ANALYSIS: Hello kitty! Australians find joy in saving

By Sid Astbury Oct 5, 2011, 0:31 GMT

Sydney - Rising unemployment and the spectre of a global downturn has Australian households rediscovering the joys of thrift.

Ten years ago on average they saved nothing at all; now, 11 per cent of discretionary spending is being put aside to reduce debt.

Economists are urging the government to get with the new austerity and stop maxing out the national credit card.

Canberra has been borrowing to meet a shortfall between revenue and spending, despite presiding over a mining boom.

'This is not a time when state and federal governments should be becoming more highly indebted - and they are,' David Morgan, head of the Future Fund, told national broadcaster ABC.

The fund, set up five years ago, holds assets worth 75 billion Australian dollars (72 billion US dollars) intended to make sure there is enough in the kitty to pay civil servants their pensions.

Morgan thinks it ridiculous that after 20 years of uninterrupted growth, the current account of the balance of payments is still in deficit and it is foreign money that is powering investment.

'That very fact means that we've got to turn these years of prosperity and the terms-of-trade boom into a much more secure future financial position,' he said.

The terms of trade, a measure of the value of exports against the cost of imports, are the best they have been in 140 years because of raging demand for minerals in China, India and other burgeoning economies.

Iron ore sells for more than 10 times what it did 10 years ago. Coal has more than tripled in value. In 1999, gold was 251 US dollars an ounce and is now selling for more than 1,600 dollars. Those three in-demand commodities are the biggest merchandise exports.

The historical cycle says these halcyon days are not going to last.

One recommendation is for windfall resources profits to be put into a sovereign wealth fund that would invest at home and abroad.

Australian National University researcher Paul Cleary argues in his book Too Much Luck that in the last decade the government, after blowing through 300 billion Australian dollars in easy earnings, has run up a 100-billion-Australian-dollar debt.

'We're enjoying an inflated standard of living based on running down an entirely finite amount of non-renewable resources,' he said.

Others in favour of Australia joining the likes of China, Singapore, Norway and the United Arab Emirates argue that there would be multiple benefits in diverting windfalls into a rainy-day fund.

Through its wealth funds, the Singapore government owns chunks of corporate Australia worth about 30 billion Australian dollars (29 billion US dollars) - a sum higher than the value of the commercial assets held by the Australian government itself.

Australia has a two-speed economy. Those linked to mining, which employs around 200,000 people, are doing well; those who are not, particularly the million workers engaged in manufacturing, are struggling to deal with high input costs and an Australian dollar close to a 28-year peak.

Skimming money off the top of a resources boom would help the central bank restrain inflation and lead to lower interest rates, advocates of a sovereign wealth fund argue.

The government is resisting calls for a national kitty, arguing that funds in the existing compulsory employee pension scheme act in the same way to cushion the economy from future shock.