Financial Wealth Holdings of Austrian Private Households: Data Sources and Institutional Features Peter Mooslechner joint work with Christian Beer, Martin Schuerz and Karin Wagner Luxembourg Wealth Study Conference, 14-15 December 2006 www.oenb.at firstname.lastname@example.org 1 Oest er r eichische Nat ional bank Structure of the Presentation OeNB Survey on Household Financial Wealth 2004: Design and implementation The Austrian data in LWS Important institutional features regarding wealth holding in Austria: some illustration ranging from retirement to real estate Publications, ongoing and planned research projects Concluding remarks 2 Oest er r eichische Nat ional bank OeNB Survey on Household Financial Wealth 2004: Sample and Implementation Focus of the survey: Households‘ financial wealth, portfolios and debt Households‘ attitudes towards financial market issues Questionnaire with 87 questions ‚Pilot project‛: particular reluctance of Austrian households to reveal information on wealth (tradition of anonymous bank accounts). Collection of the data by an external fieldwork company Data collection period: Summer and autumn 2004 Sampling design: Stratified multistage clustered address random Stratification was based on microcensus data. Within Austria, households were stratified at the province level, and in Vienna, households were stratified by the 23 political districts. Within the strata, the respondents were selected randomly. 3 Oest er r eichische Nat ional bank OeNB Survey on Household Financial Wealth 2004: Sample and Implementation Interview partner was the household head or the household member with the most accurate knowledge about the respective household’s finances. Interviewed person was not paid but took part in a lottery. External field work company used a pool of 40,000 addresses covering (geographically and socio- demographically) the total of Austrian households. Combination of face-to-face interviews and written interviews yielding a total rate of return of 60%. Total of 2,556 analyzable data sets. Duration of interview: 30 to 50 minutes 4 Oest er r eichische Nat ional bank OeNB Survey on Household Financial Wealth 2004: Sample and Implementation 5 Oest er r eichische Nat ional bank OeNB Survey on Household Financial Wealth 2004: Postcollection Processing of Data Editing the data and conducting plausibility checks was basically the task of the field work company. Further in-house cross-checking was found to be necessary. Missing data were not imputed. Households for which essential information was missing were eliminated from the data set by the fieldwork company. Only post-stratification weights to align the sample with the Austrian population were computed. 6 Oest er r eichische Nat ional bank Austrian Data and LWS “ Austria joined LWS in summer 2006. “ Austrian data were included in the LWS ß-Version in November 2006. “ Main problem with inclusion was that the Austrian survey focused on the financial wealth of households. “ LWS demographic and financial wealth variables covered relatively well by the Austrian survey. “ But loans were difficult to integrate because of the way questions on loans were asked. “ Information on income and consumption is very limited. 7 Oest er r eichische Nat ional bank Austrian Data and LWS Availability of Wealth Variables Asset LWS acronym FINANCIAL ASSETS Total TFA Σ D e p o s i t a c c o u n t s : t r a n s a c t i o n , s a v i n g s a n d C D s D A Y T o t a l b o n d s : s a v i n g s a n d o t h e r b o n d s T B Y S t o c k s S T Y M u t u a l f u n d s a n d o t h e r i n v e s t m e n t f u n d s T M Y L i f e i n s u r a n c e L I Y O t h e r f i n a n c i a l a s s e t s ( e x c . P e n s i o n s ) O F A - P e n s i o n a s s e t s P A I NON-FINANCIAL ASSETS T o t a l T N F - P r i n c i p a l r e s i d e n c e P R - I n v e s t m e n t r e a l e s t a t e I R - B u s i n e s s e q u i t y B E Y V e h i c l e s V H - D u r a b l e s a n d c o l l e c t i b i l e s D R C L - O t h e r n o n - f i n a n c i a l a s s e t s O N F - LIABILITIES T o t a l T D Σ H o m e s e c u r e d d e b t H S D Y P r i n c i p a l r e s i d e n c e m o r t g a g e M G - O t h e r O M G - O t h e r h o m e s e c u r e d d e b t ( i n c l l i n e o f c r e d i t ) O H S D - V e h i c l e l o a n s V L I