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by: Jessica Irvine National Economics Editor
  • From: News Limited Network
  • September 16, 2012 12:00AM

Jessica irvine

News Limited economics reporter Jessica Irvine. Picture: Sam Ruttyn Source: The Sunday Telegraph 

TWICE a year on a Sunday, my local council arranges a “hard rubbish” collection day. For nosy-parkers like me, it’s a wonderful opportunity to legitimately rifle through neighbours’ rubbish as they leave it on the curb for collection.

A few years back, hard rubbish day saw footpaths transformed into makeshift, outdoor lounge rooms as new-looking lounge suites, televisions, lamps, throw rugs and cushions – unwanted, but in pristine working order – were relegated to the street.

This year’s Spring clean out was different.

This year the stuff people put on the streets really was just trash; bits of old wood, broken garden chairs, busted suitcases and soiled mattresses. And there seemed to be less of it.

What changed?
During the property boom of the early 2000s, Australians embarked on a debt-fuelled spending binge. A halving in interest rates since the mid 1990s meant families could afford to borrow twice as much. Banks were more willing to lend.

Supported by rising incomes and low unemployment, we went on a spending splurge. House prices boomed – more than doubling in a decade. Australia’s debt to household income ratio soared above 150 per cent – one of the highest in the world.

During the height of the property frenzy in the early 2000s, one in 12 Australian homes changed home each year (it has since dropped back to one in 25). As we moved, we treated ourselves to a few housewarming presents: new furniture and appliances – all on the plastic, of course.

At the same time, the rise of China meant the price of imported appliances, furnishing and gadgets plummet. We stuffed our homes with them and we kicked our old – but still perfectly good – possessions to the curb.

That was then.

Today, it’s an entirely different story.

The GFC was an almighty wake up call for Australian households. Our love affair with debt had already turned sour in 2006 and 2007 as the Reserve Bank lifted interest rates to eye wateringly high levels to cool the inflation created by all this spending.

When the US investment bank Lehman Brothers collapsed in late 2008, sending shockwaves through the global financial system, households really battened down the hatches. Interestingly, the crisis gave households both the motive – uncertainty – and the means –lower interest rates and stimulus money – to start saving again. We took that first stimulus cheque and have been squirreling away as much savings as possible ever since.

It’s a double whammy for industries like retail and tourism who are also struggling against a high Australian dollar created by the mining boom.

Retailers’ annual revenues grew by about 8 per cent or more during the early 2000s. Spending is now down to around 4 per cent growth a year – more in line with annual wages growth.

But is it only a matter of time before we return to our big spending ways?

I suspect not. All the signs suggest the Australian consumer mindset has changed fundamentally. We have turned our back on debt. More of us are ahead on our mortgage payments. Our credit card balances are shrinking. New loans are down. We are treasuring our possessions once more.

We have become more conservative with our finances. When asked to nominate the safest place for our savings, the proportion of us saying “in the bank” is at a 38 year high. The proportion saying “in shares” is at a record low. National accounts figures suggest households are saving about 12 cents in every dollar they earn, reversing the trend of the early 2000s when we spent more than we earned.

Economists call the trend “deleveraging”. It’s what makes the downturns that follow credit crises so protracted. We want to pay down our debts before we can start spending again.

That is bad new for jobs in the retail and property sectors of the economy, which are likely to remain on the ropes for some time to come.

But it is good for the long term stability of our economy, helping us to build a buffer against uncertain times.

Even if it does make trawling through your neighbours’ trash less rewarding.

Average credit card balance in July, down 2 per cent (or $69) on the previous month – the biggest percentage fall in 18 years.

15 million
Number of credit card accounts in Australia – up 1 per cent over the year

35 million
Number of debit card accounts in Australia – up 6 per cent over the year.

Annual growth in retail spending in 2003.

Annual growth in retail spending over the year to July.

Increase in the value of outstanding home loans over the year ended March 2004 – the peak of new home borrowing.

Increase in the value of home loans last financial year.

Per cent of Australians who say the wisest place for savings is in the bank – the highest reading in 38 years.

Per cent of Australians who think shares are the wisest place to put savings – the lowest reading on record.

Jessica Irvine is News Ltd’s national economics editor.


Jessica Irvine

May 18, 2012

I’ve figured it out. I’ve figured out how Australia’s economic vital signs can be so good – low joblessness, low inflation, trend growth – and yet Australians can remain so resolutely miserable.

Consumer confidence figures out this week confirm Australian consumers remain in the doldrums, with sentiment lifting just 0.8 per cent to remain below its historical average, despite a supersized interest rate cut and a federal budget promising goodies for middle- and low-income families.

