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Why so many Australians are rich

23 Jun 2021 2 month(s) ago

The Global Wealth Report has recorded that Australia now has 1.8 million millionaires, 3.2% of the world’s total. Some of that is due to private superannuation.

Australia is doing very well in the net wealth stakes according to Credit Suisse’s Global Wealth Report. It is significant how that is being measured. Superannuation assets, including self managed super funds are being included, and it is a big factor in why Australia is doing well.

“Private pension fund assets are included, but not entitlements to state pensions,” the GWR report says. The distinction between private and state pensions is a crucial difference. Many countries have pensions paid by the government and because many of those future pension liabilities are unfunded, especially in Europe, it will put enormous pressure in future on national Budgets.

But in Australia, the super funds are privately owned by each individual. Workers may have no choice about parting with 9.5% of their salaries, but the money that is accumulated is theirs, not the government’s. That will take enormous pressure off the aged pension and also adds to individual Australians’ wealth.

The report says: “Net worth, or 'wealth,' is defined as the value of financial assets plus real assets (principally housing) owned by households, minus their debts. This corresponds to the balance sheet that a household might draw up, listing the items which are owned, and their net value if sold.”

The GWR report says that the market value of pension funds “is a significant component of household financial assets overall, and one that people may tend to overlook.” Quite. When analysts look at wealth inequities, they tend not to include the capital in the super funds or private pension funds. When that is included, the picture looks far less alarming. Yes, the billionaires are getting richer and have an obscene amount of money. But pension funds (and insurance companies) amass tens of trillions of dollars. They are far larger.

Some more highlights from the report:

  • Australia recorded the third-highest increase in the number of millionaires (up 392,000), mainly due to currency appreciation against the US dollar.
  • By 2025 the number of millionaires is forecast to increase 70.1% to approximately 3.1 million.
  • Almost one in ten Australian adults is now a USD millionaire. The millionaire density in Australia has increased from 0.8% in 2000 to its high of 9.4% in 2020. 
  • Australia now has approximately 3,262 ultra-high-net-worth adults with net worth exceeding USD 50 million in 2020.
  • Australia and New Zealand both register low scores on the Gini Index (which measures wealth inequality), at 65.6 and 69.9 respectively, indicating that wealth is spread more equitably than in most other developed countries. 

Credit Suisse says the two principle sources of wealth are housing and financial assets, underpinned by robust GDP growth. It warns of the need to be watchful of signs of inflation and an inevitable increase in interest rates and the knock on effect this will have on the housing market.

The rapid appreciation of the Australian dollar over 2020 also played a significant role in Australia’s position in the rankings.

Australia topped the Global Rankings for median wealth at $US238,070, up $US32,280 but was 4th behind Switzerland, USA and HK in terms of mean wealth per adult at ($US 483,760).

The composition of wealth in Australia has changed little since the turn of the century. Financial assets comprised 39.5% of gross assets in 2000 versus 42.1% at the end of 2020. The importance of private debt has risen only slightly in Australia over the same period, from 16.5% in 2000 to 17.5% in 2020.

The picture is vastly different for Government debt however. Australia’s public debt rose from 47.5% of GDP in 2019 to 63.1% in 2020, and New Zealand’s went up from 32.1% to 41.3%.

The pandemic had a profound short-term impact on global markets in the first quarter of 2020. The report estimates that $US 17.5 trillion was lost from total global household wealth between January and March 2020, equivalent to a fall of 4.4%. This was largely reversed by the end of June. Surprisingly, in the second half of 2020 share prices continued on an upward path, reaching record levels by the end of the year. Housing markets also benefitted from the prevailing optimism as house prices rose at rates not seen for many years. The net result was that $US 7.4 trillion was added to global household wealth during the year.

 

Reader note: This is general reporting only and should not be considered in any way to be investment or tax advice, including for individuals. For more information please read our disclosure statement.

 

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