Levels not seen since 2005.
The Australian Financial Security Authority (AFSA) released the March quarter of 2019 personal insolvency statistics and the story was the same as the final quarter of 2018, with further falls in personal insolvencies across the board. Every state and territory in Australia recorded a decrease. Nationally, personal insolvencies declined a significant 19.4%, bringing them to the levels not seen since 2005.
While personal insolvency agreements rose 48.6%, the relatively small number of appointments (55 in the March 2019 quarter) means there is significant noise in the figures. For the two more popular forms of personal insolvency, bankruptcy saw a fall of 9.2% (to 3,765 in the March 2019 quarter) and debt agreements fell a much more significant 31.5% (to 2,552 in the March 2019 quarter).
Bankruptcy firmly on top
With this movement, it appears that the likelihood of debt agreements taking over as the dominant form of personal insolvency in Australia has faded. After strong growth through late 2017 and early 2018, it looked like debt agreements were poised to take over bankruptcy. However, the more significant fall in debt agreement appointments mean bankruptcy now has a significant lead as the most popular form of personal insolvency.
This movement happened without the introduction of one-year bankruptcies, which were expected to reduce the popularity of debt agreements. It remains to be seen whether the new Coalition government will move forward with the Bankruptcy (Enterprise Inventive) Bill, which would usher in one-year bankruptcies, in the new parliament.
Explaining the fall
We expect that a mix of factors have led to the continued fall in personal insolvencies in the first quarter of 2019. The factors include optimism around the federal budget, and a marked change in the messaging by the Reserve Bank of Australia, with future rate cuts now a significant possibility.
This is reflected in the Westpac Consumer Confidence Index, which, after a fall in January 2019 has rebounded to remain largely positive for the year to date.
Additionally, the pending federal election may have led to debtors refraining from declaring bankruptcy in the hope that the election outcome would impact their financial position, especially with tax cuts a potential outcome of the election result.