Caring for our kids means not burdening them with government debt

The principle of intergenerational equity suggests we – and our governments – should neither indulge ourselves excessively nor go without by comparison with our children and grandchildren. Right now we are failing that test, with government racking up debts for future generations of Australian taxpayers. Although this fact is occasionally outed, it is not at the forefront of public debate, for understandable reasons.

Debt bills bite in the long term, once our kids and grandkids start working and paying taxes; they aren't as large a problem for current workers. People who find it hard to look into the future will settle for unreliable strategies ("let's hope another mining boom turns up") or the implausible hope that self-disciplined governments will accrue only "good debt" to fund productive infrastructure.

Ignoring the problem, however, is a mistake. It is not just the prospect of future debt to be paid off. Australia's level of public sector debt is already directly affecting young Australians for two reasons: increased risk and lost opportunities.

Government debt increases the risk we face in the event of another global financial crisis. While not the most likely scenario, neither is another GFC improbable. Household and corporate debt in the US, the People's Republic of China and much of Europe are at worrying levels. All have instances of overheated property markets in some of their major cities. An unexpected shock to markets – conflict in North Korea, collapse of a large multinational bank, an uncontrolled pandemic – could readily precipitate another crisis.

If this happens it will disproportionately harm Australia's young people. We know from experience that countries with high public sector debt suffer more than low debt countries in a GFC, and young people suffer the most. Youth unemployment in many European countries soared following the last GFC and remained high, reaching more than 50 per cent in Spain and Greece.

Young people well understand the link between their future financial stability and that of their government. As 2011 study Young people in an economic downturn showed, young people bear the brunt of the decline in full-time work during recessions. In the event of a financial crisis, young Australians know a government laden with debt will have less capacity to support the economy and jobs.

Debt harms the prospects of young Australians in another even more direct way: it crowds out new initiatives. Public debt interest is the "first call" on the budget – that is, paid before any other item of spending. This has always been the practice in Australian budgeting, for the obvious reason that governments have to pay their debts on time if they want to retain positive credit ratings and be attractive for lenders.

The Commonwealth budget is bedevilled by the problem of "lock-in": commitments to social security, forward Defence contracts, health spending and payments to the states consume more than 80 per cent of the budget before ministers even sit down to consider the coming year. Discretionary funding for new initiatives, for innovative new programs to generate productivity or social benefit, is already limited. The growth in public debt interest makes this worse, and severely limits the scope for exciting new programs. If debt continues to grow, budget decision making will be even more reduced to symbolic gestures, shuffling monies from one spending bucket to another.

Yet without innovation young people face an even less attractive future. Future governments will have less to spend and will need to tax more to service this debt. This knowledge is affecting the way young Australians view their futures. The Deloitte 2017 Millennial Survey shows only about 8 per cent of "millennials" (born between 1980 and 2000) believe they will be financially better off than their parents – compared to an average of 36 per cent in the developed world. Young Australians want vision and inspiration from governments, but debt curtails governments' capacity to meet those expectations.

Our political parties – certainly both the Treasurer and his Opposition counterpart – know this. The challenge facing them is to come up with a politically saleable package to address debt. This, of necessity, will need to tackle both the tax system and spending programs, and do so without making life harder for the young people whose futures we are trying to protect.

That requires political courage and a preparedness to take the long view.

Stephen Bartos, is the CEO of the Australian Research Alliance for Children and Youth (ARACY) and a former Deputy Secretary of the Federal Finance Department