Australia needs a better safety net in case of unforseen circumstances

As the equivalent of the Chairman of the Board of a conglomerate, a Prime Minister can never afford to have a first issue or a main issue for more than a day, or a week at the most. The Ministers of the numerous portfolios would be frustrated, not to mention the almost 15 million voters with a diverse log of claims. In any case, events are changing so fast in Australia and the world that tomorrow’s intended priority often has to be relegated downwards, in the light of overnight developments.

For example, who would have thought in January 2001, that:

• HIH, OneTel, Pasminco and Ansett would go bust, and the NAB lose over $3 billion in its US subsidiary (Homestead);
• Christopher Skase would die (we thought he was acting all along!);
• Islamic terrorists would use four commercial jets to kill over 5,300 Americans, destroy the World Trade towers and the Pentagon, and cause over $34 US billion in damage, and send famous airlines broke or on life-support systems;
• the ALP would rule all states & territories except SA (yet?);
• the Howard Government would have a ghost of a chance of winning the next election (now November 10). But did!
• Manufacturing would cease to be our biggest industry;
• so many noted CEOs could change from roosters to feather-dusters;
• World GDP would fall from 4.1% in 2000 to 1.7% in 2001;
• Japan’s Nikkei Dow would be down to a quarter of its 1990 peak.

What can be more easily addressed are the longer-term issues, regarding one of those as a prime issue, if not the first issue.

I thought savings would be one of the prime issues; and household savings in particular.

Our history is sobering in recent decades, as the following exhibit reveals so starkly.

The last time Australia had reasonable savings was in the mid 70s.

Why do high household savings matter? For several reasons:

• they provide for a dignified, independent retirement rather than a constrained, pension-dependent retirement;
• they should be the single largest source of new capital (other than depreciation of old capital) to fund the growth of our businesses, and therefore the economy;
• they obviate the need to borrow overseas and incur interest and dividend payments, which affect our current account, our domestic interest rates and the value of our dollar.

There are about 4.6 million baby boomers approaching retirement between 2005 and 2022. In 2010, a retiring baby boomer would need $1.5 million in assets (including a house, or its equivalent value) to earn one third of the prevailing average household income at that time. Two thirds of the baby boomers will not achieve this due to inadequate savings during their lifetimes, unless they start saving and investing much more now.

In 1999-00, the average wealth of the 7.4 million households was around $350,000.