I n s t a l l m e n t d e b t ( i n c l . C r e d i t c a r d b a l a n c e ) I L Y E d u c a t i o n a l l o a n s E L - O t h e r l o a n s f r o m f i n a n c i a l i n s t i t u t i o n s O L Y Informal debt ID Y Σ … derived by summation of its components Y … r e c o r d e d i t e m I … I n d i c a t o r - . . . I t e m n o t r e c o r d e d S e t u p o f t h e t a b l e i s f r o m S i e r m i n s k a e t a l . ( 2 0 0 6 ) 8 Oest er r eichische Nat ional bank Austrian Data and LWS Per capita household wealth in LWS database and national balance sheets Wealth variable Canada Cyprus Finland Germany Italy Norway Sweden UK US Austria SFS 1999 SCF 2002 HWS 1998 SOEP 2002 SHIW 2002 IDS 2002 HINK 2002 BHPS 2000 PSID 2001 SCF 2001 SHFW 2004 LWS data base (EUR) Non-financial assets 28,237 32,763 31,920 53,507 50,965 14,605 33,132 61,436 63,170 77,686 - Financial assets 8,018 6,294 6,181 7,971 8,913 22,066 12,943 11,036 31,332 47,059 16,725 Debt 9,577 3,719 6,032 11,202 2,590 29,561 16,159 13,572 20,857 26,707 7,813 Net worth 26,678 35,339 32,069 50,276 57,288 7,110 29,916 58,901 73,646 98,037 8,912 National balance sheet (EUR) Non-financial assets 32,492 – – 69,234 78,417 – – 67,728 66,679 Financial assets 51,157 38,099 20,317 44,731 48,780 42,268 40,927 87,199 123,768 40,355 Debt 13,813 15,825 7,147 18,750 7,089 33,629 16,577 20,471 31,003 16,255 Net worth 69,836 – – 95,215 120,108 – – 134,457 159,444 24,101 Ratio of LWS to NBS (per cent) Non-financial assets 87 – – 77 65 – – 91 95 117 Financial assets 16 17 30 18 18 52 32 13 25 38 41 Debt 69 23 84 60 37 88 97 66 67 86 48 Net worth 38 - - 53 48 - - 44 46 61 37* * Both the Austrian survey and NBS data only include non-financial assets. Comparability with the other ratios is limited. Source: The table is from Sierminska et al. (2006). Authors' calculation for Austrian data 9 Oest er r eichische Nat ional bank Austrian Data and LWS Household asset participation Wealth variable Cyprus Finland Germany Italy Norway Sweden UK Austria SCF 2002 HWS 1998 SOEP 2002 SHIW 2002 IDS 2002 HINK 2002 BHPS 2000 SHFW 2004 All assets as recorded Non-financial assets 76 68 43 72 72 57 70 - Principal residence 74 64 39 69 64 53 69 56 Investment real estate 17 27 13 22 30 14 8 - Financial assets 86 92 50 81 99 79 80 99 Deposit accounts 78 91 – 81 99 59 76 99 Bonds 44 3 – 14 – 16 – 11 Stocks 40 33 – 10 22 36 – 16 Mutual funds 1 3 – 13 38 58 – 11 Debt 65 52 30 22 80 70 59 39 Home secured debt – 28 – 10 – – 39 28 Only financial assets and non-housing debt exceeding 2,500 euros Non-financial assets – 68 43 72 72 – 70 - Financial assets – 53 49 70 70 – 58 90 Total debt – 45 30 17 74 – 49 34 Source: For the table see Sierminska et al. (2006). Authors calculation for the Austrian data. Only data for EU-countries shown. 10 Oest er r eichische Nat ional bank Institutional Features: Retirement Austrian pension system is dominated by a mandatory and benefit-oriented public pay-as-you-go (PAYG) scheme. guarantees a pension benefit of 80% of the assessment base after 45 insurance years at the standard retirement age of 65 years. In 2003 a subsidised private pension scheme was introduced Allows for an income tax refund amounting to 8.5% (in 2006) of the premium paid (with a cap). At least 40% of the payments must be invested in shares. The investment period must be at least ten years. Capital gains and payments from such a scheme are tax exempt. 11 Oest er r eichische Nat ional bank Institutional Features: Retirement Saving for Retirement and Related Motives by Age of Household Head (multiple responses) 90% 80% 70% Average Share of households 60% 50% 40% 30% 20% 10% 0% 18 - 29 30 - 39 40 - 49 50 - 59 60 - 69 70 - 79 80+ Austria, total Uncertainty about the state pension system Profitability considerations Other Share of households saving for retirement S S ource: Authors’ calculations based on a survey conducted by FES EL-GfK. 12 Oest er r eichische Nat ional bank Institutional Features: Retirement Saving for Retirement and Related Motives by N et Household Income (multiple responses) 80% 70% 60% Share of households 50% 40% 30% 20% 10% 0% up to 874 875 to 1.574 1.575 to 2.624 2.625 to 3.499 3500 and over Austria, total Net household income in EUR Uncertainty about the state pension system Profitability considerations Other Share of