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Forward Thinking Magazine : August 2011
39 economic commentary By Richard Gibbs, Global Head of Economics, Macquarie Research In our view, the voluntary nature of the current rise in household savings, against a background of a resilient labour market conditions and sustained household income, suggests that the rise in household savings and the emergence of a more holistic approach to balance sheet management is a 'structural' change. From the perspective of aggregate national savings behaviour in Australia, this structural change implies that households also believe that they need to supplement the savings that are being accumulated in their individual superannuation accounts. Arguably, there are two important drivers behind this shift in behaviour. First, the loss of wealth experienced by many Australian workers due to the deflation of asset values through the GFC has highlighted the need to bolster savings. Second, the realisation that retirement savings will need to support increased longevity for many in the 'baby boomer' generation has increased the imperative for greater emphasis on saving, rather than consumption. A further factor is obviously the lack of confidence that pervades the current mind-set of households and businesses as they witness further financial upheaval in offshore markets and ongoing speculation about the economic health of the US economy. Moreover, the Australian Government's recent announcement of its proposal to introduce a $23 per tonne carbon tax from 1 July 2012 is likely to reinforce the conservatism of consumers and in the minds of many vindicate their decision to restructure household balance sheets through a concerted increase in savings. Already there are reports that Australian 'high-end' retailers are experiencing a further downturn in sales as the so-called 'aspirational' consumers stop spending and increase savings and the repayment of debt. These retailers have suggested that it is this cohort of consumers who feel that they will bear the full incidence of the proposed carbon tax and as a consequence the announcement of the tax has become another force behind the structural change in household savings behaviour. So in financial planning parlance, it is fair to say that the GFC and its aftermath has instilled in households the importance of net asset positions as opposed to gross asset positions that are supported by debt.