High debt pushing families 'over limit'

A Tauranga budget adviser says high levels of debt and the rising cost of living is placing financial pressure on many Bay families.

A new paper by the Productivity Commissioner shows New Zealanders are paying the highest prices in the world for both tradeable and non-tradeable goods and services including power, gas and medical care.

In 2005 New Zealand placed 17th for paying the highest prices and in 2011, it placed 11th highest in the world. The country is now more expensive than Ireland, Britain and the United States but less expensive than Australia, the report says.

Diane Bruin, service co-ordinator for Tauranga Budget Advisory Service Inc, said the service saw families every day who could not cope with rising prices, including families with both parents working fulltime.

But often previous debt was compounding the problem.

"We definitely see cases where people can't afford to live, but it is the debt that has pushed them over the limit and beyond their means.

"It's the debt that has put them out of kilter, not the cost of living. Because if they are on a benefit that should cover their basic costs of living," she said.

The number of people seeking assistance with their family budgets had peaked in the aftermath that followed the outbreak of Psa and during the recession but demand for budget advice had remained steady since then.

"We continue to see around 90 per cent of clients from our previous high records ... for some they do 'Total Money Management' where we pay their bills and educate them to manage their income and outgoing expenses and start a savings account for unexpected expenses."

Ms Bruin said clients were also taught to cope with the rising cost of living by having a separate bank account to pay bills. "This is only to pay the bills and needs to be a bit more than needed as well as a separate bank account to save for emergencies."

Professor Norman Gemmell of Victoria University, who worked on the survey, said costs relating to construction and investment, buildings, electricity and gas prices were high in New Zealand.

Medical care including dentistry, after care and medical equipment were also high on the list.

Mr Gemmell said there were two reasons for the high price of goods and services. Domestic demand (income levels and population size) and domestic supply (factor endowments and production technologies) affected non tradeable goods while world price, trade impediments like tariffs, international transport costs, indirect taxes and domestic "delivery" costs affected tradeable prices.

Although prices had risen over the past decade Mr Gemmell said he did not think that would continue.