from June and down 12 per cent over the year. Around 2900 houses were approved in Victoria, down 10 per cent on a year earlier.

“These figures add weight to our view that the housing sector is going backwards at a rapid pace,” said CommSec economist Savanth Sebastian. “Homes sales have hit 10 year lows, house prices have been tracking lower for six months and housing credit is at the weakest levels since the late 1970’s.”

The ABS income distribution report showed the number Australians per house climbed from 2.51 to 2.67 per house in the five years to 2009-10, the first such rise on record.

Published in today's SMH and Age


Related Posts

. We think the rich are too rich. But they're even richer..

. Extra income will extend your life how much?

. Who's ahead? Who's behind? The carbon scheme numbers the government didn't publish

6523.0 8731.0

Read more >>

We think the rich are too rich. But they're even richer..

New research

When it comes to wealth even the richest among us think the rich have too much - but we’ve no idea of how skewed the distribution really is.

A study prepared by Empirica Research and the Harvard Business School for the trade union movement as part of its planning for the October tax summit finds Australians of all incomes believe the richest 20 per cent of us have around 40 per cent of the wealth.

We think that’s too high. We would prefer a more egalitarian society in which the top 20 per cent have somewhere around 24 cent of the wealth. We would also like the poorest 20 per cent to have 15 per cent, which is a good deal more than the 10 per cent we think they have.

The survey finds us oblivious to the far more skewed truth that the best-off 20 per cent have 60 per cent of the wealth and the worst-off 20 per cent a mere 1 per cent.

The Australians least in touch with reality were the very richest and the very poorest, each believing the richest 20 per cent had 40 per cent of the wealth and the poorest had 9 per cent. Those most in touch with reality were the second-richest group who believed the best-off 20 per cent had 45 per cent and the worst-off 8 per cent.

Presented with three unlabeled pie charts showing Australia's actual wealth distribution, a distribution a United States survey had found to be ideal and an completely even distribution, and overwhelming two-thirds wanted to live in the completely even society.

Presented with two unlabeled charts showing the actual Australian distribution of wealth and the more unequal distribution in the United States only 22 per cent wanted to live in the US... Among Coalition voters the proportion preferring to live in the US was 24 per cent, among Labor and Greens voters 20 per cent.

“Australians apparently favour a significantly more equal distribution that they believe currently exists and a dramatically more equal distribution than actually does exist,” the researchers conclude.

Asked how much tax Australians on a range incomes actually paid the survey group overestimated every one. Australians on $200,000 were thought to pay an average of 38 per cent instead of 32 per cent. Australians on $79,000 were thought to pay 27 per cent instead of 22 per cent, and Australians on $36,000 were thought to pay 18 per cent instead of 12.9 per cent.

The group wanted all tax rates cut, but curiously wanted them cut from the high rates they imagined to near the actual rates.

Australians on $79,000 were felt to deserve an average tax rate of 21 per cent, close to the actual rate of 22 per cent. Those on $36,000 were felt to deserve 12.1 per cent, close to the actual rate of 12.9 per cent.

The researchers were perplexed by the finding. “While people strongly favour increasing wealth within the lowest 20% of households, they do not spontaneously translate these attitudes into support for policy mechanisms that could realise that goal,” the report concludes.

ACTU secretary Jeff Lawrence said the survey showed tax reform need not mean an unending series of tax cuts.

“Real tax reform is directed towards satisfying Australians’ needs and preferences. It must reflect the type of society the majority of Australians aspire to be,” he said.

Seperately the National Alliance for Action on Alcohol has complained the October 4 tax summit will have no public health representative.

Co-chair Todd Harper said it showed the Government had “taken alcohol tax off the agenda – even as an issue for discussion”.

Published in today's SMH and Age


Related Posts

. It's the tax summit you have when...

. Pascoe, Clitheroe to chair October 4 tax summit

. Tax summit. Who gets an invite

Read more >>

We're confident. Not.

Ahead of the carbon tax...

