Australia The Lucky Country? Thanks for the reminder Brazil

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Australia The Lucky Country? …Thanks for the reminder Brazil

Last month I wrote an article about the Federal Budget and the impact  for property investors and interest rates along with other policy concerns we have in Australia. I have just arrived back from a trip to Brazil where I was fortunate enough to watch our Socceroos put up a brave effort against the world football superpowers of Spain, Holland and Chile. The young Socceroos did our country proud on the biggest stage of all and a comment to me from a local Brazilian summed up their performance, “the Aussies put the  soul back into football”.

I travelled extensively across the nation to cities such as Rio de Jeneiro, Sao Paulo, Brasila, Curitiba and Port Alegra and whilst spending time in these cities I couldn’t help but compare Australia and Brazil from an economic and lifestyle point of view. I thought it would be interesting to share these thoughts with  you to hopefully  bring some perspective back that “our lot”, may not be that bad after all!

The white sandy beaches are beautiful in Brazil and are very similar to Australia’s but that’s about were the comparison ends… or does it? Brazil has a population of over 200 million, has a President who is both head of State and head of Government, and it is a Constitutional Republic.  It’s the worlds 7th largest and one of the  fastest growing economies, the worlds largest producer of Coffee, and with 83.5% of the population living in cities. I noticed distinct class lines and high income disparity between the rich and the poor. 10% of the wealthiest people receive 42.7% of the nations income and the poorest 34% receive 1.2% of the nations Income. The average monthly wage is approximately $400 USD pm. Crime is a major problem with 23.8 homicides per 100,000 residents and there is an unemployment rate of  8.65% compared to 5.8% in Australia. Australian governments can learn from Brazil and should ensure that our policies do not facilitate a widening in the gap between the wealthy and the poor and the associated social issues that come with this, or is it too late? In recent media, it was reported that the wealth of the 7 richest people in Australia totalling $56.2 billion is greater than the nation’s bottom 1.73 million households. Combined Australian Bureau of Statistics data shows the bottom 20 per cent of households own roughly $54 billion in wealth. The Australia Institute’s paper, ‘Income and Wealth Inequality in Australia’ shows how policy decisions within Australia – such as the reduction in the top marginal income tax rate over time – have contributed to an increase in wealth of Australia’s richest individuals and widened the disparity between wealth and incomes in Australia. Furthermore it says the gap between the richest and the poorest households will continue to grow if government payments to low-income families are reduced even further.

Brazil raised interest rates for the ninth straight time recently to 11%, prolonging one of the world’s longest-running monetary tightening cycles after a surge in food prices stoked already high inflation sitting at 6.5%. Compare that to Australia’s interest rate of 2.5% and Inflation rate of approximately 2.9% so on this front  things don’t look that bad for us .

As I drove through the streets of Rio the class distinction and variance in property values was clear to see from the expensive and beautiful beach suburbs of  Copacabana, Ipanema and Barra Beach, to a few blocks away on the hills overlooking Rio the desperately poor “favela” slums. There is no more a compelling example of ‘Position, Position, Position’ for property owners and Investors, as within a few kilometers or even streets away the property values vary by Millions of Dollars and although extreme, it is a stark reminder of how important this principal is when considering investing in property .
Housing is a major problem in Brazil due to rapid urbanisation, with a deficit of 7 million Units and the governments inability to meet the supply in public housing. As I mentioned in last months article, how  important  a role Property Investors play in Australia’s economy by providing public housing which in turn  takes pressure off government spending. this cannot be underestimated and strategies like negative gearing incentivise people to invest which creates supply. The Australian government should not be hasty when making policy changes in this area.

Brazil is a beautiful country and  I recommend a visit. The Brazilian people that I met whether rich or poor were hospitable, friendly, generous and very proud of their country despite the challenges they face. Australia should take note and our Government can learn valuable lessons from the challenges with class disparity and policy around incentives for property investors to provide housing, although I don’t want to make light of our own economic issues they are insignificant to those facing the people of Brazil.

Thank you Brazil for your hospitality but more importantly of reminding me that our government needs to be vigilant to ensure that we maintain the status of, the ‘Lucky Country’.

David Naylor - Co-founder & Director, Chan & Naylor Group of Companies

 

Disclaimer: This article contains general information. Before you make any financial or investment decision you should seek professional advice to take into account your individual objectives, financial situation and individual needs.

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