Nation of Debt: Just how much does every Kiwi owe now?

Nation of Debt: New Zealand's total debt keeps rising but there are positive signs. Photo / NZ Herald

New Zealand's big ugly debt number keeps rising - as it always does.

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

That's up 9 per cent on last year's tally of $663 billion.

It's a whopping 47 per cent on the $492.5 billion total when we first started our Nation of Debt series five years ago.

That's a slightly unsettling $140,861 for every Kiwi.

Of course the number has to be viewed in context.

The savings rate of Kiwi households has actually improved over the past few years, which offsets our net debt position.

The net worth of households rose by about 8 per cent in the first two years of the pandemic as lockdowns curbed our spending, according to StatsNZ.

But that trend appears to have turned 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 subdued pace) offsetting our national debt in the relative terms that international ratings agencies judge us on.

Net core Crown debt is now sitting at 36.3 per cent of GDP, still relatively low in a global context.

Core crown borrowing (the figure we use for this series) continues to track in line with Treasury projections - rising from $131.1 billion last year to $166.5 billion in the year to May 31.

Of course, the big rise in Crown borrowing was tied to our Covid response and has become a hot political topic.

Later this week the Nation of Debt series will take a deep dive into the state of the Crown's debt.

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

The series provides insight for assessing New Zealand's financial security risk, offering clues to broader trends in the New Zealand economy, says Chris McDonald, RBNZ manager financial system analysis.

"We're in an interesting period. There have been some big changes in the past 12 months with the ongoing pandemic impacts, the supply disruptions, the war in Ukraine - it's created quite an inflationary environment," he said.

"It's meant that central banks have really had to tighten up their settings and remove some of that stimulus they had in place. That's quite a significant shift. The impacts we'll see, there's some big questions about how that plays out."

Financial markets were well placed to handle that, banks were well capitalised and while there was some concern for those that had borrowed at higher debt levels, most households were well placed, he said.

"Existing debt positions, the amount of stress we've seen to date has been very low, if you look at the non-performing loans data it's very low, even lower than they were pre-pandemic."

Despite the big Covid rise in Crown debt, mortgage debt remains the big culprit behind the increase in total debt across the past five years.

"You can see particularly with the mortgage lending a very close relationship with the housing market," he says.

The annual growth rate for mortgage debt soared through the first year of the pandemic - peaking at 11.5 per cent in the year to May 2021.

But since then the rates of growth - if not the nominal total - have been in decline.

It now sits at just 6.9 per cent.

In the last couple of months of last year that big slump in mortgage lending became obvious, McDonald said.

The monthly new mortgage stats collected by the RBNZ show the level has dropped from $9 billion a month to about $6 billion each month, since late last year.

That was driven by two things, McDonald said.

One was the changes to the responsible lending regulations (the new Credit Contracts and Consumer Finance Act) which basically means that banks have tightened up their affordability assessments for new lending.

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

At this stage the drop-off was being driven by falling sales volumes rather than lower house prices but if price declines continue they will also start to have an effect.

Another area of sharp decline is consumer debt - which includes credit cards and hire purchase.

There had been a big covid effect on consumer behaviour, McDonald said.

"When you look at the credit card data you see a noticeable step down in each of the lockdown periods. What that suggests is that people were constrained in terms of their spending through that lockdown period," he said.

"You did hear stories of people increasing their online spending and Netflix and so on. But the offset to that is we weren't spending our money on hospitality.

"Through Covid we saw an increase in the savings rate and people accumulating their savings."

People had used those savings to pay down credit card debt.

Business debt also dropped sharply in the first year of the pandemic but has started to rise again.

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

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

There were two main reasons for that pick-up, McDonald said.

"One is the general improvement in economic conditions. We've got a much stronger economy we've got stronger demand and we've got increasing capacity pressures and it all correlates with an increase in investment."

The other reason was less heartening and due to the supply disruptions that we've seen in the past year.

"The consequence of that is things are delayed and projects have taken longer and you need to hold your funding for longer," McDonald said.

"Also it's meant businesses are holding more inventory than they would previously and they need extra funding for that."

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

"That's definitely a positive," McDonald said. "I think what we've seen is banks have diversified their portfolios."

"Dairy is the one where we've definitely seen a reduction in the amount of lending over the past few years. That's a reflection of the fact that we've had good payouts and farmers have been able to use that to pay down debt."

Sheep and beef had just flatlined, with the offset being increased lending to the horticulture sector.

"The sector has been in growth mode and banks have been willing to diversify their lending," he said.

"It's a positive story for the agriculture sector."

Coming up - Every day this week we'll take a deeper dive into the debt levels of different sectors including housing, consumer, agriculture, business and Crown borrowing

By the numbers:
• That big ugly number in our graphic ($772b) is New Zealand's total gross debt.
• It combines the latest Reserve Bank figures for private debt with Treasury numbers for Crown debt and Local Government Funding Agency data on council debt.
• The Reserve Bank figures include housing debt, consumer debt, business debt and agricultural debt to June 30. These are updated monthly by the central bank as part of its brief to monitor and maintain financial stability.
• The Crown debt figure is taken from Treasury's Interim Financial Statements to May 31 and is the figure for Core Crown Borrowings.
• This is different to the Net Core Crown Debt figure often used by politicians when they talk about debt-to-GDP ratios.
• We use this (on Treasury's advice) as it is a gross debt figure but excludes debt held by state-owned enterprises which would have been covered off in the Reserve Bank statistics.
• Finally, the debt figure supplied by the Local Government Funding Agency is gross debt for the year to June 30, 2022.
• It captures all core council activities (Watercare, Auckland Transport etc) but excludes some commercial activities (e.g. Christchurch City Council's Orion lines company, Port of Lyttelton, Christchurch Airport) as these would also be included in RBNZ data.