Australian Net Private Wealth
Treasury has published annual estimates of Australian net private sector wealth since the Summer 1990 Economic Roundup. This article updates previous estimates, and provides preliminary estimates for net private sector wealth as at June 1998.
The market value of Australian net private sector wealth grew by 7.2 per cent in the year to June 1998. In real terms (i.e. after allowing for inflation), wealth grew by 5.1 per cent, while per capita real wealth grew by 4.0 per cent.
Measuring Wealth
The wealth estimates presented in this article are a measure of the value of net domestic and foreign assets owned by the Australian private sector. The estimates relate to financial and physical wealth only and do not make any attempt to value natural resources or human capital. One‑off estimates of the value of wealth including these broader categories have been constructed by the World Bank (1995) and the Australian Bureau of Statistics (ABS) (1995).
The Treasury estimates of Australian net private sector wealth are constructed using the inventory approach, largely following the methodology of Callen (1991). This approach involves aggregating across different asset types and adjusting for the public and/or foreign ownership of assets. The estimates are largely based on ABS estimates of the dwelling stock, capital stock, stock of consumer durables and Australia’s international investment position. Reserve Bank of Australia (RBA) data are used for holdings of public securities and RBA liabilities. Some private sector data and estimates from previous studies also enter the estimates.
The estimates of aggregate wealth below are based on a consolidation of the private household and business sectors. This consolidation does, however, result 

in loss of detail on the liabilities of these two sectors. As a result, the data on asset types contained in the attached tables and charts should not be used to infer relative ownership by either the household or business sectors or the level of personal wealth.
Treasury estimates of net private sector wealth are calculated on both a market value and replacement cost basis. The market value of an asset represents the value that would be obtained if assets were to be sold in current market conditions. The replacement cost of an asset is the cost of reproducing that asset.
A number of assumptions and approximations are required to construct the estimates, particularly for the current year where much of the data remain provisional. Together with inevitable revisions to historical data, these limitations imply that the estimates should be interpreted as indicative of trends and broad orders of magnitude, rather than precise estimates.
Movements in Australian Private Sector Wealth in 1998
The estimates in Tables 1(a), 1(b), 1(c) and 2 indicate that net private sector wealth continued to grow during the year to June 1998.
Through the year to June 1998, Australian net private sector wealth at market value grew by 7.2 per cent in nominal terms, 5.1 per cent in real terms, and 4.0 per cent in real per capita terms.
In current prices, Australian net private sector wealth was approximately $2,305 billion at market value, and $1,912 billion at replacement cost on 30 June 1998. This represents around:
•	$123,021 per Australian ($102,072 on a replacement cost basis); and 
•	4.1 times the value of the annual nominal gross domestic product of the economy (3.4 times on a replacement cost basis).
Chart 1: Growth in Australian net private sector wealth at market value

(a)	Preliminary figures.
Chart 1 shows growth in Australian net private sector wealth at market value. The rate of growth of both nominal and real wealth was slower during the year to June 1998 than in the two previous years. Nevertheless, real wealth continued to grow faster than its twenty year average.
The main factor contributing to the growth in wealth through the year to June 1998 was growth in the value of dwelling assets. The rate of growth in the market value of dwelling assets during the year to June 1998 was up from the previous year, reflecting continued growth in the dwelling stock and increases in the price of established houses. The other main contributor to growth was business capital at market value, which was offset to some extent by an increase in foreign ownership of Australian assets. The rate of growth in the value of business capital was down from the previous year because of slower growth in stock market prices. Increases in the market value of government securities and consumer durables also made small positive contributions to growth in the year to June 1998.
The contributions of the various components of private sector wealth to growth in nominal private sector wealth at market value are shown in Chart 2 below.
Chart 2: Contributions to growth in nominal Australian 
net private sector wealth at market value

