Debt accrued on credit cards reached $39 billion at the end of last year - 14 per cent higher than a year earlier - prompting concerns about household debt levels.
Reserve Bank of Australia figures showed total household debt in Australia was $962 billion at December 31.
The Reserve Bank figures on credit card debt, released yesterday, come a day after the head of one of the country's biggest banks warned of the perils of credit card debt.
Commonwealth Bank of Australia chief executive Ralph Norris said he was worried about predatory pricing in the credit card business, saying smaller lenders had taken on risks that the CBA had rejected.
"I think there's going to be a bit of pass the parcel around this industry for a while. I think sanity will prevail at some point," he said.
Household debt becomes increasingly important to the health of the economy as interest rates rise. The main source of household debt is mortgages. The ratio of household debt to annual income is about 160 per cent, AMP Capital Investors chief economist Shane Oliver says. The ratio was 102 per cent five years ago and 69 per cent 10 years ago.
After the second of three rate rises by the Reserve Bank in August last year, the Wesley Mission surveyed 400 metropolitan Sydneysiders for financial stress.
The survey found that four in 10 households said they were unable to draw on savings or redraw their mortgages if faced with an unexpected one-off expense of $2000.
In addition, almost 15 per cent of households surveyed found it difficult or totally impossible to meet a regular increase of $40 per week in household expenses.
The managing director of Debt Helpline, Geoff Munck, said that over the course of 2006, calls from Australians in financial distress had increased by 35 per cent from the year before. "These days, there is no discretionary spending in the suburbs," he said. "After accommodation, food, education and fuel, there is nothing left over."
Figures released by Insolvency and Trustee Service Australia last month showed personal insolvency activity rose by 16.4 per cent in 2006.
ITSA figures also showed there were 6016 bankruptcies in the December quarter of 2006, an increase of nearly 20 per cent over the same quarter in 2005.
The managing partner at insolvency and business recovery firm Jones Partners, Michael Jones, said part of the explanation for the rise in bankruptcies was in more people being encouraged by robust economic conditions to go into business, but who then found the going tougher than they expected.
"We're victims of our own success," he said.
"Just because the Australian economy is stronger, it doesn't mean everybody's going to be successful."
nabCapital chief economist, markets, Rob Henderson, did not think that current levels of household debt were a problem as such, but that they could exacerbate the depth and speed of an economic downturn.
"The fact that households have a higher level of debt means a larger proportion of their income is spent on servicing that debt, which means that they're more vulnerable to a downturn in the economy in general," he said.
"It creates a systemic risk for the economy if households are carrying heavy loads of debt."
The relatively benign view of debt is shared by Australia's central bank. In a speech in December, RBA governor Glenn Stevens said stress-testing of the financial system by the central bank had suggested household debt was not a significant problem for the economy.
KEY POINTS
• Calls from Australians in financial distress rose 35 per cent last year.
• There were 6016 bankruptcies in the December quarter, 20pc more than the same period in 2005.
Source: Australian Financial Review
Alexander Symonds
637 words
16 February 2007