Most Australians are not on Struggle Street but confuse what they want with what they need: Michael Matusik

It is often said that the world is in the midst of the biggest economic transition in modern times. In short, the West is in the process of ceding economic power to the East.

The old Group of Seven – Canada, France, Germany, Italy, Japan, the United Kingdom and the United States of America – have a combined firepower of $US34 trillion. The new G7 – China, Hong Kong, India, Korea (south, of course), Malaysia, Singapore and Taiwan –  have a combined GDP worth $US12 trillion (see postscript), but the Asian G7 (AG7) economies have been growing by 16% per annum since the GFC, which is four times faster than the old G7.

Remember, the eighth wonder of the world is the power of compound growth.

The AG7 countries have a massive population base, but very low incomes when compared with the West. The average income per capita across the G7 is $45,000; whilst across the AG7 it is just $4,200. Yes, Asia’s income levels have doubled over the last five years, but they are dwarfed by Western standards.

This world shift is a massive bonus to Australia, most obviously via the demand for mining and agricultural resources. This, in turn, is creating wealth in Australia, although not as evenly spread as many of us would like. The demand for luxury goods is, once again, on the rise.

Did you know that Australians have the fifth (yes, fifth) highest income per capita is the world? In US dollars, every Australian (yes, on average) earned $67,000 last year. The four countries above us in income rankings were Luxembourg ($122,000), Qatar ($98,000), Norway ($97,000) and Switzerland ($85,000).

House prices

According to data house, RP Data, house prices rose by 0.2% during the March quarter. This might not sound like much, but at least the result wasn’t a negative.

Now, while the CommSec super-luxury car sales index is a small one, it does a pretty good job at forecasting the direction of house prices across the country. This index shows that 126 top-end vehicles sold across Australia during March, which is up 22% on this time last year.

Over the last twelve months 1,129 super-luxury vehicles were sold. The record high was during calendar 2007, when 1,606 top-end rides were traded.

There is a close relationship with super-luxury car sales and house prices. The theory is that confidence levels repair first at the top-end of the market and then flow through to other asset markets. The rebound of the CommSec super-luxury car index suggests the housing market may also be poised to recover.

Now, I’m no car buff – just a four-wheel drive kind of guy – but I think Craig James and the boys at CommBank are onto something there.

It is always good, every now and then, to think outside the square. They just need to work on what they call stuff: ”super-lux index” reads heaps better if you ask me.

Struggle Street

I am getting tired of hearing about how more and more Australians are doing it tough. Despite what you might believe, most of us are not on “Struggle Street”. We are confusing what we “want” with what we “need”. I am as guilty as the next person.

Unlike almost anywhere else, Australia has had 20 years of uninterrupted economic growth, and continues at an enviable rate. Real wages have risen by more than 30% since 2005. In addition, we are close to full employment and we can afford to build some of the largest houses in the world.

The super-luxury set hasn’t done this by themselves. Most Australians must be doing well. Even inflation is tamed, and so much so that “cost of living pressures” has replaced “inflation” in public debate.

Now, there are people who are really doing it tough – and something like half a million in Queensland sadly live below the poverty line – but there are 4.6 million people in the state.

Yes, we are more frugal these days, with the average household putting aside 10% of after-tax income for future needs. Companies, too, are retiring debt and building up cash reserves. A decade ago, Australian households on average were not saving. Today, our saving rate is similar to the traditionally thrifty Germans and double that of the US.

So, what does it really tell us when one-third of Australians believe passion is the most important reason for taking a new job, while just 17% nominate a good salary? And in another poll, two-thirds of Australians say they are happy. There is nothing wrong with both sets of replies, but they don’t suggest that we are on Struggle Street – especially when Aussie mums are increasingly hiring “personal assistants” to help them with their day-to-day routines.

We desperately need to change the public debate.  We should be rejecting the nebulous “cost-of-living pressure” spin and change the focus away from “my personal finances” and towards creating world-class infrastructure, smart business incentives and helping those few with genuine difficulties.

Postscript

Oh, by the way, a trillion dollars = $1,000,000,000,000.  That’s 12 zeroes to the left of the decimal point. A trillion is a million million dollars.

It is nearly too big to comprehend.

But if you laid five dollar notes end to end, you could make a chain that stretches from earth to the moon and back again 40 times before you ran out of five-buck bills! If we still had one-dollar notes, one trillion dollars would stretch almost from the earth to the sun. Similarly, it would take an F 22 Raptor (a fighter jet) flying at the speed of sound and reeling out a roll of dollar notes behind it 14 years before it reeled out one trillion dollars.

And the super-lux index includes new passenger car sales from 10 marquees – Aston Martin, Bentley, Ferrari, Lamborghini, Maserati, Maybach, Morgan, Porsche and Rolls Royce. Why Jeep isn’t in this set is beyond me!

Michael Matusik is the director of independent property advisory Matusik Property Insights. Michael is a 25-year veteran in the industry and his firm has helped over 550 new residential developments come to fruition.  Michael has launched a new initiative, called Think Matusik.  Think Matusik brings together expert opinion and select property opportunities.