Australia's climbing debt levels are hurting the broader economy, with groundbreaking research from the Reserve Bank showing a "debt overhang" that is directly hitting households and their ability to spend.

In research that could challenge the Morrison government's hopes for a tax refund-fuelled bounce in the economy, the RBA's economics department found Australians had reacted to ever-increasing debt - needed to buy into high-priced property markets - by reducing household consumption.

While households reduce spending in reaction to economic shocks, such as the global financial crisis, most policy makers have expressed little concern about increasing personal debt during good economic times.

Senior RBA and Treasury officials have played down the rise in household debt over recent years, pointing to the large increase in the value of assets held by most Australian families via their home.