Australian Bureau of Statistics
1370.0 - Measures of Australia's Progress, 2004
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 21/04/2004
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Real national net worth(a) per capita
Progress and the headline indicator
National wealth and national income are very closely related.
Along with the skills of the work force, a nation's wealth has a major effect on its capacity to generate income. Produced assets (such as machinery and equipment) are used in income-generating economic activity. Some natural assets (such as minerals and native timber) generate income at the time of their extraction or harvest. Holdings of financial assets with the rest of the world (such as foreign shares, deposits and loans) return income flows to Australia. Other assets, such as owner-occupied dwellings, provide consumption services direct to their owners.
Income that is saved rather than spent on current consumption allows the accumulation of wealth that will generate income and support higher levels of consumption in the future.
There are many different indicators of wealth. The headline measure - real national net worth per capita - exhibits features that make it an informative indicator of national progress.
Real national assets and liabilities(a) per capita
Real national assets and liabilities per capita
Changes in Australia's net worth are the net result of changes in assets and liabilities. Between June 1993 and June 2003, Australia's real net worth per capita rose at an average annual rate of 0.6%. Australia's real assets per capita grew by 1.8% per year, but this was largely offset by the 6.5% annual growth in real per capita liabilities to the rest of the world. Nevertheless, in June 2003 the value of assets was more than four times that of liabilities.1
Between 1993 and 2003, real produced assets per capita grew by around 1.7% per year. Of the produced assets, dwellings showed fairly strong growth (up by more than 2% per year). Computer software grew by more than 15% a year, although even by 2003 software still accounted for a small proportion of total assets (in part due to falling prices).
Non-produced assets (such as land, mineral resources and native forests) are largely the result of natural endowment, although exploration and development have increased the economic value of these assets. Real non-produced assets per capita fell slightly (0.1% a year) between 1993 and 2003.
Australia's financial assets with the rest of the world more than doubled in real per capita terms between 1993 and 2003 (up by around 9.5% per year). Shares and other equity showed particularly strong growth. Australia's liabilities to the rest of the world rose by around 6.5% per year between 1993 and 2003. Again, shares and other equity showed strong growth.
Major assets and liabilities(a) per capita
Real net capital stock(a) per capita
Assets used in production - produced capital
Machinery, buildings and some other fixed assets are inputs to the production of goods and services, and are an important repository of national wealth. Australia's stock of these assets has been growing for many years. Real net capital stock, the net present values of the future capital services to be provided by these assets, grew on average by 1.6% per year on a per capita basis between June 1993 and June 2003. In June 2003, fixed assets accounted for 47% of the total value of Australia's assets (down from 58% a decade earlier).1
The increase in capital stock has in turn led to an increase in the amount of capital services used per unit of labour input (a process known as 'capital deepening'). During the past decade, Australia's capital-labour ratio rose by almost 35% (or 3% per year). This has contributed to an increase in labour productivity.
The growth of a nation's net capital stock depends on the relative pace of two offsetting influences - investments (or 'capital formation') which increase the stock, and retirements and depreciation which reduce it. Investments significantly outstripped retirements and depreciation during the 1990s.
Real net capital stock(a) per capita
Real net capital stock(a), by industry - June 1993 and June 2003
Diverse trends may underlie the aggregate growth pattern, such as shifts in the composition of economic activity toward industries that are more or less capital intensive, or more or less rapid capital deepening in individual industries. Technological changes - for example, the recent rapidly increasing importance of computer and communications hardware and software - have been a major driver of such trends.
Between 1993 and 2003, the types of capital showing the most rapid growth were dwellings (up 2.2% per year), machinery and equipment (up 2.5% per year) and software (up 15.5% per year).
Between 1993 and 2003, the industries showing the most rapid growth in net capital stock were Cultural and recreational services (up 7.3% per year), Communication services (up 5.5% per year) and Property and business services (up 4.2% per year).
Capital formation (commonly termed 'investment') is the process of creating produced assets - such as machinery and buildings - that can be used for production of goods and services. Capital formation is a key influence on Australia's capacity to generate income in the future.
Gross fixed capital formation is the value of acquisitions less disposals of new or existing fixed assets. The measure is 'gross' because it has not been adjusted for depreciation (the consumption of fixed assets during the production process). (See box.)
Australia experienced a recession in the late 1980s and early 1990s. During this period capital formation fell. However, it recovered in 1992-93 and continued to increase through the remainder of the decade. Between 1992-93 and 2002-03 it rose by 5.6% per year on average.
Capital formation is undertaken by all domestic sectors: general government, public corporations and the private sector, which comprises private corporations and the household sector. The private sector consistently contributed most to overall capital formation during the past decade.
After an initial decrease in the early 1990s, private sector investment recovered and grew by 87% from 1992-93 to 2002-03. The private sector's contribution to overall gross fixed capital formation rose from around 78% in 1992-93 to just under 85% in 2002-03. Government and public corporations made a smaller contribution to total real gross fixed capital formation per capita. Government investment accounted for about 9% of the total investment figure in 2002-03, while public corporations accounted for about 6%.
Within private gross capital formation, there was strong growth during the decade in investment in dwellings (up 48% in real per capita terms between 1992-93 and 2002-03). Investment in machinery and equipment also grew appreciably. By 2002-03, machinery and equipment accounted for about 37% of total private capital formation, compared to 30% a decade earlier. Purchases of information technology (including computer hardware and software) are among the fastest growing components, although it still accounts for only a small proportion of total capital formation, in part due to falling prices.
