Young Debtors

Government spending is no silver bullet. The money our youth are demanding from the government will add to the national debt they’ll be paying off for the rest of their lives. By Will Jefferies.

This week New South Wales Young Labor released an advertisement in an attempt to attract young Australians to their movement and cause.

The video lamented how ‘entering adulthood isn’t easy… as a young woman… when the whole system is already set up against you’. It scorned Prime Minister Scott Morrison for ‘cutting JobKeeper in September’ and argued that young Australians ‘are being bled dry.’

Disillusionment is an understandable sentiment given the disproportionate economic impact experienced by young Australians during the COVID-19 lockdown. But the students in the Young Labor video appear to be unable to see the consequences of forcing all their problems on the government.

Government spending is no silver bullet. In fact, it is quite the opposite. The money they demand from the government when times get tough will add to the national debt they’ll be paying off for the rest of their lives.

A shocking report released last month by PWC entitled ‘Where’s Next for the Australian Tax System’ most potently outlines this very point.

It estimates that the Commonwealth’s budget will not be in balance until 2039 – a far cry from the 2019/20 budget surplus predicted in the government’s 2019/20 Mid-Year Economic and Fiscal Outlook released in December.

As a result, the government will be unable to generate the surpluses needed to pay down the new debt accumulated during the COVID-19 lockdown – a situation that PWC suggests will push back the forecast for reaching net zero debt by almost 20 years.

Instead of reaching net zero debt by 2029/30 as predicted by the government in December, PWC estimates that now net zero debt will not be achieved until 2056/57 – meaning that an 18-year-old who has entered the workforce this year cannot expect to see a budget surplus until he is 37 years old, and will not experience an economy with net zero debt until he is 55.

PWC’s findings align with those of ANZ Senior Economist Cherelle Murphy who told The Australian this week that the federal budget will be more than $100bn into the red in 2019/20, and as much as $230bn into the red in 2020/21 – representing what she describes as ‘easily the biggest deficits we have seen since WW2.’

Murphy also commented on debt stating that net debt will rise to 31% of GDP by next year while the amount of government debt on issue will reach $880bn.

To use the words of Young Labor, this situation represents ‘an uphill battle’ that young Australians will be fighting ‘for the rest of our lives’ – and it is not just about debt.

With tax concessions for superannuation withdrawal, refundable franking credits and the Seniors and Pensioners Tax Offset, the share of households over 65 paying tax have almost halved over the past two decades according to PWC. In fact, older Australians now pay on average about half as much income tax as younger households on the same income.

At the same time, around 60% of those Australians under 35 rent and those who are homeowners are paying record prices via multi-decade mortgages that would be financially unviable without the expansionary monetary policy imposed upon Australia by the Reserve Bank since 2011.

With young Australians facing a situation where they have large debts, few assets and savings, and a tax burden set to increase significantly over the next few decades, the question therefore remains: what should young people do about all of this?

The solution is most certainly not to demand more money from the government. For that money will come at the cost of future consumption and investment when our youth will be in the peaks of their careers.

The solution is also not to indulge in the temptations of identity politics by blaming everything on the ‘boomer generation’ and demanding indiscriminate transfers of wealth via the discretion of our government bureaucracies.

The solution is for young people to understand that the majority of Australia’s wealth is derived from small business. And for young Australians to have the best shot at starting small businesses, they must push for their government to reduce the significant regulatory hoops business owners are forced to jump through to get started.

Young Australians must understand that Australia’s commitment to high wages means that the competitiveness of our manufacturing sector is fundamentally leveraged to the cost of electricity – a cost that has increased by more than 225% since 2000.

Young Australians must push for new infrastructure to support our agricultural sector. More specifically, Australia needs new dams to facilitate the irrigation of our land. After all, Australia is, to use the words of Dorothea Mackellar, a ‘land of droughts and flooding rains.’ A renewed focus on capturing the flooding rains to offset the impact of drought is desperately needed to ensure we can continue to feed ourselves and much of Asia.

Young Australians need to ask why their country is a net importer of processed fruit and vegetables. Why not process our fruit and vegetables in Australia? The same goes for seafood. Why is Australia - the world’s largest island nation – a net importer of seafood?

This is exactly what some are arguing in terms of Australia’s steel industry. Why export iron ore and coal to China for processing into steel which Australia then imports back for its construction industry? Why not value add our largest exports here?

Finally, young Australians must ask that the tax burden being imposed upon them is shared more equally amongst stakeholders in the economy. Instead of the debt being paid off by income tax and company taxes on small businesses, young Australians should ask their government to crack down on multinational corporations like Exxon Mobil and Chevron who paid no tax in Australia in 2014, 2015 and 2016, despite reporting billions of dollars in income from their operations on Australian soil.  

There are many solutions and many opportunities.

However, asking the government for more handouts is no solution. For all that will do is further undermine the ability of Australians to save and invest in this country through overbearing taxes down the line – a situation which will slowly smother to death the creativity, industriousness and passion of our best and brightest young minds.