23rd May 2006 
 
The boom in housing prices has encouraged Australians to spend more than they earn, but this is unsustainable said Chris Richardson, Director at Access Economics at the Chartered Accountants Business Forum in Melbourne today.  
 
"Australian wealth has reached a higher peak than that experienced by the US during the dot com boom. Luckily seven out of 10 of Australians own their homes. While it is not healthy for the nation's wealth to be based on one element, the property market boom is considered to be more stable than the dot com economy which the US wealth peak was based on six years ago," said Richardson.  
 
Real growth in Australia has slowed since housing prices peaked but the commodity boom means that the world is pumping extra income into Australia at a rate of $40 billion a year.  
 
"Today's record profits, record rates of investment, strong sharemarkets, the robust Australian dollar and surging tax revenues are all due to the strong commodity prices Australia is experiencing, " said Richardson. "Australia went from a housing boom to a commodity price boom. But if that boom peters out before housing prices are closer to fair value, profits may be squeezed and the Australian dollar could fall. That could occur if China slows or if new commodity supply began to catch commodity demand. "  
 
Access Economics predicts that commodity prices will begin to slow next year. By mid 2008, copper will be half the price it is now.  
 
"The recent tax cuts announced created little advantage to east coast Australians when the interest rate rise is taken into account. While it was good to see the budget produced tax cuts proportionally more for both low income earners and high earners, the Government should have considered further tax reforms for either end of the income scale to improve efficiency," said Richardson