Despite divergent underlying financial trends, the relative wealth gap between Australia and NZ remains largely unchanged after the first two decades of the 21st century, according to a new Credit Suisse global study.
The 12th Credit Suisse Global Wealth Report released last week, shows the relative richness of the two trans-Tasman neighbours as at the end of 2020 was almost the same as 20 years prior.
“Wealth per adult at the end of 2020 was USD 483,755 in Australia, 38.9% above New Zealand’s USD 348,198. This difference was similar to the 37.3% gap recorded in 2000,” the Credit Suisse report says. “Unsurprisingly, the average annual growth rates for wealth per adult were also similar: 7.8% in Australia and 7.7% in New Zealand.”
But the point-to-point comparison disguises both large fluctuations in the wealth-gap over the 20-year period – with Australia forging ahead post 2008 before NZ caught up by 2014 – and markedly different asset composition trends across the two countries.
Australia saw the split between financial and non-financial (mostly property) assets remain more-or-less static over the last 20 years. Financial assets as a proportion of total Australian wealth only edged up slightly during the two-decade period from 39.5 per cent to 42.1 per cent.
“Change is more evident in New Zealand, where financial assets made up 65.5% of gross assets in 2000, implying a low share of non-financial assets, partly due to low house prices,” the study says. “Between 2000 and 2020, the share of financial assets in gross assets fell to 54.1% – a ratio more typical for high-income countries.”
The Credit Suisse figures likely reflect the rapid house price inflation in NZ over the 21st century to date and the relative immaturity of KiwiSaver, which only kicked in after 2007.
By contrast, growth in financial assets via the now A$3 trillion plus Australian superannuation system kept ahead of the still-steep house price increases across the Tasman.
Australia, however, reported a rise in debt relative to gross assets from 16.5 per cent at the start of the millennium to 17.5 per cent by the end of 2020: in NZ, debt fell from 11.4 per cent to 11 per cent during the same period.
NZ also narrowed the wealth inequality gap compared to Australia over the last 20 years with the latter nation seeing an increase both in its Gini score (the traditional statistical measure of wealth disparity in a country) and the proportion of assets held by the richest 1 per cent of the population.
Until 2007, NZ and Australia both saw small declines in wealth inequality, the report says.
“However, wealth inequality continued to fall in New Zealand after 2008. By 2020, its wealth Gini had fallen from the 72.0 level recorded in 2000 to 69.9, and the share of the top 1% had dropped from 25.4% to 20.3%,” the Credit Suisse study says. “The contrast with Australia is explicable in terms of the large drop in the relative importance of financial assets in New Zealand over this period.”
Overall, Australia and NZ rank fourth and eighth, respectively, as measured by mean wealth with the latter jumping four spots and the former climbing to the top using the median metric.
Most of the 20 richest countries get displaced up or down a few spots as measured by the mean or median (a better indicator of wealth distribution) but the different statistical takes on the average has a disproportional impact on the US, in particular.
The US has the second-highest mean wealth per adult (behind Switzerland), however, the country “disappears from the table altogether, ranking 23rd overall” using the median as a yardstick.
COVID-19, or more correctly the extreme financial measures introduced to combat the economic damage from the pandemic, skewed wealth inequality across the world, the Credit Suisse report says.
“Regarding what happened in 2020, the verdict is unanimous. The indices all agree that global wealth inequality rose in 2020 by a substantial amount: the share of the top 10% increased by 0.9 percentage points, the share of the top 1% by 1.1 percentage points, and the Gini by 0.6 points,” the study says. “Furthermore, with a single exception – the share of the top 1% in 2014 – the inequality rise in 2020 was significantly greater than that recorded in any year this century. Of course, as on previous occasions, this rise may be temporary. In particular, the exit from current monetary policy in the months and years to come may well reverse part or all of the rises seen in 2020.”
In a wide-ranging 60-page report, Credit Suisse provides the usual head-count of millionaires and billionaires as well as a forecast that global wealth will rise by almost 40 per cent over the next five years to hit US$583 trillion by 2025.
The study tips India as one of the fastest wealth-accruing countries over the coming years while China is expected to achieve first-world status.
According to the study: “The big question is how long China can continue to be regarded as an emerging market. Our projections suggest that its wealth per adult in 2025 will be USD 105,400, which means China will qualify as a ‘high-wealth’ country in our classification scheme.
“China began this century with wealth averaging USD 4,250 per adult, placing them in the lowest of our country wealth categories. Transiting to the highest of our wealth categories within a 25-year timespan would be an extraordinary achievement by any standard.”
In spite of the generally upbeat Credit Suisse forecasts, the report – based on a raft of global data – says the COVID-19 economic kink could still play out in unexpected ways.
“… the determinants of wealth levels seem to have become detached from… those affecting daily life in a pandemic-stricken economy. Wealth levels have continued to grow as if nothing unusual is happening,” the study says. “So it appears that either the rules governing wealth evolution have changed in a fundamental way, or else the stage is set for some type of realignment.
“Future wealth reports are likely to return to this question.”
The report was authored by Anthony Shorrocks and James Davies – senior academics in the University of Manchester, the University of Western Ontario, respectively – along with Rodrigo Lluberas, Uruguay central bank research analyst.