During the year to June 1998:
•	dwelling assets contributed 4.1 percentage points to growth in the market value of wealth, up from 3.3 percentage points through the year to June 1997; 
•	business capital contributed 2.4 percentage points to growth in the market value of wealth; and 
•	holdings of government securities and consumer durables each contributed 0.4 percentage points to growth in the market value of wealth. 
Valuation ratios for Australian net private wealth
Valuation ratios for individual components of wealth (Table 3) provide a measure of the relationship between the market value and the replacement cost for that component. For dwelling assets, the valuation ratio represents the ratio between the price of established houses and the cost of building new dwellings (inclusive of land). The valuation ratio for business assets is the ratio between the price of existing business assets (as valued by the stock market), and the price of new business investment. The valuation ratio for government securities is determined by current interest rates relative to the interest rates at the time the securities were issued. If there is an unanticipated fall in interest rates relative to the interest rate at the time of issue, then the value of the security rises.
Changes in market conditions for particular components of wealth (for example, dwellings) will affect the valuation ratio for that component. Changes in market sentiment and business confidence will lead to changes in individual valuation ratios and fluctuations in the total market value of private sector wealth. The value of wealth at replacement cost is not directly affected by these changes in sentiment or confidence, and hence is more stable.
Chart 3 shows valuation ratios for selected components of wealth and indicates that all three valuation ratios increased during the year to June 1998.
•	The valuation ratio for dwelling assets increased during the year to June 1998, reflecting a rise in the price of established houses relative to the price of new dwelling investment.
•	The valuation ratio for business assets also increased, but growth was less than in the preceding two years. This smaller increase reflected slower growth in stock market prices coupled with higher growth in the price of new business investment.
•	The valuation ratio for government securities rose because of lower interest rates (rising bond prices) during 1997‑1998.
Chart 3: Valuation ratios for selected components of wealth

(a)	Established house prices divided by the deflator for dwelling investment.
(b)	Equity prices divided by the deflator for business fixed investment.
(c)	Market price divided by face value.
Composition of Australian net private mealth by type of asset
Chart 4 shows the composition of Australian net private sector wealth (at market value) by asset type as at 30 June 1998. The composition of wealth remained relatively stable during the year, with the share of dwelling assets at around 55 per cent and the share of business assets at around 34 per cent. 

Government securities, consumer durables and the money base represented approximately 5, 5 and 1 per cent respectively of assets owned by the private sector.
Chart 4: Composition of Australian net private sector wealth 
by asset type

References
Australian Bureau of Statistics (ABS), Occasional Paper: National Balance Sheets for Australia Issues and Experimental Estimates, 1989 to 1992 (5241.0), Commonwealth Government Printer, Canberra.
Bacon, B. R. 1998, Household Wealth and The Aged: An Income Distribution Survey Analysis, Sixth Colloquium of Superannuation Researchers, University of Melbourne, July 1998, Conference Paper No. 3.
Callen, T. 1991, Estimates of Private Sector Wealth, Reserve Bank of Australia, Research Discussion Paper 9109.
Horn, P. 1987, Private Non-Human Wealth of Australian Residents in the NIF‑88 Model, NIF-88 Background Paper No. 9, December.
Modelling Section 1996, ‘Documentation of the Treasury Macroeconomic (TRYM) Model of the Australian Economy’, Treasury, Canberra.
Piggott, J. 1987, The Nation’s Private Wealth — Some New Calculations for Australia, The Economic Record, March 1987.
Department of the Treasury 1990, ‘Private Sector Wealth Estimates in Australia’ Economic Roundup, Summer 1990, AGPS, Canberra.
World Bank 1995, Monitoring Environmental Progress: A Report on Work in Progress, The International Bank for Reconstruction and Development/The World Bank, Washington DC.
Table 1A: Nominal private sector wealth at market value

(a)	Preliminary figures.
Table 1B: Real private sector wealth at market value*

(a)	Preliminary figures.
*	Real wealth is calculated by dividing nominal wealth by the private consumption deflator.
Table 1C: Real per capita private sector wealth at market value*

(a)	Preliminary figures.
*	Real wealth is calculated by dividing nominal wealth by the private consumption deflator.
Table 2: Nominal private sector wealth at replacement cost

(a)	Preliminary figures.
Table 3: Valuation ratios for selected wealth components

(a)	Established house prices divided by the deflator for dwelling investment.
(b)	Equity prices divided by the deflator for business fixed investment.
(c)	Market price divided by face value.
(d)	Preliminary figures.