Australia: The Land of “Canada with Snakes”?#

This place has around 200,000 electronic poker machines, known locally as pokies. You find them in bars, pubs, clubs, and casinos. They’ve even got rules capping losses – something like $100 a day and$5,000 a year. Officially, Australia is the worst on record when it comes to these types of things.

On the housing front, it’s wild. The average property costs 8 times the median household income. And Sydney’s rental market? It was bad, and now it’s just getting worse, with prices still shooting up. Adding to the fun, there have been revelations that taxpayer money is apparently being used on… drugs?

The Wealth Report: Australia’s High Median Net Worth#

Every year, until it ran into trouble, Credit Suisse used to put together a report. This wasn’t just about GDP per capita (which just measures how much market output the average person in an economy produces per year). No, this report tried to figure out people’s net worth – how good they were at actually building wealth over time.

Think about it: Someone with a huge income who blows it all on sky-high rent and expensive food isn’t going to build wealth as fast as someone making less but steadily paying off a home and investing for retirement. I like to call this the San Fran Tech Bro Conjecture.

But according to these yearly reports, Australians consistently looked like the second group – the slower, more deliberate wealth builders. Their raw income might not be as high as folks here in America, but they were always among the wealthiest people on the planet based on wealth accumulation.

Recently, UBS, the bank that took over Credit Suisse after it collapsed, released the 2024 report. And guess what? Australians again had the second-highest median net worth on the planet. They were only behind Luxembourg, a tiny European country that, let’s be honest, most of us aren’t in the tax bracket to even know much about.

Why does tracking the median instead of the average net worth matter? It’s a big deal! It means the Australian right smack in the middle of the wealth lineup (from richest to poorest) is more than twice as rich as an American in the same position. The report does include a generic average, where America has a slight edge. But that just tells us we have a huge inequality problem here, with a small group at the very top seriously boosting the average while most people aren’t doing nearly as well.

The Question: How Did They Get So Rich?#

Looking at all this, you might be scratching your head. The video title probably seems weird. Anyone would be lucky to be Australian, right? Well, yes and no. And “lucky” is really the key word here.

Australia became so wealthy mostly by getting lucky in just a couple of key industries. Then, they went all-in on keeping those industries alive, no matter what it took – even if it meant hurting their own long-term future.

The most obvious example? Their crazy real estate market. It makes even the most expensive cities in America look almost cheap! We’ll definitely get to that. But housing is really just one symptom of bigger structural problems that the country has been trying to quietly ignore.

Sure, lots of people in Australia look like they’re happily building wealth, and plenty are becoming extremely wealthy. But the ways you can actually get that wealth are really limited.

The secret to Australian wealth seems to be dirt. Either they’re digging it out of the ground to sell off as raw natural resources, or they’re selling land back and forth to each other.

Economic Complexity: A Key Problem#

There’s something called Economic Complexity. It’s a way to rank countries based on their exports. It looks at how varied their exports are and how unique they are to that specific country.

• A country that sells lots of different, unique products that nobody else really makes? That has high economic complexity.
• A country that only sells a few things that lots of other countries also sell? Low economic complexity.

Guess what? Australia has the lowest economic complexity of any high-income country in the world. It ranks 102nd out of 146 countries in the survey. And it’s been falling steadily since the 1950s! Back then, it was in the top 30, thanks to manufacturing and research happening there.

Today, Australia ranks behind places like Uganda, which actually has a more diverse range of exports. Australia now relies almost completely on selling natural resources (like minerals) and livestock to growing economies in Asia. Why? Because focusing anywhere else just doesn’t make financial sense right now.

Why Innovation Struggles#

Having an economy so tied to resources means investors face a choice:

1. Fund new ideas that could improve the world or offer steady income later on.
2. Invest in digging more mines to export more resources to buyers who are already lined up.

Option 2 has just been the much safer bet for decades. This means Australia is world-class at getting resources out of the ground but way behind in other areas like technology and advanced manufacturing.

It’s a bit sad because the Australian government itself has actually helped fund a lot of scientific breakthroughs! They’ve contributed to things like:

• Advancements in solar panels
• The invention of Wi-Fi
• Modern medical tools
• Even Google Maps

Any one of these would be a huge win for a country with a relatively small population like Australia. But when it came time to actually turn these ideas into businesses (commercializing them), Australia lost out. Why? Because their reliance on natural resources made their business environment less appealing. Investors wanted the safe, predictable resource bet. So, these amazing technologies naturally moved to places where they could find funding from others willing to take a risk.

The Downside of Resource Dependence#

Unfortunately for Australia, this situation actually made their investment markets even more risky! For a long time, the Australian dollar’s value pretty much mirrored natural resource prices perfectly. This meant Australian investors were essentially resource investors, whether they liked it or not.