Tony Abbott has copped blame from the government for a new dive in consumer confidence which has pushed it to depths not seen since the global financial crisis.

The Westpac Melbourne Institute index dived 8 per cent in the survey conducted just ahead of the weekend carbon tax announcement, one of the biggest monthly slides on record.

Pessimists now outnumber optimists 7 per cent; the widest gap in 26 months.

“There’s no doubt that Mr Abbott has been running this outrageous scare campaign and there's certainly no doubt that it is having some impact,” said Treasurer Wayne Swan when asked to explain the collapse. “The opposition has been talking down the Australian economy and they've been doing it for months.”

The survey shows confidence among Coalition voters at an unusual low of 79 points, meaning pessimists outweigh optimists 21 per cent. Confidence among Laobr voters slipped 5 per cent but they remained on balance positive with optimists outweighing pessimists 14 per cent.

“The bottom line is a dramatic plunge,” said CommSec economist Craig James. “Just twelve months ago consumer spirits were holding near levels that would be considered euphoric.”

“Consumers are feeling fragile. Another rate hike could send people over the edge. Rates, rising living costs, falling share prices, global growth concerns and the added concern of a carbon tax have got many people saying, enough is enough.”

Westpac chief economist Bill Evans was perplexed by the severity of the slide...

“The only other time in recent history when the index has been sustained around the current level was during the period following the introduction of the goods and services tax which also coincided with the bursting of the dot com bubble in 2000,” he said. “Before that we have to go back to the deep recession of the early 1990s.”

Mr Evans said uncertainty about the introduction of a price on carbon was undermining confidence along with the European financial crisis and the lingering impact of rate hikes.

Mr Swan said uncertainty about events in Europe would have weighed on consumers as well as sombre news from the United States. “But I also think for the sake of Australian business, both small and large, Mr Abbott needs to stop talking down the Australian economy and stop scaring Australian consumers,” he said.

Mr Abbott said the carbon tax itself was sapping confidence and the prime minister should call an election.

Asked to describe family finances now versus a year ago pessimists outnumbered optimists 26 per cent. Asked about finances in the twelve months ahead time pessimists prevailed 8 per cent. Only when asked whether now was a good time to buy a major household item did optimists prevail, outnumbering pessimists a 25 per cent.

Separate Treasury figures released yesterday showed wealth held as property, shares and related assets little changed at record highs. On average each Australian family owned assets worth $759,300.

Published in today's SMH and Age


Related Posts

. We don't know how the carbon tax will work, so we're scared

. First floods, now carbon tax. Confidence on the floor

. Feeling wealthier? You probably are

CSI 1364.0.15.001

Read more >>

Feeling wealthier? You probably are

We're clawing back our wealth.

New figures show financial wealth per capita climbed to $46,000 in the March quarter, an impressive increase on low point of $36,200 reached just 12 months earlier.

The measure includes household wealth held in the form of cash, bank deposits, bonds and shares net of borrowing but excludes "non-financial" wealth in the form of real estate.

The latest recent high of $46,000 per person is still well below the all-high of $58,900 reached before the financial crisis.

Both household financial assets and household liabilities climbed to record highs of $39 billion and $25 billion in the March quarter.

Our debt to liquid assets ratio climbed to 154 per cent meaning that households don't have enough readily available assets to cover debts in an emergency.

"Households generally have plenty to cheer about," said Commonwealth Securities economist Savanth Sebastian who calculated the per capita figures from the Bureau of Statistics data released yesterday. "As the recovery gains traction the lift in wealth should support confidence... and in turn translate to an increase in spending and overall economic activity."

Both superannuation funds and Australian businesses remained cautious, with the funds holding 14 per cent of their assets in forms such as cash and bank deposits at the end of March - almost double the usual proportion of 8 per cent. The proportion of company assets held in cash climbed to the highest point in a decade.

"Super funds are spoilt for choice given the attractive yields being offered on term deposits," said Mr Sebastian. "But the longer that fund managers maintain an abnormally high proportion of money in defensive assets, the greater the risk their returns will underperform those of their competitors."

