Australian households are not becoming better off

Contributed by Jim Hayes

Australian Bureau of Statistics (ABS) information shows that total household wealth stood at a record $9.6 trillion at the end of March, which is 2.4 percent higher in one quarter.

This is somewhat misleading however. It does not mean that the wealth of the average Australian household is rising.

Household wealth is based on total of assets, including business assets and liabilities in the economy and then divided by the number of households. This very different from measuring income, which is a much better indication of standard of living.

Secondly, the liability of one is an asset of another, which means that there is a measure of double counting.

Nor does the household wealth measure consider the distribution of this wealth. Rather than the average household becoming wealthier, it could be that some do and others become poorer.

If an increase has been reported at the same time as the nation’s Gross Domestic Product (GDP) has experienced negligible growth, it must be that much of it represents the shift of wealth from some households to others and that the measure is inaccurate. After all, new wealth must come from somewhere.

This is exactly what has happened. GDP for the quarter grew by just 0.3 percent. Match this with the  reported 2.4 percent rise in average household income and it just doesn’t add up.

Another truth is that nominal household income has been sewed upwards by the real estate bubble. It is questionable whether this is real wealth when it comes to the household’s residential address, given that the cost of a transfer from one dwelling to another would cancel out the gain on the average.

Household wealth should be based on real, rather than nominal wealth and this means discounting inflationary growth.

The biggest growth has been in shares. These are now worth a record $826 billion, due to a rise by just over $36 billion for the quarter. Superannuation funds growth account for $29.9 billion of this. Although these numbers are used to add up assets it represents a transfer of assets, from one form to another and are not the creation of any new wealth. It is about distribution not accumulation.

Welfare groups have said that the ABS information highlights the growing disparity between rich and poor across Australia. They are right.

There is a transfer away from disposable income to shares.

Consumption expenditure almost kept constant, rising only by 0.1 percent. Savings decreased by 0.4 percent, suggesting that  expenditure other than for consumption was funded at the cost of savings.

It no longer looks like average households are improving their position.

Chief executive of the Australian Council of Social Service (ACOSS) said that nearly 3 million people still living below the poverty line.

“The reality is that people in the bottom 50 per cent of the community own just 6 per cent of the overall nation’s wealth,” she said.

“This is a story about, well, how are we making sure that the benefits of the overall wealth in the country are being shared more fairly.”

The inescapable conclusion is that one should not take official statistics at face value. There is usually more to the story than we are often told. Most people have not acquired the skills to properly interprete statistics and can therefore easily be misled by false conclusions.

In this case, a misinterpretation of what is really going on at the average household level, hides the truth and therefore detracts from what needs to be done to overcome the real problems faced by many. This needs to be corrected.


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