Why is it that in many countries, including Australia, governments consistently spend more than they collect in taxes, thus increasing the national debt? 

Most governments understand that budgets should be balanced. They have seen what happens in countries that accumulate too much debt and cannot service it. And yet, the debt keeps growing. 

The explanation is rather uncomfortable for many of us. It is, broadly speaking, our own fault. We keep electing governments that reflect our thinking.

There was a time when we largely provided for ourselves. Prior to 1909, for example, there was no age pension; everyone was expected to save for their retirement, directly or via a mutual society. 

The reality of socialism is universal poverty, but the illusion of unlimited, universal care remains powerful.

Similarly, prior to 1910 there was no disability support pension. Privately funded charities and philanthropic organisations provided assistance for the disabled. 

It was the same with health care; Medibank, the precursor to Medicare, did not exist until 1976. 

University fees were a private cost until 1974. There were many scholarships on offer but those who failed to obtain one and whose family was unable to pay the fees would often delay or forego tertiary studies. 

For women returning to work, childcare was typically provided by families, friends and neighbours, or by community organisations such as churches. Government subsidised childcare only began in 2000. 

Most people would probably be disinclined to wind back the clock. And yet, most people also believe that they already pay too much tax and do not wish to pay more. And therein lies the problem. 

In the five years in which I was a senator, I wrote hundreds of articles for newspapers and magazines. The subject on which I received the most hostile feedback was the suggestion that eligibility for pensions should take into account all assets, including the family home. It was inequitable, I argued, that the taxes of those who could not even afford to buy a home were funding the pensions of those living in multi-million-dollar houses. 

I lost count of the number of people who claimed they were entitled to a pension because they had paid taxes during their working life. Many also argued that age pensions were justified because there were parliamentary pensions (although these were abolished in 2004). 

It made me realise that Australians want to have their cake and to eat it too. That is, they want the government to pay for all sorts of services, but do not associate this with taxes. Money from the government is somehow different.  

We keep electing governments that reflect our thinking.

The outcome is that governments implement generous schemes such as the NDIS, age and disability pensions, Medicare, childcare subsidies and HECS, generally to public acclaim, without mentioning where the money is to come from. There are far more votes in spending money than collecting it. 

This presents a problem for libertarians, who advocate low taxes and small government. How can they persuade Australians that the hugely expensive government-run schemes they consider to be a right are either not necessary or could be replaced by something that is cheaper and more effective, if approached differently. 

This same problem is now facing Argentina’s new president, Javier Milei. Although Argentinians elected him with his libertarian agenda, he did not receive a majority of votes and his party does not have a majority in parliament. Argentinians, like Australians, have been told for decades that the government will provide. Like most Australians, most are yet to accept that their expectations are unrealistic. 

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Unless voters can be persuaded that there is no such thing as free government money, and that personal responsibility yields better results at lower cost, there is little chance governments will implement policies based on that. Even in Argentina, which has defaulted on its national debt no less than eight times, the appetite for economic reality is low. Milei will require the wisdom of Solomon to implement his policies. 

We must hope that he succeeds. The reality of socialism is universal poverty, but the illusion of unlimited, universal care remains powerful. 

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3 COMMENTS

  1. I fully agree with the points articulated in your article, however, just as an infant will never eat steak so you will never convince ordinary Australians to go full libertarian straight off the bat.

    No, instead Australians must be introduced to this unfamiliar food gradually and gently – no child willingly gives up their safety blanket!

    The first step should be a significant increase in the tax free threshold, combined with the amount that welfare recipients can earn before having their payments cut.

  2. Those who spend the money should bear the responsibility of raising it!
    Tax revenue has continued to move away from the states and towards the Feds creating a vertical fiscal imbalance. Australia has the highest level of VFI of any federal country in the world. The Federal government raises most of the revenue – much more than is required to fund its own operations – while the states don’t raise anywhere near enough to fund theirs. The Feds then make up the states’ shortfall through Commonwealth grants.
    This creates a perpetual blame game. Failures at the state level are blamed on the Feds’ lack of funding, and failures at the federal level are blamed on the states’ poor service delivery.
    I repeat, those who spend the money should raise the money! That would be a good place to start addressing the problem David raises here.