Foreign investors continued their love affair with Australia, buying an extra $6.3 billion of Australian shares in the past quarter. Just over 40 per cent of listed shares are now held abroad, close to a record high.

"The next round of data might show a reversal of this trend," said Mr Sebastian. "The Resource Super Profits Tax had a clear impact on the way global investors view Australia’s sovereign risk profile and as such until it is resolved, foreign investors are likely to remain cautious on Aussie equities. But in the longer run, the strength of domestic companies, and in particular the resilience of the Australian economy will no doubt remain a strong drawcard."

Published in today's SMH and Age


Related Posts

.
We're getting richer at last

. We're weathering the storm - RBA

. Where'd that wealthy feeling go?

5232.0

Read more >>

New figures: we're clawing back wealth

From CommSec


"Federal Treasury’s Modellers’ Database shows that Australia’s private sector wealth stood at $4,894 billion as at the end of June 2009, up 4.0 per cent over the quarter. It was the first increase in wealth in 18 months and the biggest increase in five years.

"CommSec estimates that per capita wealth stood at $223,400 as at the end of June, up $7,400 over the quarter. However over the year wealth has fallen by around $12,500 or 5.3 per cent. Wealth peaked at $250,055 in December 2007.

Unfortunately no detailed break-up is provided of the quarterly wealth figures calculated by Federal Treasury."

Read more >>

We're getting richer at last

A bit:


Australians are getting richer again, for the first time in almost two years.

Bureau of Statistics figures released Friday show household wealth rebounded in the June quarter after sliding for six consecutive quarters.

From peak to trough wealth per person slipped from $58,900 to $35,000 - an extraordinary drop of 40 per cent. In the June quarter it bounced back 9 per cent, to $38,000.

The measure includes household wealth held in the form of cash, bank deposits, bonds and shares, net of borrowing but significantly excludes wealth held in the form of superannuation and real estate.

"It's the share market that's doing it and it will continue," said Commonwealth Securities economist Savanth Sebastian who calculated the per-capita figures...

"Equity markets have rallied by over 50 per cent so far this year so there will be more in coming quarters. The pickup in business and consumer confidence will help as well."

Companies are also better off as a result of paying down debt while raising a record amount of new equity.

Non-financial companies raised a record $29.7 billion in June quarter by issuing new shares. Net company assets have jumped to their highest level on record.

The Financial Accounts lend weight to an assessment by the Reserve Bank in its Financial Stability Review this week that Australia's recovery is under way.

Governor Glenn Stevens will be quizzed about about it at a Sydney hearing of the Senate's economics committee on Monday.

Treasury Secretary Ken Henry was to front the committee Monday but yesterday asked for a delay of a fortnight to give the Treasury further time to prepare briefing materials.

He told a business audience in Brisbane Wednesday that a sustained recovery depended "on the continued implementation of existing stimulus commitments".

"The fiscal stimulus has been designed so that it withdraws gradually," he said. "Withdrawing the stimulus more quickly would risk stalling the economy and causing a steeper rise in the unemployment rate."

Updated Westpac forecasts suggest Australia's net foreign debt will now top out at $108 billion rather than the $188 billion forecast in the May budget.


Published in today's SMH and Age

Read more >>

We're weathering the storm - RBA

From today's Financial Stability Review:

Read more >>

We're down half a trillion

Feeling poorer?

Since December 2007 you've lost $33,500 if you're an "average" Australian. If you come from an average household, it's lost around $110,000.

Commonwealth Securities has calculated the losses using Treasury data released to economic modelers yesterday and Australian population estimates.

The Treasury says Australian households have lost a total of $602 billion in the five quarters since the crisis took hold, the longest run of wealth destruction in the five decades it's been compiling figures.

Household wealth per person peaked at $250,200 in December 2007 and fell to $216,700 by March. The Treasury estimate pulls together property, share market and financial wealth and is not broken down into components.

