October market fall sparks debate over index ETFs
November 19, 2018
The New Criterion
November 26, 2018

Kavanagh

John Kavanagh

We have been reading a lot lately about the fall in the household savings ratio and the impact this might have on the economy. Consumers have been dipping into their savings to spend but if consumer confidence levels go down, they might tighten their household budgets.

The Australian Bureau of Statistics has published a new report on changes to income and savings levels among different groups in the community. It has broken households down into income quintiles to see how rich and poor have fared since the early 2000s.

There are no prizes for guessing who has done better over that period but the figures are sobering. Dis-saving among low income earners is a chronic, long-term problem.

According to the ABS, total household compensation of employees in 2017/18 was $865 billion, with 46 per cent of that amount going to households in the highest income quintile.

Households in the lowest income quintile received just 3 per cent of total household compensation.

Expanding the definition of income to include operating surpluses from unincorporated enterprises, households in the highest income quintile received 60 per cent of the total, while households in the lowest income quintile received 4 per cent.

Over the period 2003/04 to 2017/18 household gross disposable income grew by 116 per cent. The increase was driven by a 137 per cent increase in “gross operating surplus – dwellings owned by persons”; a 109 per cent increase in compensation of employees; a 151 per cent increase in property income receivables; and an 82 per cent increase in social assistance benefits.

These increases were offset by an 85 per cent increase in interest payable and a 106 per cent increase in income tax payable.

Households in the highest income quintile account for 49.7 per cent of the increase in disposable income.

The ABS estimates that “gross saving” in 2017/18 was $177 billion. Households in the highest income category accounted for 79 per cent of the total. Households in the lowest income quintile were dis-savers with negative 18 per cent of total household gross saving.

Gross savings increased by 192 per cent over the period from 2003/04 to 2017/18. Savings increased rapidly between 2003/04 and 2009/10 and then fell away. There was negligible growth between 2013/14 and 2015/16 and negative savings between 2015/16 and 2017/18.

Households in the highest income quintile made up 127 per cent of total growth, while households in the lowest quintile went backwards throughout the whole period from 2003/04 to 2017/18, at negative 32 per cent.

Looking at asset values, in 2017/18 the value of total household dwellings and residential land was $6.9 trillion. Households in the highest income quintile held 40 per cent of that value, while households in the lowest income quintile held 9 per cent.

When it comes to other assets, households in the highest income quintile held 39 per cent of currency and deposits, 65 per cent of shares and other equity, and 49 per cent of superannuation and insurance reserves.

Households in the lowest income quintile held 9 percent of currency and deposits, 5 per cent of shares and other equity, and 5 per cent of superannuation and insurance reserves.

Total household loan liabilities were $2.2 trillion. Household in the highest income quintile had 41 per cent of those liabilities, while households in the lowest income quintile had 9 per cent.