The national debt baton is being handed from the government to households.

To be more specific: The economic recovery plan has shifted from the government borrowing money and handing it to people and businesses, to the government offering to help with the deposit on a new house.

In other words, the government is putting the brakes on its own borrowing by getting households to borrow instead.

A nicer way to put it comes, as you’d expect, from Housing Minister Michael Sukkar: It’s now a “construction-led recovery”, which is true, but it’s also a private debt-led recovery, successor to the public debt-led rescue of 2020.

In order to use the $25,000 (up to December 31), and now $15,000 (till March 31) HomeBuilder grant to build a new house, the lucky winner would have to borrow at least $400,000 and up to $800,000, which should be a piece of cake since the government wants to scrap responsible lending laws.

But free money from the government is mighty attractive, even if you do have to load up with debt to get.

Mr Sukkar reported a week ago that 75,143 people had applied for a grant, 80 per cent of them to build a new home and 20 per cent to “rebuild” (not quite sure what that means). He went on to say that this will support “up to $18 billion worth of residential construction”.

That seems a little light on, to be honest, since it equals $240,000 per house, but there’s no doubt that a construction boom is under way and there is a long waiting list for builders and tradies.

The industry is flat out, and will be for a year or more. Couldn’t be happier.

Assistant Treasurer Michael Sukkar is happy to place his faith in a ‘construction-led recovery’. Photo: AAP

Meanwhile the ABS reports that housing loans in November were $24 billion, 24 per cent above a year ago, with owner-occupiers increasing their debt by 31 per cent.

The figure for December, due out in a couple of weeks, could be a multiple of that because according to the Housing Industry Association, new home sales in December were 99.5 per cent higher than a year ago.

That’s because people were rushing to get their contracts signed before the HomeBuilder grant was cut from $25,000 to $15,000.

It will be cut to zero on March 31, so there’ll no doubt be another rush before then.

The HomeBuilder construction stimulus program has been “a phenomenal outcome for our tradies’’ Mr Sukkar says. Photo: AAP

And as Mr Sukkar says this is “a phenomenal outcome for our tradies and our economy”, especially considering that the construction industry was staring into the abyss of zero immigration and zero housing demand just nine months ago.

And yet … I saw a 23-year-old single woman on the TV news the other night talking happily about the house she was building in Armstrong Creek near Geelong for $500,000, supported by the HomeBuilder grant plus a Victorian first-home buyers grant and stamp duty concession.

The size of her loan wasn’t discussed, but it would be, for her, a whopper.

Did the bank lend responsibly to her, making sure she could afford to repay it, now that responsible lending laws are on the chopping block?

We don’t know.

She added brightly that 10 to 12 of her friends were doing the same thing, in the same suburb.

Australian household debt is now 120 per cent of GDP, or more than $3 trillion, which is also a record-high debt-to-income ratio of close to 200 per cent, one of the highest in the world.

The global median debt-to-income ratio is 120 per cent.

It’s hard to know how bothered to be about this.

After all, while the debt-to-income ratio has increased from 60 per cent to 200 per cent since 1990, the ratio of interest payments to income has fallen from 10 per cent to 6.4 per cent over the same period, because of the huge fall in interest rates.

Obviously if interest rates were to go up significantly – or at all – there would be an outbreak of mortgage stress, but at the moment it’s fine.

Home loan and savings rates fell to record lows in 2020. Photo: TND

And in a paper published last year headed “How Risky is Australian Household Debt” Reserve Bank researchers said: “a large but plausible fall in asset prices could lead to a substantial fall in consumption”.

Meanwhile the Australian government’s debt now stands at $812 billion, $241 billion more than it was a year ago (and $550 billion more than when the Coalition came to power, decrying Labor’s debt, but that’s another story).

Most of that extra $241 billion in debt in 2020 is still sitting in private bank accounts, not because the interest rate on deposits is attractive, but because it simply couldn’t be spent in lockdown.

That will probably lead to a consumption boom this year that will add to the construction-led recovery.

The two threats to this very good economic outlook are first, if the RBA raises rates prematurely and second, if Coalition Government goes further than not adding to its debt – getting households to borrow instead – and decides to impose fiscal austerity to reduce it.

On Wednesday we learned that inflation has remained in a coma, and there’s not much chance that RBA governor Philip Lowe will welch on his promise to leave rates where they are for three years.

Reserve Bank of Australia governor Dr Philip Lowe could assist by keeping interest rates at historic lows. Photo: AAP

As for fiscal austerity, the RBA could help.

The central bank has bought half of the new debt issued by the government in 2020, or $120 billion worth.

It wasn’t bought directly from the government to preserve the fiction that it’s not directly funding government spending by printing money, but most of the time the bonds are only owned by private investors for a few minutes before the RBA buys them.

Anyway, what would happen if the RBA cancelled those bonds? Absolutely nothing.

The government’s debt would drop by $120 billion in an instant, the RBA would report a paper loss of $120 billion and its accountant would require smelling salts and a strong cup of tea, and then life would go on.

As it happens a debate is now going on about whether the European Central Bank should cancel some of the $US8.5 trillion in government bonds that it now owns, and let European countries off the hook.

In fact, could the RBA buy all $812 billion of the Australian government’s debt with newly printed money and then cancel it?

Well yes, except all that extra money in the system might cause inflation, depending on what was happening with economy’s capacity to meet the extra demand.

But that might be better than crushing austerity in order to run surpluses and pay it off.

Alternatively they could just not worry about debt, like the 20-somethings applying for HomeBuilder grants.

Alan Kohler writes for The New Daily twice a week. He is editor in chief of Eureka Report and finance presenter on ABC News