Most would say that Australia is famous for wide open spaces, beaches and the Outback. But what we are really getting famous for is that we are currently the silver medalist for the most indebted nation in the World. A mighty effort indeed. Hopefully we can get the RBA to lower interest rates, get the State Government to throw in a few more First Home buyer grants again, get the Government to go slow on a few of the Haynes Royal Commission borrower expenditure assessment measures, and sure as hell we will get a pork barrel of tax cuts from the Federal Government in this year’s budget. Reminiscent really of Peter Costello’s 2006 budget where the Government promised to give $36.7 billion of tax cuts over four years to hold off a resurgent Labor Party.
The Federal Government is awash in tax revenue. The Government Finance Statistics released on the 5th March show the annual Government receipts to December 2018 increased by 9.59%. It has been quite good for a few years, with expenditure increases held down to between 3% to 4%.
The $40 billion turnaround is quite good for Government finances, but the mirror effect is that it is $40 billion less for the private sector. The surplus certainly wouldn’t be helping consumer confidence where people are struggling to pay their day to day bills. As the recent news reports suggest, the economy may be growing but there is a Gross Domestic Product “per-capita” recession.
The property sector is very important to the Australian economy (probably too important) so the Government will act to keep the debt party going. There have been quite a few reports in overseas media highlighting the most indebted nations in the world. The common measure for indebtedness is “Total Household debt as a percentage of GDP”. America comes in 10th most indebted at 76% of GDP. The British are 9th with 86.5% debt as a % of GDP. Australia comes in 2nd at 120.5% debt as a % GDP. The Swiss are No 1 with 128.8% debt but at least some of their mortgages can cost 0%.
So where does all this debt go? You would expect that if you borrowed $100 then the Gross Domestic Product would increase by at least $100. That might have been true in 1993 before the property bubble started, but in the last 12 months (to December 2018, source RBA) you need $260 of debt to increase GDP by $100. Total Credit in the economy increased by $130 Billion but GDP only increased by $50 billion. At an individual level, this doesn’t exactly look like a good financial plan. Governments might be able to print fiat money without recourse but individuals can’t even get a Royal Commission to save them.
Well may we say God save the Queen, for nothing will save the over indebted consumer.