Income is also falling...

...with share market dividends sliding a record 37 per cent in half-year to March and take-home pay actually going backwards in the March quarter - the first such slide since the early 1990s recession.

Wage income fell 3 per cent in the first three months of this year as full-time work was switched to part-time work and overtime cut.

Income from unemployment benefits climbed to an all-time high with a record $3 billion paid out to job seekers by Centrelink , up from $2.7 billion in the December quarter.

"These figures quantify and bring home the profound impact of the global slump," said CommSec economist Savanth Sebastian. "The sharp decline in wealth has has hurt consumer spending, cascaded to weaker business profits and is pushing up unemployment."

CommSec believes the latest decline in wealth will be the last for some time.

"We think wealth recovered in the June quarter. House prices climbed and the share market improved substantially. The slide should be over," said Mr Sebastian.

Residex data released also yesterday showed national house prices climbing a further 0.7 per cent in June after climbing 2.1 per cent in May, enough to claw back all of the losses over the last year.

Residex says the typical Sydney house price is now $577,500, up 0.8 per cent over the year, and the typical Melbourne price $492,500 - up 2.7 per cent, the best performance in the nation.

The price rises are most striking for units with prices in both Sydney and Melbourne up 5.7 per cent over the first six months of this year.

"Units are benefiting substantially from strong first home buyer demand," said Westpac economist Matthew Hassan. "The uptrend in prices appears to be building momentum, attracting interest from upgraders and investors."

"It is also removing a significant downside risk to the consumer and economic outlook stemming from the potential for house price falls to cut household wealth and weigh on consumer demand."

The Seek employment index for June points to a slowdown in deterioration in the labour market with the number of new jobs advertised on the Seek site falling a further 4.5 per cent, but the number of new job applicants climbing only 0.2 per cent.

Seek managing director Joe Powell said the news showed the jobs market stabilising rather than improving.


Published in today's SMH and Age

Graphic: Arthur 2

Read more >>

Where'd that wealthy feeling go?

"It's the result of the collapsing share market. Australians are more exposed to shares than the citizens of virtually any other country."

Australian households have lost an extraordinary 36 per cent of their financial wealth since the economic crisis began in the longest run of wealth destruction on record.

New estimates from the Australian Bureau of Statistics put combined household wealth at just short of $787 billion at the end of March, down from a peak of $1246 billion in September 2007.

The total includes household wealth held in the form of cash, bank deposits, bonds and shares; net of borrowing. Significantly it excludes wealth held in the form of superannuation and real estate both have which have also dived since the crisis began.

Financial wealth per household has slid from $159,000 to $98,000 - it's lowest point for more than three years. Per person it has slipped from $58,900 to $36,200...

"It's the result of the collapsing share market," said Commonwealth Securities economist Savanth Sebastian. "Australians are more exposed to shares than the citizens of virtually any other country. Up until March our share prices had dived 43 per cent."

In the early 1990s recession wealth collapsed sharply during the first quarter of 1991 and then bounced around rather than sliding relentlessly as it has done this time.

"Back then our wealth wasn't so tied up in shares," said Mr Sebastian. "We weren't as exposed."

The good news is that share prices are climbing again. Since March they have rebounded a further 10 per cent, leading CommSec to expect an end to the slide in financial wealth when the next figures come out in three months time.

"We're think household wealth will tread water for two quarters and then pick up towards at the end of the year," said Sebastian.

As our share market slid, more and more of our wealth has been switched into cash and bank deposits, with the total either held under beds, in safes or in banks and credit unions reaching a record $487 billion in March, roughly 60 per cent of household wealth.

However the amount that we owe has continued to climb throughout the crisis jumping a further $15 billion in the March quarter to a record $1,306 billion.

"Our ratio of debts to liquid assets has hit 154 per cent, meaning we don't have the readily available cash we would need to cover our debts if things in the event of a sharp downturn. We are vulnerable," said Mr Sebastian.

