Debt addicted Kiwis buckling down, says English

Bill English. Photo / Supplied.

Finance Minister Bill English is pointing to what he calls a remarkable turnaround in household spending behaviour as a factor in the stalled economic recovery.

He was speaking at the Treasury yesterday where the final accounts for the 2009-10 year were released, and while they were not too far off the estimates in May's Budget, the books have deteriorated in the past year.

Mr English warned that the half-yearly update of the current financial year in December was unlikely to show positive growth.

He said the recovery would be quite different from those of the past, with no traditional "sugar fixes" of debt-led consumption.

In recent years, New Zealanders had borrowed against their houses to fund holidays, second cars and flat-screen television sets.

Now they were paying off credit cards and mortgages and Treasury analysis showed that there had been a 10 per cent reduction in household incomes available for spending.

"That's pretty remarkable.

"If you'd asked me 12 months ago would you see that kind of swing, a change in behaviour of Kiwis who had got addicted to debt, I would have said it was impossible," Mr English said.

The Treasury figured that between 2003 and 2008 households withdrew several billion dollars of equity from their houses to boost their spending on non-housing items. At its peak, in 2007, the new measurement, termed equity withdrawal, exceeded $7 billion.

The turnaround has seen householders' borrowing fall and equity injected back into their homes - an equity injection of $5 billion in the year to May 2009.

Mr English said debt from credit cards and loans had been growing about 15 per cent to 20 per cent a year in an economy growing at about 2 per cent a year before the global financial crisis.

"The whistle went. Everybody realised the game was over and insteadof mucking around and waiting forit to start again, they've said, 'Rightthe rules have changed, change behaviour, let's get on with it'."

The fact that households were saving instead of spending meant the retail sector was feeling the pressure and unemployment was not falling as fast as he had hoped. Once people reduced their debt and adjusted to lower levels of spending, they would be spending again and there would be an increase in sustainable jobs.

Mr English said the Government books had in a short time gone from a $2.1 billion surplus in 2007-08 to the forecast $13.3 billion deficit in the current year.