Secretary to the Treasury John Fraser has attempted to put the nation’s debt woes in context, highlighting that households hold $12 trillion in assets and that most of the debt belongs to wealthier Aussies who are “best positioned” to service it.
In his opening statement at the Senate Estimates in Canberra on Wednesday (25 October), Mr Fraser said that “several considerations” should provide some comfort to those concerned about household debt levels.
He noted that while household debt has risen over recent years, interest rates have also fallen.
“The net result is that the share of household disposable income going to interest payments is currently around its long-term average,” Mr Fraser said.
“Many households have taken advantage of low interest rates to build substantial mortgage buffers, currently equivalent to over two and a half years of scheduled repayments at current interest rates.”
Mr Fraser also pointed out that the distribution of this debt is concentrated in high-income households, with around 60 per cent of debt held by households in Australia’s top two income quintiles — “households that are best positioned to service that debt.”
More broadly, the secretary believes that any assessment of the sustainability of Australia’s household debt position requires consideration of the assets that those households hold against their debt.
Mr Fraser said: “We shouldn’t just think about one side of the household balance sheet. The Australian household sector’s asset holdings are considerable, at around five times greater than its debts — Australian households may have over $2 trillion in debt, but they also hold over $12 trillion in assets.”
Around 75 per cent of household assets are in housing and superannuation, according to Treasury.
“The fact that households need homes to live in, that it takes time to sell properties, and that superannuation is ‘locked away’ until retirement means that these assets cannot easily provide liquidity to households during periods of financial stress,” Mr Fraser said.
“It’s also the case that higher debt levels have made households more sensitive to any increase in interest rates in the future.”
The secretary’s comments come after Westpac chief economist Bill Evans warned that it will be “very, very damaging” to the economy when the Reserve Bank starts raising rates.