Australia's real 'debt problem' is household debt

Saturday, May 31, 2014

If you were to take Prime Minister Tony Abbott and the Coalition on face value, they appear to be against debt.

All the pain imposed on the poorest in society by the federal budget and all the cuts to education, health and welfare are justified as being necessary “medicine” to solve a horrendous debt problem left to them by previous Labor governments. Yes, we've heard that line over and over again.

Never mind the fact that the government's debt as a proportion of gross domestic product is one of the lowest among the developed countries and lower than it was in the 1950s and 1960s.

Never mind the fact that government debt would be even lower if hundreds of billions of dollars had not been given away to the rich in the form of tax cuts and concessions since the John Howard government.

Never mind the fact that, if not for these tax cuts for the rich and the Kevin Rudd government blowing billions bailing out capitalism during the global financial crisis the federal government would have no net debt at all. Never mind all those inconvenient facts.

The Abbott government is interested in reducing only some debt. At the same time it is doing its best to increase the debt of ordinary households, which is already at a record $1.84 trillion — mainly because of grossly inflated house prices.

The Abbott budget's proposed deregulation of tertiary education fees is only going to add to that debt with some course fees in danger of increasing by between 20% and 90%. On top of that, students will be forced to repay their HECS debt at a lower level of income and pay a higher rate of interest on those loans.

It all adds up to more debt for households.

As economist Steven Keen told ABC Radio's PM program on May 4: "Government debt is trivial in this country. It's of the order of 12-14% of GDP in net terms, whereas household debt is of the order of 100% of GDP.”

A report released by the Australian Bureau of Statistics on May 6 says: “Total household debt stood at $1.84 trillion at the end of 2013, equivalent to $79,000 for every person living in Australia at that time. This was higher than it had been at any time in the previous 25 years, even after making adjustments to remove the effect of general price inflation.”

The ABS said the rising household debt has been only partly matched by the increase in the value of household assets — so people with home mortgages have good reason to be worried. Over the past 25 years, household debt has increased nearly twice as fast as the value of household assets.

“The size of Australia's household debt compared with its income (household debt to income ratio) is not just high in historical terms, it is also high when compared with the household debt to income ratios of the G7 countries (i.e. Canada, France, Germany, Italy, Japan, UK and USA),” the report said.

“For example, in 2012, Australia's household debt level was equivalent to 1.73 times Australia's 2012 gross disposable household income, whereas household debt in both Italy and Germany was less than a year's worth of gross disposable household income (at 82% and 93% respectively).”

Reflect on all this and you can see that the government debt that Abbott is trying to terrorise people with is not the real problem. The real problem is the increased debt slavery that all these cuts to social services, deregulation and privatisation are imposing on households.

Needless to say, for the ruling rich and their political lackeys a more heavily debt-burdened worker is a more compliant worker. This is why the debt-bondage is a form of slavery. You could say that, in varying degrees of course, indebtedness is the modern form of slavery.

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From GLW issue 1011