It is no surprise that Australians are going into debt. They are being taxed to death - income tax, petrol excise, GST, etc etc etc.

And they simply follow the example of a profligate government that that time and agin proves itself to be fiscally incompetent.

I understand though that tax in Australia is still not that high compared to other OECD countries. The real problem is that the money collected hasn't been put back into essential services. Which is partly why NSW has an embarrassingly antique rail system.

Debt is also a personal choice. We may not have a choice in regard to income tax but we can choose not to take out loans on huge houses, appliances, expensive schools and new cars. I saw an ad where the woman in a couple wanted a new lounge. The man wanted a new sound audio/tv system. The solution? Get a huge loan. Fan-bloody-tastic!

Actually, if the couple got off their bums and did some exercise they'd be a whole lot happier. But that is a whole new point.

Ankelbita,the high taxes is a result of our socialists state.44% of all taxes go into social security.We have huge bureauracies which consume and waste money beyond the bounds of your wildest dreams.Private enterprise needs to become less productive,because the harder you try the more the bureauracy grows.

This is not because we take out loans. It is because we import more than we export. Consume more than we produce. Spend more than we save.

The public sector exports very little. Some say, produces very little of value. These people however do earn salaries, import, and consume. People on welfare import and consume. How is it possible that our personal income taxes raise $100 billion, $80 billion of which goes on welfare?

$80 billion in unearned spending … that’s one way of living beyond our means.

I see two separate (but related) points here. Personal debt seems to be increasing and by living beyond our means by taking out huge loans, we are making ourselves vulnerable to interest rate increases. If you take out a huge loans for one of those gigantic designer houses in some suburbs of Western Sydney, a small interest rate rise can economically cripple you. But people are not only getting into debt through house purchase. They are also getting loans for the furniture, hi-fi systems etc.

That relates to the second point. Appliances, new cars and so on often come from overseas. That means more spending on imports rather than exports which contributes to national debt.

In relation to social security spending, there are obviously some policies such as Family Tax Benefit B are a stupid waste of money. On the other hand, if you slash social security thoughtlessly what happens? Spending on police, corrective services, homelessness etc. So you don't necessarily save money.

Of course, if Howard slashes social security payments then spending on the police etc is the states' problem. He might be a nasty piece of works but nobody can say Howard is stupid.

Seeker,yes our balance of payments will continue to worsen.As China improves the quality of it's goods so more Australian manufacturers will continue to close.Just recently a salesman commented to me that all our furniture manufacturers are closing.In China the workers live in the factories,no workers comp,holidays ,long service or super,or public liability or Govt regulation.If you get injured,send your brother and he will support you.Our real rate of unemployment is closer to 800,000 since we have reclassified 300,000 of long term unemployed as disabled.This has slowly happened over the last 20 yrs.

The theory is that as China and India's living standards improve,and socially we will meet them in the middle, thus a level playing field will be reached.Guess what?China and India have so many poor that and with limited world resources they will always have this cheap labour source.Wages in Australia will be forced lower and eventually under the weight of our social security system,our economy will collapse.We are selling off anything we can just to support the socialist state.We have hamstrung ourselves with individual rights,and are losing our sense of morality and discipline.If we are going to compete with poor countries on a level playing field,we will have to live like them.

Lots of generalisations abound regarding the reasons Australians are getting further and further into debt. Probably plenty of it is people buying houses bigger than they need, spending on holidays and plasma TV's etc. Then there are those who are being forced into it by failures in our society.

The problem with using interest rates to try and control that is that interest rates don't know or care what caused the debt, they can make the situation worse for those without a reasonable capacity to cut back on their spending.

Consider the seperated person starting out again. If you try and stay in the area you were as a couple (your kids go to school there etc) you can't just move to a cheaper suburb (you might move to a cheaper part of the area). Your equity has halved if you are doing well. If you were not able to retain the family home there is no exemption from stamp duty on the purchase of your new home, you need to replace furniture, a car maybe. You may need to spend tens of thousands on legal bills because that is the only way you can still have a meaningful role in your kids lives. If your ex is not fond of working you are paying child support based on a difference in income, not on the decisions you both have made nor the actual cost of raising children. Debt might be one of the only tools available to help you keep your head above water until C$A is off your back.

You might buy one of the cheaper homes in the area but skimp to much anywhere and you risk not providing good enough circumstances for your kids and having that become a factor in a residency battle.

Now which part of that picture is optional spending which you can avoid without creating even bigger problems.

An interest-rate rise does not moderate inflation. It intensifies inflation or its risk.
Interest-rate rises reduce supply, while demand stays up. We got stagflation - unemployment with more inflation. As governments and central banks persisted with such policies, inflation shifted from domestic price increases to trade and payments deficits.
An increase in interest rates WILL moderate asset-price inflation. A hike in interest rates will hit and can kill such phenomena as a housing or stock-exchange bubble. How brutal will depend on how long the bubble has swelled and other action taken to moderate it.
However, a hike in general interest rates that applies across the whole credit spectrum - is a blunt instrument of economic and financial management.
Like a bushfire out of control, it can destroy everything in its path.
It can moderate a housing boom and burst the bubble to cause acute distress to big-time developers/speculators and small own-home-buyers.
The impact won't stop there. Manufacturers and miners, farmers and retailers, IT service providers and educators will see their costs go up. Those operating on small margins might find that their enterprises are no longer viable. They will go out of business, their factories close, their farms go up for auction, unemployment will grow and welfare payments will increase while tax revenues decline.
For Australia, the devastation of the currency - the Australian dollar - started way back in the early 1970s. In December 1972, the Whitlam Government APPRECIATED the Australian dollar by some 7%. Since then, the road has been almost constantly downhill. True, there has been fluctuation especially against the US dollar since the US Government and Fed have adopted much the same fundamental policies as the Austgov and RBA. In the last couple of years the $A rose from around 50 US cents to around 80 US cents. But that has not been characteristic. More generally, the $A has lost value against the US dollar and vis a vis major European and Asian currencies. Against European currencies in the last twenty years, IT HAS LOST BETWEEN TWO-THIRDS AND THREE-QUARTERS OF ITS VALUE.

James Cumes

Personally, I am sick and tired of both the reserve bank and the government letting inflation run rampid in this country. I simply cannot save fast enough to keep up; fantastic if you are already a rich baby boomer, but impossible if you are starting out. The inflation figures used by our reserve bank are an extremely narrow definition and do not reflect the true cost of living (or true inflation). For example, in the last 3 years I have had my rent go through the roof (in fact it is very nearly breaking me) while inflation has stood still. Now, inflation is hitting 4% they are blaming the cost of banana’s - what a load of toss. I believe this whole country is against younger people getting ahead, and has been set up for the baby boomers to cash-in before their retirement. Based on my analysis, the cost of real estate and the stock market are about 15-20 years ahead of where they should be. It has been accelerated for the boomers and politically no one is representing younger families who now have to go to auction, not to buy, but to bloody rent. Young people do not choose to be a consumer generation, they simply cannot do anything else with the little money they have. In my opinion, interest rates should be moved one whole percent next week.