A deficit in the current account on the balance of payments has become a usual part of Australia's economic landscape, deficits having been recorded for all but four of the last fifty five years. However, there are two features of the current account deficit (CAD) in 2004-05 which are not usual - first, quarterly CAD has exceeded 7 per cent for the first time, and second, the household sector has been the primary driver of the deficit.

Does a current account deficit that has exceeded 7 per cent of GDP indicate that there are structural problems in the economy? Should policy makers be concerned about that level of CAD and what could they do about it? Should they be concerned about the rise of household debt which has driven the CAD? What risks if any do high CADs and debt levels pose for households and the economy? These are the main themes of this inquiry.