Australia on the brink of a debt crisis

Published: 15 February 2017

All around the country, people are down to their bare bones

20 percent of people with no buffer zone

All around the country, people are down to their bare bones
Image © 2014 AAP Image/Alan Porritt

Australians are coming under increasing financial stress, with experts warning of the possibility of a national debt crisis if situations change.

With the federal government discussing raising income tax, and the possibility of interest rate rises also on the cards, analysis finds around one-fifth of Australians to be in mortgage stress, meaning they have no room for unexpected expenses.

The research by Digital Finance Analytics has found that stress was at least as prevalent among medium and high income earners as among those at the lower end of the income scale, who were less likely to have a mortgage.

Residents of WA – particularly in rural regions – were the most likely to be at risk of mortgage default, while Sydneysiders were the most likely to be in severe stress, with 6.2% of borrowing households behind on repayments or trying to resell or refinance.

Last week the National Debt Helpline said that it was fielding an unprecedented number of calls from Australians looking for financial counselling, with up to 14,000 calls unanswered in January due to insufficient staff numbers.

Financial Counselling Australia CEO Fiona Guthrie told the ABC that around 30% of Australians were in financial stress, and that the situations varied around the country. Unemployment in WA has spiked due to the hangover from the mining bust, while even high earners in cities like Sydney and Melbourne were struggling due to the high prices of entry into the market.

Australia tops the world for household debt levels, standing at 187% of total disposable income.

"We've got so much debt and it's at such high levels,” Ms Guthrie said, “the least little wind is going to tip is into something that could look very like a catastrophe."

The situation is a hangover from the Global Financial Crisis of 2008, itself the result of an unsustainable culture of dodgy credit around the world.

While Australia avoided the brunt of the GFC fallout due to the mining boom, the commodities crash of 2014 meant Australia’s terms of trade fell.

With a series of interest rate cuts, the Reserve Bank kept the Australian economy afloat – but sent already high house prices through the roof.

Tonight on The Project, we’ll look at steps individuals and the government could take to help tackle debt stress.