Are Australians getting richer, or poorer? Yesterday's release by the Australian Bureau of Statistics of the nation's quarterly financial accounts brought two rival interpretations. And both of them are correct.
Yay, we're richer!
In one of those extraordinary revisions which remind us not to take statistics too literally, the Bureau quietly and without any explanation suddenly multiplied sevenfold its estimate of the wealth that households own in unlisted shares.
The previous financial accounts estimated that on 31 March, we owned $51 billion of equity in unlisted private non-financial companies. Yesterday's figures just quietly revised that to $359 billion. To give you an idea how big that is, it lifted the total net financial assets of all Australian households by 27 per cent.
Why? The ABS ascribed it to "quality assurance work" which checked the previous estimates against data provided to surveys by the ABS and the Australian Prudential Regulation Authority. Uh-huh. We're all for quality assurance, but a bit more detail would be welcome.
It wasn't as if that extra $308 billion suddenly emerged last year. The Bureau has revised its figures back to 1998, implying that it believes it has understated our wealth for years. Indeed, on its data, at the end of June households owned just $144 billion directly in listed shares, but $391 billion in unlisted equity. That is a big surprise.
But we're still getting poorer!
The Bureau figures increased the base of our wealth, but they didn't change the story of what happened in 2011-12. That story of last year is that we saved money like never before — but still ended up $6 billion poorer at the end of it all.
Ten years ago, during the debt bubble, Australians were taking on more financial liabilities each year than they were investing in assets. But because we were borrowing to bid up asset prices — mostly housing prices, but also stocks — the value of financial assets increased for more than the amount we were putting into them.
In the past five years, for the most part, the reverse has been true. Each year we have acquired more financial assets than liabilities. But because the bubble has burst, and global share markets have fallen, the value of our assets is now rising far less than the amount we put into them.
In 2003-04, for example, Australian households took on $122.5 billion of financial liabilities (essentially, debt) but invested just $88 billion in financial assets. (On the Bureau's definition, financial assets exclude real estate). But because the share market was on a roll, the value of our financial assets grew by $235 billion, lifting our net financial wealth by $115 billion.
In 2011-12, it was the exact opposite. We were far more frugal, taking on just $93 billion of new financial liabilities while investing $163 billion in financial assets ($119 billion of it in superannuation, and $57 billion in bank deposits, offset by pulling $12 billion out of equities).
But were we rewarded for being so frugal? Not on your life. The value of our superannuation assets grew by just $42 billion, barely a third of the new money we put into them. The value of our equities, listed or unlisted, fell by $32 billion. Result? Our $163 billion of new investment saw our assets rise by just $76 billion — and our net wealth shrank by $6 billion.
The bottom line was that, as of 30 June, Australians owned a net $1.446 trillion of financial assets, down from $1.575 trillion almost five years earlier, at the start of the GFC. And that's despite us acquiring $212 billion more assets than liabilities in that time.
By contrast, in a bit over four years to June 2006, we took on $118 billion more liabilities than assets, yet our net financial wealth swelled by $460 billion. Reserve Bank governor Glenn Stevens thinks that is the real reason Australian consumers are not spending like they used to.
It looks like staying that way. Today the Reserve reported that credit again rose just 0.2 per cent in August, after a similar rise in July. In annual terms, the amount we owe on our mortgages grew 4.8 per cent, other personal credit shrank 1.4 per cent, business credit increased 4 per cent, and total credit by 4.1 per cent.
The party ended a long time ago. The hangover is still with us.