households saving for retirement S S L-GfK. ource: Authors’ calculations based on a survey conducted by FES E 13 Oest er r eichische Nat ional bank Institutional Features: Retirement Provisions of households 60% 50% 50% 46% 44% Share of households 40% 27% 30% 22% 20% 15% 12,5% 12% 10% 2% 0% ies ks ce tat e ion rs lic tio n it toc lan s an ns he o ia os S ur es Ot ep oc ep np ns Re al pe nc ss sd sio ei ate ura na vin g pe n va t or ins loa sa nal l pri Corp Lif e nd an d rso na in ga nt pe ditio u ild co zed Ad bu ac idi ith gs bs nw avin te-su pla ks Sta gs oo vin ss b Sa Pa Source: Authors’ calculations based on a survey conducted by FESSEL-GfK.. 14 Oest er r eichische Nat ional bank Institutional Features: Public Subsidies for Savings Interest and dividend income is taxed with a final withholding tax of 25%. No wealth tax in Austria: wealth-related taxes are inheritance and gift tax and real estate tax. Apart from retirement-related subsidies, there are several other subsidies: Building loan contracts following investments are tax deductible within the scope of special expenses: Life insurance premia retirement insurances the purchase of dividend-right certificates and new shares, the initial purchase of convertible bonds and participation certificates Benefits from gratuitous transfers or transfers at a discount of equity holdings of the company of the employer are tax exempt up to EUR 1,460. Annual capital gains below EUR 440 are tax exempt. 15 Oest er r eichische Nat ional bank Institutional Features: Public Subsidies for Savings Private trusts (Privatstiftungen) since 1993 Three levels of taxation: Taxation of the establishment of the trust: Transfers of assets are taxed with 5% (plus an additional 3.5% in case of real estate) instead of the normal inheritance or gift tax. Contributions of supplementary assets by the founder are also taxed with these rates. Ongoing taxation: The income of private foundations is liable to corporate income tax (25% in 2006). Dividend income from domestic investments and ” depending on the regulations in the relevant double taxation agreements ” from foreign investments are tax exempt. Taxation of donations to beneficiaries are taxed with 25%. 16 Oest er r eichische Nat ional bank Institutional Features: Public Subsidies for Savings Share of Saving forms and the Importance of Financial Assets 90,0 85,0 80,0 70,6 70,0 Share of households 60,0 50,0 46,2 40,0 30,0 20,0 11,4 15,7 10,6 10,0 2,6 0,0 s s s nt on ms res nd ck se cc ou ciati for sha Bo Sto pri sa so vin g nd ter ng as sa l fu n en sa vi oa n he r tua si ok dl Ot Mu lding o n sb ga Ho Pas ildin bu ith nw s pla ing Sav Source: Authors’ calculations based on a survey conducted by FESSEL-GfK.. 17 Oest er r eichische Nat ional bank Institutional Features: Public Subsidies for Savings Saving Behavior of Austrian H ouseholds and N et H ousehold Income 70% 60% 50% Share of households 40% 30% 20% 10% 0% up to 874 875 to 1.574 1.575 to 2.624 2.625 to 3.499 3500 and over Austria, total Net household income in EUR Saves regularly Saves irregularly unable to save S S L-GfK. ource: Authors’ calculations based on a survey conducted by FES E 18 Oest er r eichische Nat ional bank Institutional Features: Inheritance and Gift Tax Inheritance taxation lost considerable importance when final taxation of financial assets was introduced in 1993. inheritance and gift tax rates are progressive and are levied for five tax brackets that are contingent on the degree of fami ly relationship. The rates range from 5% to 60% of the inheritance. The low inheritance tax revenues may be explained by the following factors: Financial assets that are subject to capital income tax are not subject to inheritance tax Other financial assets de facto defy taxation The gap between assessed property values and current market values of real estate Unlike assets, liabilities are assessed at their actual economic value Transfers to private trusts are subject only to a one-time low tax rate (2.5% when the rate was introduced, 5% today), and the regular levy of an equivalent inheritance tax is waived in the case of death, business assets can be optimized by juxtaposing sufficient liabilities; moreover, the exemptions for the transfer of business assets have been raised substantially 19 Oest er r eichische