This direct link between the currency and resource prices has loosened up a bit since COVID. But that might not even be a good sign. It could be the biggest hint yet that Australia has dug itself into a hole (literally and maybe also just… generally). It might be almost impossible to get out of it without giving up a lot of the wealth they’ve gotten used to.

So, understanding how money works helps show how long Australia can keep this going.

(Hey, quick break! This next bit is important and helps keep the lights on.)

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The Unseen Problems#

Digging deeper, there are dozens of serious issues simmering just below the surface in Australia. By themselves, you might not think much of them. But put them together, and they completely change how the country looks – not like a booming, lively economy, but a place living on borrowed time.

One of those issues, as mentioned earlier, is gambling.

The Mining Industry: Revenue vs. Wealth for Australians#

Exporting resources isn’t inherently bad for a country. The problem Australia faces is turning the money generated by mining (which is good for Australia as a whole) into money that is actually good for Australians.

A lot of the revenue from mining in Australia goes straight to foreign mining companies. The setup isn’t all that different from how resources are exploited in many poorer, resource-rich nations. Australia has tried in the past to get more government money from its resources, but intense lobbying won out, and politicians have been too scared to try again since. Especially since the Australian dollar has been so tied to these exports.

In fact, the government has actually gone the other way! They’ve given hundreds of obscure grants, bonuses, tax breaks, special programs, and incentives to mining companies to “help them along.” According to the government’s own minerals website, the aim of these schemes is to “providing both commercial and operational advantages to investors.” They say new government initiatives “support the long-term sustainability of the Australian resources sector by de-risking and encouraging mineral exploration and discovery.”

This seems a bit strange when you remember one of the country’s big problems is that nobody wanted to invest anywhere else. But shaking up this major source of foreign money could destabilize other parts of the economy that are already leveraged heavily. So, the government is trying to keep the mining industry booming by any means necessary.

The “One More Thing”: Superannuation#

Now, you might still be wondering, “How on earth did this place get so rich in the first place?” Was it really just putting a bigger price tag on their homes and calling that wealth? Well, yes, partly. But there’s actually one more huge piece of the puzzle.

Australia has a system called Superannuation. It’s a special investment account with tax benefits that Australian workers use to save and invest for retirement. It’s kind of like a 401k or an IRA here, but there’s a major difference: employers are required to contribute a percentage of their employees’ pay into their nominated account every year. It’s not optional or just part of a job package.

The current mandatory contribution rate is 11.5%. This means every working Australian is effectively saving over 10% of their income for retirement! That kind of saving rate would impress even many serious financial planners.

The idea behind this is that eventually, this money will reduce the pressure on the government-funded old-age pensions as the Australian population gets older. And it has definitely built some serious wealth. According to JP Morgan, the average Australian household now has the equivalent of almost a quarter of a million dollars invested just in this one retirement fund, before you even count their regular savings, other investments, or home equity.

Because it’s mandatory and applies to all workers, retirement savings aren’t just concentrated in the hands of already rich households, like they tend to be here in America. This is genuinely an amazing financial tool.

But, you might be noticing a pattern: this system has also helped cover up other problems.

Collectively, Australian Superannuation funds are worth over $2 trillion USD. That’s only enough to buy about two-thirds of Apple the company, just to give you some perspective. But this amount of money has actually outgrown the available investment options within Australia, because investment activity outside of mining, gambling, and real estate just isn’t that strong there.

This means more and more of these retirement savings have been invested abroad. A huge chunk of that money has ended up right back here in the American markets. Now, investing internationally is a good way to spread risk outside of Australia. And yes, a lot of it is going into the big tech companies like the Magnificent 7 – but frankly, that’s where a lot of investing is happening these days. What could possibly go wrong, right?

The real issue is that Australia is basically taking their cash (which is propped up by the mining industry) and giving it to us so we can build businesses here in America. Many Australian companies not in the gaming, mining, or real estate sectors are actually choosing to raise money and go public here in America instead. Why? Simply because we have more investors willing to put money into companies that aren’t gambling, mining, or real estate.

I mean, thanks, I guess! But if Australia had a more welcoming environment for different types of investments, they could use a lot of those retirement savings to make their own people and their own country wealthier and more productive internally.

Also, while the amount of wealth in the Superannuation system is impressive, it won’t do much good unless people can keep up with how incredibly expensive it is to live in Australia.

The Elephant in the Room: Real Estate#

This is where we finally get to the big issue: real estate. The cost of housing in Australia has made every single problem mentioned so far even worse, and it’s going to make fixing things much, much harder.

According to one big market survey, the average age of someone buying their first home in Australia is now 36 years old. And the group growing fastest in buying a home for the first time? People aged between 40 and 49.

Homes are so expensive that they’re usually bought with a 30-year mortgage. Families often move into bigger homes as they build up equity in their first place. This means many Australians are reaching retirement age still carrying massive debt.

