Households pay debts with savings

IRISH households now owe twice their income and are dipping into savings to pay off debts.

The total income of households in Ireland in 2010 was €92 billion, but debts came to €185bn, according to figures from the Central Statistic Office (CSO).

Income has dropped from €96bn in 2009 while debt is down from €198bn.

The figures highlight the “huge debt problem” the country faces, according to Bloxham chief economist Alan McQuaid, who added that households are particularly squeezed.

Between 2002 and 2008 household disposable income increased from €65bn to €104bn — a 60% increase.

Over the same period household expenditure on goods and services increased by 48% — from €62bn to €92bn.

Household debt almost trebled, from €72bn in 2002 to €203bn in 2008.

Savings fell last year to €12.2bn, with 13.4% of gross household income being saved, down from 14.7% in 2009. The CSO said €10bn of these savings were used to repay debts.

“The fall in the gross savings ratio is not a reflection of people spending more but rather it is mainly down to households being forced to dip into savings just to survive and pay everyday bills, Mr McQuaid said.

“Given the weakness in the household sector, one has to question the desire among some policymakers and economists to implement greater fiscal austerity in the forthcoming budget than is absolutely necessary.”

The CSO said that during 2009 and 2010 households were no longer borrowing in net terms as investment in property fell to levels that could be financed by savings of this sector without having recourse to borrowing.

The gross capital formation of households — an indicator of how much people are investing in property — fell from a high of €23bn in 2007 to €5bn last year.

Yesterday’s figures also show that the assets and liabilities of the banking sector peaked in 2008 at €1,864.5bn and €1,870.3bn respectively. These have since declined to €1,701.4bn and €1,706.8bn.

Government finances continued to deteriorate in 2010. Gross disposable income fell to €16.5bn — a drop of €2.9bn from 2009, mainly due to a decrease in tax revenues and an increase in interest payments.