Nat ional bank Institutional Features: Inheritance and Gift Tax Share of Households which Have Inherited Assets by N et Financial Assets 70% 63% 60% 50% 49% Share of households 39% 38% 40% 30% 28% 20% 10% 0% Net financial assets = Net financial assets > Net financial assets > Net financial assets > Austria, total median median double the median five times the median S S ource: Authors’ calculations based on a survey conducted by FES EL -GfK. 20 Oest er r eichische Nat ional bank Institutional Features: Inheritance and Gift Tax Share of Households which Have Inherited Assets by Net household income 60% 49% 50% 42% 38% 40% Share of households 34% 31% 30% 27% 20% 10% 0% up to 874 875 to 1.574 1.575 to 2.624 2.625 to 3.499 3500 and over Austria, total Net household income in EUR Source: Authors’ calculations based on a survey conducted by FESSEL-GfK. 21 Oest er r eichische Nat ional bank Institutional Features: Income Uncertainty and Unemployment Compared with other EU countries the Austrian unemployment rate is relatively low. The incidence of unemployment is particularly high for people that only finished compulsory school. Increase of employment contracts that are not fully covered by social insurance (dependent forms of self-employment and minor jobs). 22 Oest er r eichische Nat ional bank Institutional Features: Income Uncertainty and Unemployment Self-employed and people with a minor job are not included in the compulsory unemployment insurance scheme Benefit duration: ranges from 20 weeks to 52 weeks; benefits amount basically to 55% of the previous net income Average unemployment insurance duration of 9 months Unemployment assistance (Notstandshilfe): benefit amounts to 92 per cent of the previous unemployment insurance benefits 23 Oest er r eichische Nat ional bank Institutional Features: Real Estate and Mortgage Market Austrian property prices have not increased sharply during the previous years . Required down payments are relatively high, resulting in a LTV ratio of 60%. Ratio of outstanding housing loans to GDP is relatively low. In Austria interest payments are basically not tax deductible but there exist interest and repayment subsidies. 24 Oest er r eichische Nat ional bank Institutional Features: Real Estate and Mortgage Market Owner ship ratio Percent of households that own their primary residence Overall Austria 56 Vienna 23 Provinces 72 By Age 20-29 22 30-39 48 40-49 67 50-59 61 60-69 60 70+ 53 By Financial Networth Below median 43 Above Median 66 By monthly household net income up to EUR 874 30 EUR 875 - EUR1474 43 EUR 1475 -EUR 2624 55 EUR 2625 - EUR 3500 66 more than EUR 3500 68 25 Oest er r eichische Nat ional bank Institutional Features: Real Estate and Mortgage Market Percent of households that have taken out a loan Home secured debt (HSD) Total debt (TD) All households 28 39 By tenure (OWN) Owner 39 44 Tenant 15 33 Subtenant 8 20 By Gross financial wealth quintiles 1 24 45 2 30 42 3 27 36 4 37 42 5 23 29 26 Oest er r eichische Nat ional bank Ongoing and Planned Research Projects Publication of main results e.g. Monetary Policy & the Economy Q2/06 Ongoing research projects: ” Paper on poverty and asset building in Austria ” Financial wealth distribution in Austria ” Financial capability of the Austrians Planned projects: ” co-operation with the Swiss National Bank on the use of foreign currency loans ” Further research on saving behaviour, risk orientation in investment behaviour and attitudes towards financial regulation. ” International comparisons with the LWS data set. 27 Oest er r eichische Nat ional bank Some tentative conclusions/lessons from a ‚pilot exercise‛: ● Despite all limitations, it makes sense to engage in an exercise concerning microdata on (financial) wealth ” even if the framework conditions are challenging… ● The results provide a better knowledge and understanding of wealth holdings - at least in a qualitative way… ● Detailed knowledge of (country-specific) institutional features is an important prerequisite for an accurate interpretation of the data… ● ‚Learning by doing‛ is an obvious additional benefit of such an exercise ” leading to an improvement in quality for the next attempt as well as to a more widespread interest in the related research questions… 28
"Project on Tax Structure of Austria"