Debt is at an historic high

Australia's household debt is higher than any other advanced economy creating significant risk should there be an economic slump.


The Australian's Economic editor David Uren, commenting on an analysis by Barclays chief economist Kieran Davies has reported that Austrlaia's household debt is 130 per cent of GDP compared to 78 percent for advanced economies and higher than in any time in Austrlaia's history.


Mr Uren said that Australia’s debt levels are going up at a time when those of other advanced nations are coming down and Mr Davies said the Reserve Bank’s new round of rate cuts was likely to push the level of household leverage even higher.


Reserve Bank governor Glenn Stevens warned households last year against taking on excessive debt, saying leverage was already very high and “we would surely be asking for trouble if we see a big step up from where we are”.


Household debt was at 116 per cent of GDP before the financial crisis. It held steady until 2013, when the boom in investment property set it rising again.


The level of household debt in Australia is inflated by the much greater popularity of real estate as an investment than in other countries, fostered by the ready availability of negative gearing tax concessions and favourable capital gains tax treatment.


Australian companies had debts equivalent to 84 per cent of GDP before the financial crisis. They had cut it to 67 per cent by 2011, but it has since crept back to 76 per cent. This compares with a world average of 106 per cent.


Although beyond the scope of Mr Davies study of private-sector debt, Australia’s international standing as a borrower on world markets is helped by the low level of public-sector debt, which at 16 per cent of GDP is far below the advanced-country average of 74 per cent.


16 March 2015.