In contrast Australian companies have strengthend their balance sheets, paying down debts by a further $11 billion the March quarter.

"As a result their net assets have climbed to their highest point in two years. This should give investors confidence ."

The Australian Financial Accounts show foreign investors demonstrating that confidence, lifting their ownership of Australian shares to 42 per cent, the highest proportion in 12 years. In the first three months of this year they bought an extra $20 billion of net new shares.

Published in today's SMH and Age

Read more >>

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.

Read more >>

What have we got? 12 per cent less.

Australian wealth held in the form of shares, investments and property is collapsing at the fastest rate on record, shrinking an extraordinary 12 per cent in the past year.

Treasury calculations released to economic modelers Wednesday suggest that the average Australian lost an inflation-adjusted $26,400 during 2008 - 11.8 per cent of his or her buying power.

"This quantifies the collateral damage from the global slump," said CommSec economist Savanth Sebastian who crunched the Treasury numbers to come up with the 11.8 per cent figure.

"It's the biggest fall in records going back 48 years. It's the only time wealth has fallen for four continuous quarters"...

The average Australian's real estate, share market and financial wealth amounted to $223,985 in December, down from around $250,000 a year before.

The Treasury does not break down the total wealth estimate into individual components.

The collapse comes at the end of a decade in which wealth per Australian roughly doubled.

Mr Sebastian said it was possible that wealth had began climbing again since the December quarter.

"Household prices improved in the early months of the year and share market jumped sharply in March, he said. "Things could improve going forward."

Separately released Residex data showed house price growth in every city but Perth in the first three months of the year, with Melbourne Prices up 0.5 per cent over the three months and 1.6 per cent in March.

Perth prices plunged 1.9 per cent in March, to be down 3.9 per cent Over the quarter. Perth prices are plunging at an annualised rate of 16 per cent.

The Westpac-Melbourne Institute leading index deteriorated further in February pointing to bleak economic outlook as the government frames the May Budget.

The index is made up of indicators thought to point to conditions three to nine months ahead, including overtime worked, manufacturing materials prices and productivity.

It is now running at an annualised rate of minus 5 per cent, well below its long term average of plus 3 per cent.

"The rate of deterioration of the index is truly remarkable," said Westpac chief economist Bill Evans. "The consistent run of negative reads is comparable with Australia's previous recessions which began in 1961, 1974, 1982, and 1990."

"A comparison with the last recession is disturbing. During that recession the annualised growth rate of the index reaching a low point of minus 3.4 per cent. In this cycle we are already at minus 5.1 per cent."

"We are forecasting that the economy will bottom in 2009. The rapid deterioration in the index points to downside risk to that forecast."

Read more >>

RBA to Australians: 'You've never had it so good'

Many of you anyway

DESPITE talk of recession and worldwide financial crisis, Australia's Reserve Bank believes many of us have never been better off.

Backing the claim with statistics in half-yearly Financial Stability Review the Bank notes that retirees are an exception.

Households on wages have seen their real after-tax incomes jump an extraordinary 10 per cent in the past year - more than double the usual rate. The Bank says the December stimulus payments were responsible for much of the boost along with tax changes mid-last year that cut payments 3 per cent.

For households facing interest bills things are even better. The Bank says the ratio of interest payments to disposable incomes has fallen from 15 per cent to 11 per cent and is set to fall further, undoing a half decade's worth of growth.

It notes that petrol prices are down as well.

Household wealth has fallen about 10 per cent in the year, with the biggest falls being in share prices which are down around 50 per cent. By contrast house prices are down just 4 per cent.

But the Bank says that most that most of the share price pain has been felt by wealthiest 20 per cent of households...

...most of whom are still on good wages "and so are likely to have other sources of income to offset the decline in the value of their financial assets".

On the other hand for retirees not receiving benefits the downturn has been dire. The Bank says m any will have lost half their share market wealth, "most likely resulting in a large fall in their available income." Around half of Australia's top 200 companies have cut their dividends, around one quarter of them by more than 50 per cent.

