Australian debt soars with property boom and easy credit

By GREG ANSLEY

CANBERRA - Personal debt in Australia is spiralling out of control, spurred by consumer confidence and the availability of credit.

Despite warnings by the Reserve Bank and other economists, a poll published yesterday in the Sydney Sun-Herald pointed to an increasing reliance on credit cards that many found difficult to manage.

The poll follows research by CPA Australia that found that 70 per cent of Generation Xers - aged 25 to 45 - were postponing saving, 63 per cent favoured borrowing for "instant gratification", and that two-thirds had experienced bad-debt problems.

Total credit card debt in Australia this month stood at a record high of $A12.17 billion ($13 billion), household debt had reached A$766 billion and personal debt excluding housing was more than A$100 billion.

Personal debt has accelerated through low interest rates, strong economic growth with low unemployment, and a surging property market that has opened suburban Australia to a ready source of equity.

In this week's statement on monetary policy - following a board meeting that agreed to hold interest rates for the time being - the Reserve Bank said the economy was expanding at a good pace and consumer confidence was at the highest level in a decade.

But, pointing to the likelihood of further interest rate rises, the bank said that while the pace of household credit growth had moderated - from an annualised 21.25 per cent in first-half 2003 to 18 per cent in the six months to the end of June - it was still unsustainable in relation to households' capacity to pay.

The bank said household debt had continued to soar because of growth in housing credit and other forms of personal credit such as margin lending and drawdowns on home equity loans for non-housing purposes.

Yesterday's Sun-Herald poll found that 68 per cent of the 600 households surveyed paid only what they could afford each month and rolled over the rest at high rates of interest.

One-quarter of all credit and charge card holders paid between 15 and 20 per cent interest.

The poll said that about 20 per cent of respondents found it difficult to manage their credit card debt.

Although only about one in five exceeded their spending limits, the high-spending threshold given to many households pointed to future problems if people were forced to rely on plastic money.

It said that analysis by Labor's consumer affairs spokesman, Alan Griffin, found that every household carried debt of more than A$100,000, including the home loan.

Reserve Bank credit card figures also showed that average debt among the 70 per cent of Australian households with a credit or charge card had soared from A$1601 in 1996 to A$5162.