Young Australians Pay for Policy Delay, Report Warns

State government debts have more than doubled since 2019, and the interest bill on that borrowing has doubled to 0.6 per cent of Australia's annual economic output, according to a new Grattan Institute report. Outside the COVID pandemic, Australian governments last owed this much when the country was still paying off debt from a world war. The report's blunt warning: "Tomorrow's Australians will increasingly pay the price for today's deficits, whether through higher taxes or worse public services."

Borrowing to fund deficits now costs roughly four times as much as it did immediately before COVID, after interest rates climbed. In "Budget reboot: How to fund Australia's future", Grattan argues that Australia and much of the Western world have put off economic reform, including budget repair, with consequences for long-term fiscal sustainability and fairness between generations.

Who Is Bearing the Cost

Young people are already paying for that delay. A separate survey-based report from AMP says tax breaks, planning restrictions, low interest rates and financial deregulation combined over the past decade to push housing out of reach. More than half of adults under 30 have changed their intentions about having children because of cost-of-living pressures. Close to half have reconsidered having children altogether.

Nearly two-thirds feel they need to get onto the property ladder before starting a family. AMP's calculations show most need more than a decade to save a 20 per cent deposit. Australians are having children later and having fewer of them; the analysis says that could compound budget pressures, particularly as smaller migration programs are in vogue. "As Australia ages, the challenge is sustaining living standards and meeting growing demand for care without placing an ever-greater burden on working families," AMP deputy chief economist Diana Mousina writes.

A Plan Built on Revenue, Not Just Cuts

Grattan doesn't call for sweeping budget cuts. Instead, it argues for greater spending discipline, especially at state level, and says lasting repair needs both spending and revenue reform, not simply cuts to "a few wasteful public spending programs". The federal government hasn't been as profligate since the pandemic stimulus ended, the analysis says. But it remains in structural deficit and could be liable if some states approach fiscal disaster.

The report calls Australia "a relatively low-taxing country", with tax at 29.4 per cent of GDP against an OECD average of about 34 per cent. Its preferred fix: expand the GST, lifting the rate from 10 per cent to 15 per cent and reducing exemptions. That would mean taxing fresh food and considering the removal of other exemptions, including health and education. Grattan argues those exemptions favour higher-income earners, who spend more on those services.

The package would raise an additional $76 billion a year. Close to half, or $33 billion, would go to income tax cuts, particularly for low- and middle-income earners. About $25 billion would boost welfare payments and rent assistance to offset the GST and reduce poverty. The remaining $18 billion would shore up state finances amid rising health costs. Grattan also recommends ending the 2018 GST allocation deal with Western Australia and using the $6 billion saved to improve the federal budget bottom line.

The Political Obstacles

The analysis concedes the plan may not be politically achievable. Anthony Albanese has opposed abandoning Western Australia's favourable GST distribution, which the article says his Liberal predecessor Scott Morrison devised. The government also faces resistance to removing an additional private health insurance subsidy for older Australians. Opponents say pensioners would be worse off, but their modelling doesn't distinguish full-pensioners from part-pensioners.

According to the analysis, relatively few full pensioners are likely to hold private health insurance. Most insured pensioners receive part-pensions, often topped up by income from substantial savings, and typically own their homes, with low housing costs because they pay neither rent nor a mortgage. The writer says their own GP practice stopped blanket bulk billing pensioners a few years ago because many patients had larger disposable incomes. It now bulk bills at its discretion for people in genuine need.

The government also faces pressure over proposed reforms to rein in NDIS spending, curb tax minimisation through trusts, and reverse negative gearing and capital gains tax breaks. The analysis says those breaks have inflated the housing market and weakened fairness between generations. Treasurer Jim Chalmers recently said: "Power is much more effective right now in the distorting and blocking than the building or reforming."

Waiting for a Crisis

Joe Hockey, one of Chalmers's predecessors, recently told The Business that matters would need to get worse before they improved. The analysis links his reform vision to his largely rejected austerity budget of 2014, twelve years ago. "There's going to have to be a crisis now. There's going to have to be a financial crisis," the Abbott government treasurer said. "And people will only take the medicine when they feel really ill about it. And I think this is coming right across the world." The analysis concludes that debt is ballooning globally and interest rates are rising.

Why This Matters:

The two reports describe the same problem from opposite ends: a public ledger sinking deeper into debt and a generation that can't afford a home or, increasingly, a family. Grattan's proposal puts a number on fairness, directing close to half the new revenue to income tax cuts for low- and middle-income earners and about $25 billion to welfare and rent assistance, so a broader GST doesn't deepen poverty. The political fights over the WA GST deal, the health insurance subsidy, negative gearing and trusts all turn on who keeps their advantages and who carries the load. Hockey's comment points to the risk of waiting. If reform only arrives after a crisis, young renters and low-income households, with the least cushion, face the greatest exposure when it hits.