The Bank is unconcerned by talk about Australians running into trouble servicing mortgages, reporting that across the millions of home loans in Australia only 20,000 are more than three months behind. While this is an increase of 7000 on the year before, it remains minuscule by foreign standards.

In only one region of Victoria are there more than 2000 home loans in arrears - the La Trobe Valley, and even there the arrears rate is below 1 per cent.

Separately the Bank's head of economic analysis Anthony Richards told a housing conference he wasn't concerned about a jump in arrears when mortgage rates eventually began to climb.

"Our discussions with banks indicate that they are indeed testing the ability of borrowers to continue servicing their loans if interest rates were to rise," he said.

"No doubt, as at any time, some of the loans being written now will turn sour."

"However, overall, I suspect that the risk of non-performing loans increasing to the extent seen in the United States is low."

The Reserve finds that while mortgage holders have benefited the most from lower interest rates, gaining almost all of the 4 percentage points of rate cuts instigated by the Bank, business borrowers have also benefited, with big businesses enjoying rates 3.7 points lower on average and small businesses rates 2.3 points lower.


Riches amid the Gloom

Real after-tax incomes up 10%

Mortgage burden down 26 per cent

Income tax burden down 3 per cent

House prices down 4 per cent

Share market wealth down 50 per cent

Number of mortgages in arrears: 20,000

Reserve Bank, March 2009 Financial Stability Review

Read more >>

Household wealth collapses - 25% and counting

AUSTRALIAN households have lost one quarter of their wealth since the global financial crisis began late last year, with the latest official count putting the carnage at a total $700 billion.

And the estimate, from the Bureau of Statistics, is conservative because it only covers wealth lost up until the end of September. Since then the S&P 200 Australian share price index has fallen a further 30 per cent.

In September last year, the average Australian had a net worth of $58,200, not including houses. By September this year it had fallen to $43,000, undoing three years of accumulation.

As the value of shares held by households slid, the amount put into banks soared, meaning that for the first time in five years more Australian wealth was held in notes, coins and bank deposits than in the sharemarket.

Separate Reserve Bank figures released yesterday showed Australians winding back their use of credit cards, with a drop in both the number of cash advances and the number of credit card-funded purchases over the past year...

The rush to shift money out of market-based investments and into interest-bearing deposits has led to a significant strengthening of the balance sheets of Australia's banks.

In the three months to September, a $4.4 billion increase in Australian banks' bad loans and impaired assets was easily offset by an increase of $141.7 billion in total assets.

"Australia continues to have one of the strongest banking systems in the globe," said CommSec economist Craig James. "Its consumers are becoming increasingly conservative."

The Chamber of Commerce and Industry, responding to fresh signs of a slumping economy, yesterday called on the Reserve Bank board to cut short its January holiday and hold an emergency meeting in the new year to cut rates earlier than planned.

The chamber's survey of industrial trends shows deteriorating employment and investment plans and increased difficulty in obtaining finance.

Business confidence fell to its lowest level since the 1990 recession. "We believe there is enough information available which points to the need for further interest rate reductions," said the chamber's Greg Evans.

Westpac, co-sponsor of the survey, disagreed. But its chief economist, Bill Evans, confessed to being shaken by the findings of the December survey.

"The last survey in September was relatively reassuring that businesses were not anticipating a repeat of previous recessions, but that's changed with the December survey," he said. "Conditions are deteriorating rapidly. What will happen will be determined by the interaction of the Government's stimulus packages, of which there will be more, and the negative effects of contracting wealth, falling confidence and tightening credit. The signs are not encouraging."

Budget data released yesterday suggests the Government has room to deliver further stimulus packages. The fiscal surplus remained high at $25 billion in the year to October, ahead of the $23 billion to next June forecast in the May budget.

Data also released yesterday showed Melbourne's outer-western suburbs had the city's worst unemployment rate of 5.2per cent. The most employed region was southern Melbourne, with a jobless rate of just 2 per cent.

Read more >>