Australian households finally caught a break in the Reserve Bank’s latest Financial Stability Review: fewer than one per cent of mortgage borrowers are in severe distress, buffers have rebuilt, and banks look sturdy. That good news should not seduce Canberra into thinking the external risks chapter is boilerplate.
\nTwo stories in one document
\nThe same report that celebrates domestic resilience spends page after page on elevated sovereign borrowing abroad, stretched asset prices and the possibility that a cyber outage during a market sell-off could freeze payments infrastructure. Those are not hypothetical footnotes for economics exams—they are the channels through which unemployment here rises even when local arrears stay low.
\nPoliticians tempted to promise permanent cost-of-living subsidies should read the China property section before the next campaign rally. Iron ore receipts and state budgets still move with construction activity on the mainland; a credit event there hits Perth wages and Melbourne stamp duty forecasts long before a chart of suburban mortgage stress turns red.
\nWhat policy should do now
\nTreasury and the Council of Financial Regulators should keep war-gaming liquidity facilities, not because a crisis is imminent, but because the US funding drama and European energy security fights show how quickly sentiment shifts. APRA ought to press boards on operational resilience with the same vigour it applies to capital ratios.
\nFor the RBA board, the household data argue against panic hikes, yet they do not remove the need for a credible inflation narrative. Markets that believe the easing in arrears grants a free pass for loose fiscal policy will test the exchange rate and import prices in ways the stability review already flags.
\nA fair bargain for voters
\nHouseholds deserve honesty: things are better than two years ago, but better is not invulnerable. The government should pair any new spending with productivity reforms that lift supply, and it should fund cyber defences for critical infrastructure as insurance, not as an innovation grant to be cut later.
\nIf ministers want credit for falling mortgage stress, they must also accept responsibility for monitoring the offshore threats that could reverse it. The Review gives them the language; voters should expect them to use it when the next global shock arrives.
Markets are not fooled for long
Equity traders celebrated a gold-led rally on the same day the Review dropped, yet bond desks quietly widened spreads on bank paper. That split reflects a healthy scepticism: earnings can look fine right up until wholesale funding costs jump. Superannuation funds that chased unlisted assets during the low-rate decade should read the sovereign-debt section as a prompt to stress-test liquidity, not as background noise.
None of this argues for austerity theatre. It argues for disciplined spending with visible metrics—grid reliability, cyber uptime, skills pipelines—that make the economy harder to shake when the next offshore storm hits.