A separate survey by Boston Consulting Group found sentiment in Australia ranks even lower than that of some crisis-torn and debt-riddled European countries.

 There can be only one answer: we are, as a nation, chucking a full-on, all-screaming, all-door-slamming teenage temper tantrum. The Australian economy is now in its 20th year of consecutive growth. Anyone aged about 40 or less has pretty much never experienced a recession, or at least the humiliating experience of trying to find a job during one.

The consequence is we have grown complacent. We’ve either forgotten, or have never known, how hard it can get. We’ve matured, recently, in our discontent. The collective hissy fit that pushed the Howard government out of power and saw Labor sail forth in a ”cost of living” battle was more like a school kid spitting the dummy about not having enough pocket money to cover increasing lolly prices.

True, lolly prices were rising, particularly on consumer sensitive items like petrol, food, education and health. But average income gains were more than enough to offset the rises for most, if not all, Australian households. In the post global financial crisis era, we have entered a more mature phase in our malcontent. We recently discovered that we maxed out our credit card and mum and dad can’t just erase it. We ran up massive debts relative to our income, with most of the money going into housing, and we’ve woken up with a debt hangover.

Australia’s household debt-to-income ratio is the highest in the world. And house prices have stopped rising.

With an almighty crunch, the realisation has dawned that we can’t go out partying every Saturday, we need to stay at home and save money. And that is, like, sooo unfair!

Meanwhile, business is acting like an adolescent, too, chucking hissy fits about workplace laws and taxation because it has learnt that this is an extremely effective parental manipulation strategy. In the teenage economy, the returns from rentseeking – or seeking special treatment from mum and dad – are higher than the returns from productive pursuits, like actually innovating business practices.

Business chucks a tantrum because it’s easier to manipulate mum into given you $20 than going out and getting a job and earning it yourself. One after another, Australia’s leading chief executives whinge and whine about government red tape and onerous regulation, while failing utterly to outline visions for innovation. Retailers whine about lower retail spending, rather than diverting their energy into making stores that people want to shop in with sales assistants that are friendly and knowledgeable about their product. Manufacturers bemoan a higher dollar without thinking how they can move up the value chain to high-end goods that foreigners actually want to buy.

To be fair, it seems most of the tantrums come from big business in Australia – the banks, resource companies and retailers that generally operate under little competitive pressure and enjoy a captive customer base. Rather than divert their resources into becoming more efficient, it pays dividends to run to government and seek favourable tax conditions or other treatment to plump shareholder returns.

Government is acting like the weak-willed parent who, in its thirst for affection, has failed to draw any boundaries and stick to them. Consumers have become rentseekers too, complaining about the cost of living and wailing about any attempts to wind back a bloated welfare system.

Meanwhile we refuse to acknowledge all the things government has done for us, like stopping us from going into recession. Government is left desperately trying to figure out what it is that we want to keep us quiet.

But any attempts to assuage our complaints – such as petrol price inquiries, grocery price inquiries – only lead us to wail even louder.

Our political discourse has become petty and puerile, an obsession with personality more befitting a teenage sleepover or schoolyard gossip circle. Did you see Julia’s shoulder pads in that jacket? They were like sooo 1990s! She’s such a scrag anyway. Huge arse. Oooh, but how about Tony? I dunno, he seems kinda aggressive, but powerful somehow. I dunno, you know? Perhaps this is the symptom of our success.

If we had double-digit unemployment then we’d really have something to worry about. But we don’t. So we wail and gnash our teeth about the injustice of it all. The Treasury Secretary, Martin Parkinson, in his annual post-budget address, complained this week of the complete lack of respect for the institutional and policy settings which have got Australia to where it is. These include: sustainable government finances which create room for counter-cyclical spending to cushion against recession; an independent central bank which has anchored inflation expectations; and a floating exchange rate that acts as a shock absorber for the economy.

He strayed from his scripted notes during the luncheon of the Australian Business Economists, many of whom are former government economic advisers, and it’s worth reproducing the comments here: ”One of the things that actually is disappointing is people take for granted that this framework exists now. There are some of us in this room who know how hard it was to get those frameworks in place. To put it another way, that set of frameworks is an asset or an endowment for Australia in as much a way as our mineral and energy resources are or our human capital is. If we trash those frameworks for short-term gain then the consequences for Australia will be very, very significant and I find it, therefore, very, very disheartening when I see people in the business community or people commentating in the press who seem to think that you can just basically casually attack some of the elements of this framework without actually thinking through 1) how much a benefit it’s given Australia and 2) what would be the implications for Australia today if we had those frameworks having been dismantled in some way.”

Maybe it’s time we grew up and realised how good we’ve got it. Read more: