This was in a mainstream newspaper this morning and I really feel it's worth sharing (Thank you to TM from JB for bringing it to my attention)
Our debt binge is so extreme that we now owe more than the economy earns in a year.
WHILE millions of us max out our credit cards at January sales, three recent statistics together tell an alarming story. According to the Reserve Bank, for the first time Australians now owe more in household debt - on mortgages, credit cards and personal loans - than our entire economy earns in a year. That's $1.2 trillion of debt, or about $56,000 for every Australian man, woman and child.
Second, data commissioned from the Australian Bureau of Statistics by investment house CommSec showed where some of the debt was going. The bureau found that Australia can now lay claim to having the largest new homes in the world, even beating the United States. The average floor area of all new homes here is 214.5 square metres, an increase of nearly 50 per cent since 1985. When you consider that this is an average area, including flats and medium-density housing, then many of these new homes are truly gargantuan creations.
Finally, last week the ABS announced that retail spending for November grew at almost four times the trend rate, ahead of the Christmas peak. A fourth consecutive interest rate rise is suddenly possible when the Reserve Bank meets next month.
Despite the rosy economic undertones, the data collectively paint a worrying picture of a community of conspicuous consumers, eagerly buying lots of "stuff" on tick that we don't need or even use, stashing it away in McMansions that gorge energy to heat and cool, and giving the families that live there the carbon footprint of a small African country.
Part of this credit-fuelled consumerism is aspirational. We all want to be better off than our parents, and we want our children to be better off than us. Our houses and material goods - furniture, home entertainment systems, second cars, boats, and all the little luxuries that add up on our credit card statements - tell the world that we add up to something. Understandably, property developers and retailers play this to the hilt in their marketing.
But if the house and its contents are funded by dangerously high consumer debt, a McMansion is a house built on quicksand. Once in the debt trap, it's very hard to get out intact. Families struggling to meet their debts face highly destructive stresses, hurting not only themselves but the friends, loved ones, workmates and the wider community who help pick up the pieces.
Perhaps the time has come for public policy to signal that consumption for consumption's sake isn't always good. Take oversized housing. In leasing office space, it's normal to calculate the average floor area needed to accommodate an employee. We could apply the principle to residential space and determine that each member of a household has a minimum personal entitlement of, say, 35 square metres (almost four squares in the old measurements) - making 175 square metres for a family of five, plus an allowance for communal spaces including kitchens, toilets and bathrooms. A courageous government could then impose a one-off, or even a recurrent rate-like surcharge, on the excess space when a new or existing house is purchased.
If it's recurrent, the charge could be adjusted for subsequent additional household members. Either way, the surcharge would be independent of the market valuation or purchase price, and would apply equally to both suburban McMansions and Toorak's grand homes.
This does three things. First, it tells buyers that houses bigger than needed carry a financial premium; having less space to fill also imposes practical limitations on retail purchasing. Second, it encourages developers to concentrate on marketing homes that are attractive to live in but not excessively sized or priced. Third, it says that we as a community encourage wise use of our scarce land, energy, water and social infrastructure.
When it comes to consumer goods, we similarly could consider broad-based luxury premiums, perhaps in the form of a GST surcharge. If we truly want something now but don't really need it, we can pay extra for it. Preferably, however, we should adopt more policy and taxation incentives that encourage people to save and invest, rather than simply spend their discretionary income on passing fancies and crippling mortgages.
One person's luxury is often another's necessity. Realistically, such policies would be electorally unpopular, even unpalatable. Indeed, federal and state governments of both persuasions have long fuelled the McConsumption culture of contemporary Australia, symbolised by the political hot buttons of home ownership and mortgage rates, and reflecting the decline of the thrift culture of generations past. Indeed, we throw public money at the housing and retail markets to keep our economy afloat by stimulating the household spending spree that has now put our entire GDP in notional hock.
In Charles Dickens' David Copperfield, Mr Micawber famously said: ''Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.'' In an election year, it is timely to ask whether we truly can sustain household debt exceeding our annual national income, and whether we can keep consuming in the way that we do. Kevin Rudd, Tony Abbott, John Brumby and Ted Baillieu should each tell us what they think - but we are all free to choose not to spend simply because we can.
Terry Barnes advised Howard government health ministers and is now a social policy consultant.
Source: The Age