It’s not yet the main topic of debate between Liberal and Labor, but some of the arguments in Debtwatch have at least made their way into Hansard courtesy of a speech by Laurie Ferguson. The full extract from the speech is shown below.
“This makes a mockery of the claim by the Prime Minister that we have never been better off. Whilst the Howard government crows about the success in the economy, which was largely inherited from Labor and fuelled by the raw materials demands of India and China, there is an alternative reality of an out-of-control personal debt spiral. Steve Keen from the University of Western Sydney writes:
Australiaâ€™s household debt to GDP ratio has risen from 57 per cent of GDP in 2001 to over 86 per cent in 2005 or five fold from the mid 1970s. With the exception of a dip in 1985–87 period, when the Stock Market was the focus of a speculative frenzy in Australia, the housing debt to GDP ratio has been rising exponentially for at least 25 years. The focus of RBA concern today is therefore on borrowing by households.
Australian household debt was five and a half times higher in 2005 than it was in 1990. The American growth rate of eight per cent translates into 3.2 times as much household debt in 2005 as in 1990.
So we see that the situation of Australia has markedly worsened as compared with the United States. Furthermore, whereas in the US debt weighs heavily on households and businesses, in Australia the pressure of debt is being exerted predominantly on households. A potent indicator of the level of financial stress now being felt by Australian households is a ratio to household disposable after-tax income. This ratio has more than tripled since 1981. The explanation that this is due to falling interest rates ceased being viable about two years ago.
The rise in debt has eclipsed the impact of generally lower interest rates since the early 1990s so that payments by households now consume more of household disposable income than they did when standard home loan rates peeked at 17 per cent in 1989, even though the average variable rate is now 7.5 per cent.
Since its election, the Howard government has presided over an almost threefold increase in personal household debt. The total personal debt in Australia has increased from about $46 billion in January 1996 to a staggering $133 billion in November 2006. The Insolvency and Trustee Service Australia reports that the December 2006 quarter saw a blow-out in bankruptcy numbers in all states except Western Australia.
This includes a 30 per cent increase on the corresponding 2005-06 period in New South Wales and almost 28 per cent in Victoria. Steve Keenâ€™s analysis of rising personal household debt is underpinned by AFFCRAâ€™s analysis showing that widespread use of credit cards for household and discretionary spending, driven by aggressive industry selling practices, has led to unhealthy financial thinking where card facilities are considered in the context of available credit rather than actual debt liability. Jan Pentland writes:
In the current consumerist hegemony and the increasing gap between the haves and have nots, where material goods can define self worth, easily available credit has been a trap for many clients of financial counsellors. This budget clearly fails Australian consumers. The governmentâ€™s priorities are twisted. The government is pouring millions of dollars into financial literacy campaigns when it is clear industry is already doing so. Where money is scarce it should be directed where it is most urgently needed. Financial counsellors are being increasingly called upon to deliver services to gradually more desperate Australian consumers. These and many millions of other Australian consumers need financial counselling around keeping out of debt. They do not need counselling on how to get rich.”