Nation of Debt: How much does each Kiwi owe now?

New Zealand’s big ugly debt figure keeps growing – as always.

Our gross debt figure, a simple count of all our public and private debt, now stands at $722.62 billion.

It’s over 9
percent of last year’s $663 billion total.

That’s a whopping 47% of the $492.5 billion total when we launched our Nation of Debt series five years ago.

That’s a bit of an unsettling $140,861 for each Kiwi.

Of course, the number must be considered in context.

The savings rate of Kiwi households has indeed improved in recent years, which offsets our net debt.

According to StatsNZ, household net worth grew by around 8% in the first two years of the pandemic as lockdowns curbed our spending.

But that trend appears to have reversed, with household net worth declining in the first quarter of this year.

New Zealand’s gross domestic product also continues to grow, (albeit at a moderate pace) offsetting our national debt in the relative terms on which international rating agencies judge us.

Basic net public debt now stands at 36.3% of GDP, which is still relatively low in a global context.

Core Crown borrowing (the figure we use for this series) continues to track Treasury projections – rising from $131.1 billion last year to $166.5 billion in the year to 31 may.

Of course, the surge in Crown borrowing was linked to our Covid response and became a hot political topic.

Later this week, the Nation of Debt series will dive deep into the state of Crown debt.

When it comes to private debt levels, the Reserve Bank maintains a comprehensive data set, breaking things down across different sectors of the economy.

The series provides information to assess New Zealand’s financial security risk, offering clues to broader trends in New Zealand’s economy, says Chris McDonald, head of financial system analysis at the RBNZ.

“We are in interesting times. There have been big changes over the last 12 months with the impacts of the ongoing pandemic, supply disruptions, war in Ukraine – it has created quite an inflationary environment” , did he declare.

“That means central banks really had to tighten their parameters and remove some of that stimulus that they had in place. That’s a pretty big change. The impacts that we’ll see, there’s big questions about the way it’s going.”

Financial markets were well placed to handle this, banks were well capitalized and while there was some concern for those who had borrowed from higher debt levels, most households were well placed, he said. -he declares.

“Existing debt positions, the level of stress that we’ve seen to date has been very low, if you look at the data on non-performing loans it’s very low, even lower than it was before the pandemic.”

Despite Covid’s sharp rise in Crown debt, mortgage debt remains the big culprit for the rise in total debt over the past five years.

“You can see particularly with mortgages a very close relationship with the housing market,” he says.

The annual growth rate of mortgage debt soared in the first year of the pandemic – peaking at 11.5% in the year to May 2021.

But since then, growth rates – if not the nominal total – have declined.

It now stands at just 6.9%.

In the last two months of last year, this big drop in mortgage lending became evident, McDonald said.

Monthly statistics on new mortgages collected by the RBNZ show that the level has fallen from $9 billion a month to around $6 billion a month, since the end of last year.

This was prompted by two things, McDonald said.

One was changes to responsible lending regulations (the new Credit Agreements and Consumer Credit Act), which essentially means banks have tightened their affordability ratings for new loans. .

And then we had a substantial increase in interest rates. Mortgage rates have more than doubled.

At this point, the decline was due to lower sales volumes rather than lower property prices, but if the price decline continues, it will also start to have an effect.

Another sharply declining area is consumer debt – which includes credit cards and hire purchase.

There had been a significant covid effect on consumer behavior, McDonald said.

“When you look at credit card data, you see a noticeable drop in each of the lockdown periods. What that suggests is that people have been restricted in terms of spending during this lockdown period,” a- he declared.

“You’ve heard stories of people increasing their spending online and Netflix etc. But the tradeoff is that we’re not spending our money on hospitality.

“Thanks to Covid, we’ve seen an increase in the savings rate and people accumulating their savings.”

People had used these savings to pay off their credit card debt.

Corporate debt also fell sharply in the first year of the pandemic, but started to rise again.

Paradoxically, when it comes to business, less borrowing is often a bad sign.

Higher borrowing rates suggest better levels of confidence and investment in the business.

There were two main reasons for this recovery, McDonald said.

“One is the general improvement in economic conditions. We have a much stronger economy, we have stronger demand and we have increasing capacity pressures and all of that correlates with increased investment.”

The other reason was less encouraging and was due to supply disruptions we have seen over the past year.

“The consequence of that is that things get delayed and projects have taken longer and you have to hold onto your funding longer,” McDonald said.

“It also means that companies are holding more inventory than they previously would and need extra funds for that.”

Finally, agriculture, a category that had been one of the biggest financial stability concerns for the RBNZ a few years ago, looks much healthier as a sector with nominal debt levels declining since June 2020. .

“That’s definitely a positive,” McDonald said. “I think what we’ve seen is that banks have diversified their portfolios.”

“The dairy sector is one where we have certainly seen a reduction in the amount of loans over the past few years. This reflects the fact that we have had good payments and farmers have been able to use them to pay down their debt.”

Sheep and cattle had just stagnated, the compensation being increased lending to the horticultural sector.

“The sector is in growth mode and banks have wanted to diversify their lending,” he said.

“This is a positive story for the agricultural sector.”

Coming Soon – Each day this week, we’ll dive deeper into the debt levels of different sectors, including housing, consumer, agriculture, corporate and crown borrowing.

By the numbers:
• That big ugly number in our chart ($772 billion) is New Zealand’s total gross debt.
• It combines the latest Reserve Bank figures for private debt with Treasury figures for Crown debt and Local Government Finance Agency data on council debt.
• Reserve Bank figures include housing debt, consumer debt, business debt and farm debt as of June 30. These are updated monthly by the central bank as part of its mission to monitor and maintain financial stability.
• The Crown Debt figure is taken from the Treasury’s interim financial statements as at 31 May and corresponds to the Core Crown Borrowing figure.
• This is different from the Net Core Crown Debt figure often used by politicians when talking about debt to GDP ratios.
• We use it (on Treasury advice) because it is a gross debt figure, but excludes debt held by public enterprises which would have been covered by Reserve Bank statistics.
• Finally, the debt figure provided by the Local Government Finance Agency is the gross debt for the year to 30 June 2022.
• It captures all core council activities (Watercare, Auckland Transport, etc.) but excludes some commercial activities (eg Christchurch City Council’s Orion lines, Lyttelton Port, Christchurch Airport) as those these would also be included in the RBNZ data.