Well that’s it. Australia’s much-heralded three decades of growth are over.
What have we got to show for it? How has Australia changed since a recession last racked our economy back in 1991-92?
According to the World Bank we’ve climbed two rungs up the global GDP charts, from 15th to 13th. That’s not too bad.
The country as a whole is richer. But of course we know the population has risen enormously — up about 8.5 million people since the last recession. Are we richer in per capita terms?
The answer is yes. This next table shows Australian per capita GDP (normalised for purchasing power) jumping up the league tables in the past three decades. As you can see, there are a lot of small, rich countries ahead of us that didn’t show up in the last table.
So where is the money going? How are we using this burgeoning wealth? The answer is as familiar as it is disappointing.
When we look at Australian household expenditures, the top two are always food and housing. Food used to be the biggest single expense for the average Aussie family, but no longer. Shopping is now only the second biggest part of the household budget.
Instead housing was the top expenditure category in the 2015-16 household expenditure survey (2015-16 is the most recent iteration of that survey).
Housing costs (rents and mortgages) accounted for 19.6% of all household spending on goods and services, up from 14.2% in 1993-94. That’s a substantial jump — in dollar terms average weekly expenditure on housing rose from $85 to $227 a week.
As RBA governor Philip Lowe has pointed out, only a little bit of the increase in the value of Australian housing represents nicer or larger houses. The lion’s share of the increase is the value of the land. And Lowe points out that is just a merry-go-round for money:
“From the perspective of society as a whole, much of what is gained on the one hand is lost on the other: there are windfall gains from higher land prices but then everyone pays more for housing services,” said Lowe in 2015.
If we are ploughing our increased wealth back into scarce assets and simply bidding up their price then we are wasting a decent part of the great increase in income these three decades have granted us.
The cost of learning
There’s another category in the household expenditure survey I’d draw your attention to: education.
Average weekly spending on education is not in the top few categories in absolute terms. But when we look at which categories have had the biggest growth in expenditure, education is first. Between 1993-94 and 2015-16, expenditure has risen 412% from $9 a week to $44.
Is this good? To some extent it represents greater access to education — far more people are attending university and vocational education. It also reflects the long tail of HECS repayments.
It also represents the increasing popularity of non-government schools. Independent and catholic schools taught 28% of pupils in 1992, but in 2019 it was 34%. And the fees charged have risen far ahead of inflation.
Investing in education can be incredibly good. But much like housing, investment in education can involve a fight over a scarce good — status. If parents feel they must send their kids to expensive schools to win the status they need, then the result is an arms race that nobody wins.
Australia is less happy
As the next graph shows, Australians self-reported life satisfaction has faded away since 2005. Briefly, in 2018, even the Brits were happier than us! And we are now well behind the Finnish.
Wasting our high incomes is a shame. Because the link from income to happiness is real.
Yes, despite what you might have heard, money can buy you happiness. The top four countries in the 2020 World Happiness Report are Finland, Denmark, Switzerland and Iceland. All of which can also be found in the table above showing GDP per capita.
But money is only beneficial if you spend it right. The Nordic countries excel because their citizens don’t use their wealth to compete against each other. The 2020 World Happiness Report puts it like this:
The Nordic countries are characterised by a virtuous cycle in which various key institutional and cultural indicators of good society feed into each other including well-functioning democracy, generous and effective social welfare benefits, low levels of crime and corruption, and satisfied citizens who feel free and trust each other and governmental institutions.
If Australia lucks into another three-decade stretch of growth, evidence suggests we should use it to make our society more Nordic.