Is Australia On The Brink Of A Debt Crisis?

Dominique Grubisa
Dominique Grubisa

Published 8:19 am 13 Aug 2021

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Australia has one of the highest rates of household debt in the world – and it might be about to increase even further.

Australia has some of the highest debt-to-income levels in the world, and debt levels have risen dramatically over the past three decades.

Australians have taken on so much debt that nearly a third of Australians believe they will be in debt for the
rest of their lives according to recent polling data.

In 1990, Australia had a 68% debt-to-income ratio. That number has since soared to 217% at the beginning of the year, meaning that Australians now have more than twice as much debt as income.

Debt Management Plan

Australia’s debt-to-income ratio Source: finder

This is problematic for several reasons, the primary reason being that households which are heavily indebted have less financial stability. Should job loss or illness occur, or interest levels dramatically rise, indebted households are much more likely to struggle with their debt repayments and risk facing bankruptcy.

Additionally, it’s estimated that 4 million of the 6 million jobs lost in the United States during the 2008 GFC were because of “an aggregate demand shock driven by weakening household balance sheets.”

A report by the RBA entitled ‘How Risky is Australian Household Debt?’ mentions that “at the onset of the 2008 global financial crisis, the DTI ratio had risen very rapidly and was at historically high levels.”

And with this latest spate of lockdowns looking likely to be extended well beyond October, the growing debt crisis in Australia may be about to get a lot worse.

Welfare isn’t cutting it

Half of Australia is currently locked down amid the growing spread of the Delta Variant, with the ACT being the most recent region to face restrictions.

The recent lockdowns have caused over 360,000 job losses over the period of just one month, which means, according to Cian Hussey, a research fellow at the Institute of Public Affairs, that “every single job restored across the 2020/21 financial year was wiped out in just four weeks.”

On top of this, roughly 1 million people across the locked down regions have been deemed ineligible for the COVID disaster relief payments if they are already accessing another form of welfare.

Many small businesses and employees have also expressed that while they are grateful for the existing welfare support, it doesn’t go far enough – particularly when there is no clear end to the lockdowns in sight.

Michelle Grand-Milkovic, the co-owner of Love.Fish, a seafood restaurant in the CBD suburb of Barangaroo, told

“We paid our dues last year, lost a s**tload of money and went into a lot of debt … we accessed the Covid small business loan last year but we used that to pay our staff, now we’re behind again,” said Grand-Milkovic.

“We have a high payroll bill, a high rent bill, (a package) like this helps us survive but it does not at all compensate for outlay of money in this period or loss of revenue,” she said.

“The other day I got an electricity bill for $6,000. If you do not have money put aside or the ability to overdraft, you will physically not survive.”

Fortunately, the Australian Banking Association has stepped in, with major banks offering deferrals for home loans and businesses to help during the lockdowns.

Since offering that support on the 8th of July, already 14,500 mortgage deferrals have been granted, as well as 600 business loans.

According to the Sydney Morning Herald, the “number of customers needing hardship support [from the ABA] had grown by 73 per cent this week, compared with 153 per cent growth the week before.”

Australia’s credit card debt is stagnant

For the past 11 months, Australia’s credit card debt has stagnated around the $20 billion mark, prompting’s research director, Sally Tindall to declare that “Millions of Australians appear to be stuck in a credit card debt rut.”

Moreover, while the credit rate sits consistently at $20 billion, roughly 850,000 credit accounts have been closed since a year prior, meaning that people are taking on larger amounts of debt. According to Sally Tindall, this could worsen amid the continued lockdowns.

“Debt accruing interest could climb next month if lockdown affected households have reached for the credit card to help pay the bills,” she added.

With consistently high case numbers of COVID-19 and lockdowns very likely to be extended until vaccination rates reach higher levels, it’s likely that people will increasingly turn to their credit cards to cover the expenses that their COVID support isn’t supplementing.

This is especially the case given the historically low interest rates and relaxed lending conditions implemented by the RBA which have reduced barriers to lending.

WARNING: The ATO is about to crack down on businesses

Small to medium businesses also owed a record $21.4 billion of tax debt over FY20 to the ATO, which will put many SMEs at risk following newly-passed legislation from the ATO.

The legislation will allow the ATO to inform private credit bureaus when an SME hasn’t paid their taxation, opening up business owners to a ruined credit score.

According to The Australian, similar legislation that was passed previously resulted in researchers having to return their government grants many years after they had spent the money, with fines and interest added on top.

The article goes on to say that “Seven years later, former brilliant researchers still can’t operate a business or buy a house and when they rent a house they have to cross every finger that the landlord will not check their credit rating.”

Businesses with an Australian business number (ABN) that have “one or more tax debts, of which at least $100,000 is overdue by more than 90 days” that are also not engaging with the ATO will be at risk of having their debt exposed to credit bureaus.

Businesses will have 28 days from receiving the notice to take relevant action.

If You’re in Debt

Being in debt places you into a precarious financial situation which can quickly snowball into a catastrophe.

One of the clients at DGI Debt Management was a business owner and the primary provider for his family, when the pandemic hit and dramatically reduced his income. In order to continue paying his bills and putting food on the table, he began to take on more debt than he could afford and quickly found himself with $20,642 in debt.

The Debt Management team was able to reduce his debt down to just $3,759, cutting 82% of his total debt off and giving him the breathing room he needed to get back on his feet.

On top of that, he no longer had to worry about the possibility of bankruptcy, or having to deal with creditors anymore.

To find out if the Debt Management team can improve your debt situation, visit DGI Debt Management today.

Good Debt Vs Bad Debt With Dominique Grubisa - DG Institute

Lawyer, Asset Protection Specialist and Property Educator

Dominique Grubisa is a practicing lawyer with over 25 years experience. She is a property investor and developer, an entrepreneur with businesses in Australia and Southeast Asia, a speaker, educator, writer and published author.

This column has been written for general information purposes only. It is not intended as legal, financial or investment advice and should not be construed or relied on as such.

About DG Institute

Founded in 2009, DG Institute strives to empower everyday Australians to grow and protect their wealth. Our goal is to provide direction, motivation and inspiration to our clients and help them perform at their very best. We do that through our professional services, in addition to teaching them how to grow their wealth through property and business education.

This column has been written for general information purposes only. It is not intended as legal, financial or investment advice and should not be construed or relied on as such.

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