First the good news. Australia’s economy (as measured by GDP) continues to grow at a very healthy rate. We’re recording solid jobs growth – some 190,000 over the past year – and our unemployment rate is holding under 6% in a tough global environment. We’ve also just chalked up 25 years without a recession – that is genuinely an excellent result. But there is a sobering flipside – that economic growth has been supported and maintained because we’ve been piling into debt. Government debt has rapidly picked up (from a low base) and that’s a problem. But it’s household debt that has the potential to bury us. Since Australia’s Federal Budget slipped into deficit in 2009, there’s been increasing scrutiny and concern about the sustainability of the growing government deficit and what it might mean for the future of the economy. The scrutiny is justified, as the increase in debt isn’t necessarily being well spent. However, at approximately 30% of GDP, Australia’s net public debt is still much lower than many other advanced economies, such as the Euro area (at almost 70% of GDP) and the US and the UK (at approximately 80% of GDP each). The more significant issue of Australia’s level of household debt hasn’t received nearly as much scrutiny. Of the 44 countries reported on by the Bank for International Settlements, Australia is unfortunately a world leader. We have the highest ratio of household debt to GDP of all, and we’re one of just four countries where household debt exceeds 100% of GDP. The chart below shows that back in 2000, our household debt was roughly on par with that of other developed economies, at just below 70%. But since then, growth in household debt relative to GDP has strongly outpaced that in other countries. Household debt relative to GDP In 2015, Australian household debt reached more than 120% of GDP. This means average annual growth in the value of debt of 10% per year since 2000, bringing Australia’s household debt to just over AU$2 trillion at the end of 2015. Much of the increase has been driven by growth in house prices, which over recent years have become increasingly detached from national income. That is, the level of debt has followed the value of the asset – rather than the ability to repay the debt. As household debt rises further away from our output or incomes, it presents a significant risk to Australia’s economic future. David Rumbens is a Deloitte Access Economics partner and co-author of our Weekly Economic Briefing.