Record household wealth. Budget hit by lockdowns

Finance & Wealth; Mid-Year Economic and Fiscal Outlook (MYEFO)

Total household wealth (net worth) rose by $590 billion or 4.4 per cent to a record high $13,918.5 billion in the September quarter. Wealth is up 20.2 per cent on a year ago – the strongest annual gain in 11½ years.

Average (per capita) household wealth rose by $22,177 or 4.3 per cent in the September quarter to a record high $540,179,up 20.4 per cent over the year.

The Federal Government is projecting a $99.2 billion underlying cash deficit (4.5 per cent of GDP) for the current financial year (2021/22), down from the $106.6 billion deficit (5 per cent of GDP) previously forecast in the May Budget. The unemployment rate is expected to decline to 4.5 per cent by mid-2022 with the economy expanding (real GDP) by 3.75 per cent this fiscal year.

What does it mean?

• Aussie households just keep getting wealthier. A combination of surging property prices and solid sharemarket gains saw total Aussie household wealth grow by 4.4 per cent or $590 billion in the September quarter. Australia’s total household wealth hit an all-time high of $13.9 trillion, with wealth per person of $540,179 also sitting at record levels.

• According to the ABS, “Residential property assets contributed 3.5 percentage points to the quarterly growth in household wealth. Increases in currency and deposits, and superannuation balances, at 0.6 and 0.4 percentage points also contributed to the growth in household wealth. Offsetting these was an increase in household loans which detracted 0.3 percentage points from growth.”

• So how do you measure household wealth? Well, net household wealth is estimated by taking the difference between the value of a household’s total assets and its liabilities or debts. So when household wealth increases, this refers to an overall lift in the value of a household’s assets, including: residential and investment properties; superannuation balances; shares and other financial assets; personal savings or bank deposits; and non-financial assets like art work.

• Of course, wealth and income are two different things. Income is referred to as wages, salaries, pensions and other government payments. So regular payments received by households are not considered to be wealth-generating assets, and therefore not included in the Bureau of Statistics (ABS) definition of household wealth.

• So while wage growth remains tepid, the value of assets has surged, supported primarily by record-low interest rates and government pandemic stimulus measures, such as HomeBuilder, and the labour market recovery over the past year. Commonwealth Bank (CBA) Group economists estimate that Australians have amassed around $240 billion in excess savings during lockdowns, enabling those ‘stuck-at-home’ to invest in value-adding assets, such as property and shares.

• The ABS’ residential home price index, released earlier in the month, surged by 5 per cent in the September quarter, supported by record-low interest rates, and stronger buyer demand than the levels of housing stock on the market. In fact, the total value of land and dwellings jumped by a massive $473.4 billion in the quarter.

• A modest 0.3 per cent gain in the benchmark Aussie S&P/ASX 200 index pushed the value of shares up $24.4 billion, with superannuation reserves surging by $47.5 billion in the September quarter. Solid employment growth in the quarter lifted superannuation transactions up by $27.8 billion.

• On the other side of the ledger, household liabilities rose by 1.8 per cent or $48.6 billion in the September quarter, driven higher by a $31.4 billion lift in housing debt (loans).

• The Mid-Year Economic and Fiscal Outlook (MYEFO) has been handed down today. Australia’s Budget bottom line is little changed since Federal Treasurer Josh Frydenberg handed down the Federal Budget in May. A Budget deficit of $99.2 billion is now forecast through to mid-2022, down from the $106.6 billion deficit projected in May. While MYEFO shows a significant hit to the Federal Government’s ‘bottom-line’ from prolonged lockdowns on Australia’s east coast, a rapid economic rebound is expected, with Treasurer Frydenberg predicting, “The Australian economy is poised for strong growth.” In fact, the jobless rate is forecast to decline to 4.5 per cent by mid-2022, with the economy, as measured by gross domestic product (real GDP), predicted to expand by 3.75 per cent in 2021/22.

• On the policy decisions, the major drivers were previously announced measures to support the economy during Delta lockdowns totalling around $25 billion, and additional spending under ‘policy decisions taken but not yet announced’ at $16 billion. With the Federal election due by May 2022, the next full Federal Budget could be delivered in March 2022.

Australian national accounts: Finance & Wealth – September quarter

• Total household wealth (net worth) rose by $590 billion or 4.4 per cent to a record high $13,918.5 billion in the September quarter. Wealth is up 20.2 per cent on a year ago – the strongest annual gain in 11½ years.

• Average (per capita) household wealth rose by $22,177 or 4.3 per cent in the September quarter to a record high $540,179 to be up 20.4 per cent over the year.

• Household assets rose by 4 per cent (or $638.5 billion) in the September quarter to $16,600.8 billion. Non-financial assets rose by 5 per cent ($480 billion) while financial assets rose by 2.5 per cent ($158.6 billion).

• Household liabilities rose by 1.8 per cent (or $48.6 billion) to $2,682.3 billion in the quarter. The rise was mainly driven by owner-occupier loans, which increased $28 billion. Investor loans also contributed $3.4 billion to the lift.

• Households held a record $1,417.8 billion in cash and deposits at the end of September. Cash and deposit holdings represented 21.5 per cent of financial assets, in-line with both the average since the global financial crisis and long-run average.

• Households held a record $1,204.2 billion in shares, up 2.1 per cent in the September quarter. Listed share holdings were 18.2 per cent of all financial assets in the September quarter, below the 19.4 per cent average since the global financial crisis as well as the long-run average of 22.1 per cent.

• Pension fund (superannuation fund) assets rose by $55.8 billion to $2,864.4 billion in the September quarter. Cash and deposits stood at 8.5 per cent of assets, below the 12 per cent average since the global financial crisis, but above the long-term average of 9.2 per cent.

• Foreigners held a record $793.4 billion of Aussie listed shares in the September quarter, up by $62 billion in the quarter. Foreigners held 31 per cent of total listed shares, below the long-term average of 33.7 per cent.

Mid-Year Economic and Fiscal Outlook (MYEFO)

• The Federal Government is projecting a $99.2 billion underlying cash deficit (4.5 per cent of GDP) for the current financial year, down from the $106.6 billion deficit (5 per cent of GDP) previously forecast in May’s Federal Budget.

• Policy decisions made since the 2021/22 Budget have reduced the underlying cash balance by $30.7 billion in 2021/22 and $44.8 billion over the four years to 2024/25.

• The net operating balance is expected to be a deficit of $91.3 billion (4.1 per cent of GDP) in 2021/22, compared to an expected deficit of $92.7 billion (4.3 per cent of GDP) in the May 2021/22 Budget.

• Total revenue has been revised up by $45.9 billion in 2021/22 and by $109.9 billion over the four years to 2024/25 since the 2021/22 Budget.

• Total expenses have increased by $44.5 billion in 2021/22 since the 2021/22 Budget.

• Net debt is expected to be 30.6 per cent of GDP at 2021/2022 with gross debt forecast at 41.8 per cent of GDP.

• The Government expects the economy (real GDP) to grow 3.75 per cent in 2021/22 and 3.5 per cent in 2022/23. And the unemployment rate is now expected to fall to 4.5 per cent in 2021/22, before easing to 4.25 per cent in 2022/23.

• The Treasury has upgraded its Consumer Price Index (CPI) inflation forecast over the next couple of years to 2.5 per cent in 2022/23, broadly in-line with the upgrade to the Wage Price Index (WPI) to 2.75 per cent in 2022/23.

• Commodity assumptions: The Treasury expects iron ore prices to decline to US$55 a tonne and metallurgical coal prices to US$130 a tonne by June 2022.