Household debt hits record levels in Australia

Household debt hits record levels
David Uren, Economics correspondent
June 22, 2007

HOUSEHOLDS are spending, on average, a record 11.9 per cent of their income servicing debt following the interest rate increases late last year.
Reserve Bank figures released yesterday showed the interest burden had risen by two percentage points since the last federal election, as higher interest rates were levied on increased debts.

John Howard said the heavier debt burden reflected rising affluence.

"It is the case that people are buying ever more expensive houses, and they are doing that because of a number of factors," the Prime Minister said. "One of them is that interest rates are lower and people can borrow more."

Labor Treasury spokesman Wayne Swan said the rising interest burden showed that Mr Howard was out of touch in his claim that families had never been better off.

"Eight interest rate rises despite his promise to keep rates at record lows are hitting Australian families hard."

The average household is now supporting debts that are 58.7 per cent greater than their total annual income, whereas at the last election, debts were 41.3per cent more than a year's income.

However, the Reserve Bank's figures on household finances show that assets are rising faster than debt. Households now have assets, including housing, superannuation and other investments, that are equal toeight times their annual income.

This is a capital gain over the past three years equivalent to 60 per cent of a full year's income.

It is not only housing debt that is rising. Margin lending to buy shares has soared 40 per cent over the past year to reach $30.2 billion in March.

Credit card debt rose at its fastest rate in three years, increasing by 8 per cent to just under $40 billion.

"The data suggests that Australians are more confident about their ability to take on more debt, as well as meeting the greater servicing burden," CommSec economist Martin Arnold said yesterday.

"Debt levels are rising, but we are choosing to use the debt more productively to buy assets that traditionally rise in value, like shares and property."