Signs of financial stress ahead of conventional wisdom?
The Australian Financial Security Authority released the personal insolvency statistics for 2017’s first quarter, and the statistics are not encouraging. Total personal insolvencies are up 10.8%, with rises in all three types:
- Bankruptcies rose 2.5%
- Debt agreements rose 20.8%
- Personal insolvency agreements rose 139.5%
In our last article, we noted that personal insolvencies saw a modest increase of 4.3% for the 2016 calendar year. This growth trend is ramping up in 2017. The big change from last year is that the increase is no longer primarily located in the mining states/territories (Qld, NT, and WA)—it’s now evident in almost all states/territories’ statistics. However, the total number of personal insolvencies at 7,900 is still well short of the all-time high in 2009-10 (above 9,000).
Bankruptcies’ small growth of 2.5% was expected—the trend towards alternatives to bankruptcy we saw in 2016 has continued into 2017. Growth occurred in all states except NSW and Vic, with these states actually experiencing small decreases (1.9% and 0.5% respectively). These were offset by strong growth in the ACT (41.5%), NT (30%), and WA (14.9%).
Debt agreements continued their significant growth trend, with an increase of 20.8%. The rise in debt agreements was across all states, with SA recording the largest increase (41.7%) and the lowest increase in Qld, still a significant 15.6%. This is the seventh consecutive quarterly rise in this personal insolvency type.
Personal insolvency agreements (PIAs) also saw significant growth, with appointments up 139%. Again, all states and territories saw an increase, notably, it shows a range of WA—240% to SA—50%. PIAs are often used when the level of debt is higher than a debt agreement and accordingly, the strong increase over 2016 in this type of agreement could indicate that financial hardship is starting to be felt by those of greater affluence.
The most interesting trend in the March quarter statistics is the rises from the ‘mining economy’ states/territories spreading to the rest of the country. This could be an early sign of more financial stress being felt in the economy than conventional wisdom would indicate.