A common strategy? People wait until they can access their retirement savings from Superannuation, take all the money they’ve saved over their working life, and use it to pay off their house.

Technically, this doesn’t make them “poorer.” They’ve just moved their retirement savings into real estate equity. But it does allow them to access the government’s public old-age pension. Why? Because a paid-off house isn’t counted as an asset when the government checks if you can support yourself. Since paying a mortgage or rent usually eats up so much of people’s budget there, using retirement savings to pay off the home often ends up being the more financially sensible move. Even a modest pension income can cover everything else, as long as they have a paid-off place to live.

For many households, this has become the primary strategy…

Australia’s Real Estate Puzzle: Why is it So Expensive?#

Alright, let’s talk about Australia. You see, one of the country’s biggest tools for building wealth has kinda turned into just another way to pump up a real estate market that’s already so pricey, the rest of the world might look at it and feel a bit uneasy.

But how did things get this way in the first place? Well, it’s a mix of the usual suspects you’d find anywhere, plus a few unique Australian twists.

Here’s the breakdown of how it got so expensive:

• Usual suspects:

  • Investor speculation
  • Generous financing options
  • NIMBYism (Not In My Backyard - basically, people resisting new building projects)
  • High levels of people moving into cities that just couldn’t build homes fast enough to keep up.

• Australia’s special ingredients: The country added its own unique policies into the mix.

The Tax System and Negative Gearing#

One big part of the puzzle is the tax system. Taxes on money earned from work in Australia are some of the highest globally. Think about this: someone earning the equivalent of just **$120,000 American dollars a year** would pay **45$120,000 salary sounds really good to most people, it actually doesn’t stretch all that far after the tax man takes his cut.

However, here’s one of the really unique things about Australia: you can use personal investment losses, and this includes ‘paper’ losses from real estate (like depreciation), to cancel out your personal income and pay less tax. This system effectively makes everyone in Australia kind of like their own little business that can rack up expenses to lower their tax bill. And guess what’s seen as the best ‘business’ to get into to get the most possible expenses? You guessed it – real estate.

This tax structure has really pushed high-income earners towards putting their money into real estate. They can then use that property to create paper losses (like depreciation) to lower the tax on their earned income. Later, they can turn that highly-taxed earned income into money made from selling the property, which is taxed much more lightly as capital gains.

This whole system, called negative gearing, is pretty much agreed by almost everyone to be broken.

The Economic Tightrope#

You’d think it would be way simpler just to tax everyone at a lower rate and get rid of these investment write-offs altogether. But actually making that happen has been really tough. Why? Because the government and the economy can’t really afford to let this whole ‘house of cards’ fall apart.

There is now so much debt and wealth tied up specifically in Australian housing. The Australian economy could potentially be wiped out by even just a hint that the government might try to limit these incentives.

And it’s not just negative gearing; the same sort of thing is happening with other policies that might not be as obvious at first glance.

Immigration’s Role#

Immigration into Australia has been some of the most intense in the world. The country has actually become really dependent on it. They need low-income immigrants to do many jobs that Australians aren’t so keen on doing themselves, and they also need high-income immigrants to buy into their asset market.

According to Henley Partners, which is a law firm that helps wealthy people with legal arrangements for moving countries, over 40% of the millionaires in Australia today weren’t actually born there. Some of these folks, sure, went there and built their wealth, but most have simply gone there and basically ‘parked’ the fortunes they already had somewhere else.

A Glimpse into the Future?#

When you look at some of the biggest economic issues happening globally right now, Australia kind of serves as a peek at what things could look like for other places maybe 10 years down the road.

Perhaps the biggest worry is that, so far, they’ve mostly managed to keep everything ticking along. But there’s a big difference between true success and just delaying the consequences.

Here’s some of what’s happening:

• Australia has some of the most valuable banks in the world, but a big chunk of their business (their books) is tied up in lending money for this overvalued real estate market.
• Workers are getting hit with heavy taxes while the money they earn (their real income) is actually buying less because things are so expensive.
• Businesses are finding it too expensive just to operate there.

Ultimately, all the wealth in the world, whether it’s just on paper or actually in hand, doesn’t really mean much if the most it can buy you is a tiny one-bedroom apartment that’s a two-hour commute from anywhere you’d actually want or need to be.

A Quick Note (and a Suggestion!)#

Now, if you’re Australian and reading all this felt a bit gloomy, well, hang in there. It could be worse – you could be from the UK!

Also, seriously, go find and watch that video about Canada next. It shows how they’ve managed to make pretty much the exact same mistakes as Australia, but without even accidentally getting rich in the process.

And hey, if you found this helpful or interesting, make sure to like and subscribe so you can keep on learning how money really works!