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Wealth and Job Creation

The ABS’s latest official estimate of Australia’s wealth for 2015-16 was $14.4 trillion, with a net value of just over $11 trillion after accounting for foreign liabilities (equity and debt). This net wealth is split between households, which account for 83%, and government, which accounts for 17%. The charts below tease out the composition.

Interestingly, our natural resources of mining and timber account for a small 7.2% of the total wealth. It is our developed resources of land used for dwellings and commercial buildings, and the buildings and infrastructure on that land that dominate, accounting for approximately two-thirds of the wealth. Equipment, inventories and consumer durables add another 8.0%, and intellectual property adds 2.2%. The balance is in the form of financial assets, which account for 15.2%.

For households, average net worth sat at just under $1.0 million in 2015-16, and should average approximately $1.0 million by the end of the 2017 calendar year. Households are now on the cusp of having financial assets at over half this average net worth, which is already a reality in the United States. Our superannuation scheme has certainly accelerated this displacement of hard assets, such as land, buildings, equipment and household durables, including vehicles, appliances and furniture.

We create new wealth every year, referred to as our gross domestic product (GDP), which totalled $1.7 trillion in the 2016 calendar year. However, most of this wealth is consumed in the form of goods and services. We export around a fifth of it to balance our imports, and invest around a quarter of GDP in dwellings, buildings, equipment and intellectual property. Depreciation eats into such investment, new and old, but asset appreciation also takes place via land values, and the growing value of businesses.

The chart below shows this new wealth creation in the year to June 2017.

Gone are the days when most of our wealth was created on the land. These days, agriculture and mining account for less than a tenth of our wealth each year. This share increases if one adds the value-adding via processing, but that value-adding is rightly credited to our manufacturing sector.

Ironically, more wealth is created these days from tourism by Australians and inbound tourists, at some $120 billion, compared with agriculture at approximately $85 billion.

Our secondary (Industrial Age) industries have been reduced to a shadow of their former dominance. These industries accounted for close to 40% of GDP in the 1960s, and have now fallen to approximately 15.9%. The quaternary and quinary service industries are now creating most of the wealth in our current Infotronics Age (1965-2040s). Health is now the nation’s largest sector when health services, medical insurance, pharmaceutical manufacturing and pharmacists are taken into account.

The following chart shows where the new wealth has come from, and been lost, over the five years through June 2017.

Only manufacturing has fallen in net new wealth creation, suffering under blowtorch pressure from mass-producers in countries such as China, and a lack of uniqueness and economies of scale. But again, the service industries are creating the vast bulk of new wealth, particularly services in the quaternary and quinary sectors.

This trend is even more evident when it comes to jobs, as seen below. The goods sectors created one in eight of the new jobs, with these all coming from the construction sector. However, the goods sectors accounted for many of the jobs lost over the past five years.

We are still creating new wealth. Our net worth continues to grow and will pass $1.0 million per household as we enter 2018, and we are creating six times more jobs than we are losing over a five-year period. For all of the political shambles we put up with – it’s worse in most other countries – our business sector continues to create new wealth and jobs. Let’s thank the business sector for that.

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