Although many people are aware that government expenditure will exceed government revenue for the foreseeable future, it can be difficult to translate billion-dollar figures in the budget into figures which have personal relevance.
Things improved a bit in 2018 when I leveraged my Senate crossbench vote to convince the government to include per capita data on tax, debt, and interest payments in the budget papers. These can now be found in Table 11.11 in Budget Paper No 1 (downloadable at budget.gov.au).
Perhaps because it is at the back of the Budget Paper, most journalists and economics writers seem to have missed it. That’s a shame, because it not only makes things more understandable, but shows we have a very alarming problem that will affect each one of us.
The figures show that net debt per person in Australia is now $28,036 ($23,590 in 2011-12 dollars) and will increase to $33,950 by 2024-25. That’s the average for all 25 million of us, including those who do not pay income tax, so the debt attributable to those who fund it, about 14.7 million taxpayers, is close to double this.
If you think debt of almost $60,000 per taxpayer is a worry, the Intergenerational Report provides no comfort. It shows debt per person (in current dollars) will remain above $30,000 per person for the next thirty years and increase to more than $40,000 by 2055. Furthermore, as the population ages, the proportion of taxpayers will decline, increasing the cost to those carrying the burden. Instead of being almost double the average, those paying tax will be servicing a debt at least three times that.
Those now too young to be paying for the debt, and even those yet to be born, will still be paying interest on it when they end their working life. And the amount of debt will be no less in real terms.
Budget Table 11.11 also shows that we currently pay an average of $17,137 in tax and $567 per person in interest (about $1000 per taxpayer). Interest of that amount is obviously not intolerable, but rates are currently at record low levels. Once they return to more normal levels, the cost will be several times greater.
The point is that money spent on interest cannot be used to pay for pensions, childcare, defence, health, education or the NDIS; it all comes from the same pool. Money that could fund an increase in age pensions or unemployment benefits, or equip the ADF with modern weapons, will be required to pay interest.
The projections in the IGR rely on assumptions about population (particularly immigration), tax rates, government spending, and productivity. Attempting to look forward 40 years, they are simply an educated guess – future governments could implement policies to raise or lower any of them. Indeed, if we are to escape the burden of debt, it is reasonable to expect that measures will be contemplated to achieve that.
But if the past couple of decades are any guide, not much will happen. We might get higher taxes, but that just leads to reduced investment and more unemployment. We might get more skilled migrants, but that doesn’t help if they bring their families with them.
A good option is reduced government spending, especially on such things as middle-class welfare and duplication between the states and Commonwealth. The problem is, with well over half the population in receipt of government funding, neither side of politics has the political courage to take it on. There are no votes in telling people they are not entitled to other people’s money.
The ultimate solution is to increase productivity. But governments also find that difficult – it’s one thing to build more efficient ports, airports, railways or roads, but real increases in productivity require learning new skills, flexible work practices, innovative technology and the removal of red tape. Individuals must also be persuaded to change and adapt.
Faced with all this, most Australians will simply shrug their shoulders. As individuals, there is not much else they can do, although the productive members of society will inwardly groan at the debt burden they are each lumbered with.
In the end our fate will depend on whether enough of us vote for politicians and political parties that are prepared to do what is needed. It can be done, as a few countries have shown, although not usually until there is a crisis. But I doubt if we’re up to it. And if we’re not, as the budget figures show, each one of us will bear the cost.
David Leyonhjelm is a former senator for the Liberal Democrats.
Got something to add? Join the discussion and comment below.