Private real gross fixed capital formation per capita(a), by type of asset
Non-produced assets - mineral and energy resources
Australia has many types of natural assets. Air, water, soil, and biodiversity resources are discussed in other commentaries. Subsoil assets, discussed below, are of major economic significance.
In recent years, there has been continued growth in Australia's known mineral resources, or economically demonstrated resources (EDR) (see box). The net present value of Australia's EDR per capita grew on average by around 13.3% a year between June 1993 and June 2003. After adjusting for the effects of price change, the real per capita value of Australia's subsoil assets grew by a little over 2.3% per year on average over the same period.
Economically demonstrated resources(a) per capita
The growth of a nation's stock of subsoil assets broadly depends on the relative pace of two offsetting influences - discoveries which increase the stock, and extractions which reduce it. The former significantly outstripped the latter during the 1990s, as was the case for most of the twentieth century. But because the value of subsoil assets is defined in terms of EDR (see box), other influences come into play. There might, for example, be a marked rise in the world price for a mineral or a technological innovation that makes it economic to extract a known deposit that was hitherto uneconomic.
In 2003, Australia had the world's largest demonstrated resources of lead, certain mineral sands (alluvial ilmenite, rutile and zircon), tantalum, uranium, silver and zinc. And Australia ranked among the top six countries for many other minerals such as black and brown coal, bauxite, copper, cobalt, diamonds, gold, iron ore, manganese ore and nickel.1
Among the minerals showing strongest annual growth in net present value of EDR in current price terms between 1993 and 2003 were naturally occurring LPG (up 24.7%), black coal (up 21.6%) and iron ore (up 19.8%).
Economically demonstrated resources(a) per capita, by mineral - June 1993 and June 2003
External liabilities - foreign debt
In recent years, Australia's debt to the rest of the world has increased. Real net foreign debt grew on average by 5.4% per year between June 1993 and June 2003.2
The growth in a country's foreign debt can reflect several related influences. The value of its imports and other current payments to foreigners may outstrip the value of its exports and other current receipts from foreigners - if so, the nation experiences a deficit on its current account which must be funded.
Real net foreign debt(a) - June 1993 to June 2003
Foreign holdings of Australian equity and debt were both rising through much of the twentieth century.2 Australia must pay income (dividends or interest) on both forms of liability to foreign residents. However, if by incurring those liabilities Australia has been able to acquire capital or other assets that enhance its productive capacity and income-generating potential, then the increased liabilities may not, on balance, have a deleterious impact on progress.
The public sector and private sector components of foreign debt showed markedly different trends during the past decade.
The real net foreign debt of the public sector rose from $68.3b in June 1993 to a peak of $79.5b in June 1995. Thereafter, it fell to just under $9.0b in June 2003.
The real net foreign debt of the private sector, after having been fairly steady at around $130-140b in the first half of the 1990s, rose throughout the second half of the decade to reach $342.8b in June 2003.
Some differences within Australia
Wealth statistics dissected by geography are not available but experimental studies of household wealth statistics dissected by age groups show, not surprisingly, that wealth in nominal terms increases as people have more time to accumulate it, that is as they age, although wealth also appears to be run down to some degree after retirement. Average wealth is distributed quite differently from income, which falls away sharply for the age groups in which more people have retired.
The distribution of wealth also varies across household types. Two main conclusions can be drawn. First, younger households (whether lone person, younger group households or those with younger children) have lower average wealth than older households. Second, households containing couples appear to accumulate wealth more readily than lone person or lone parent households, which may reflect couples' having access to two incomes for extended periods.
Between 1995 and 2000, couple households with children had higher average net worth than lone parent households with children of a similar age. Couples with dependent students aged 15-24 had the highest average net worth in all periods. This is likely to reflect the effects of couple formation, and the accumulation of wealth in older age groups.
The net worth of different types of households is closely associated with their average dwelling and superannuation assets. Average wealth appeared to rise between 1995 and 2000 for all age groups, but the rise was most marked where the household reference person was 45 or older, for whom growth appears to have been particularly strong in dwellings assets, superannuation and shares.
Average household owner-occupied dwelling assets
Average household superannuation assets
Factors influencing change
The growth in a nation's wealth is the outcome of a wide variety of influences. Broadly, changes in real wealth reflect both accumulations of past saving or dissaving and changes in the prices of assets and liabilities.
The economic cycle has a significant impact on the investment activity of a nation, which in turn, can affect its population's ability to accumulate wealth. The Australian economy's strong growth following the recession in the early part of the 1990s underpinned the increase in gross fixed capital formation in the 1990s.
Changes in technology, especially in information technology, have also influenced the increase in investment activity. For example, the computerisation of many manufacturing systems and processes may have driven increases in investment in machinery and equipment.
Links to other dimensions of progress
The connections between wealth and income are discussed above and in the income commentary, and the link between wealth and financial hardship is discussed in that commentary.
The buildings and infrastructure used to deliver education, health and other services are important components of wealth, as are natural assets such as land and minerals.
See also the commentaries National income, Productivity, Financial hardship and The natural landscape.
This page last updated 22 October 2008
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