Originally published by Peter Costello of The Australian
24.02.2026
There’s a lot of talk in politics about fairness to various kinds of voters. But what about fairness to non-voters – those too young to vote and those yet to be born? We tried to embed this way of thinking with the Australian Charter of Budget Honesty, introduced in 1998. It requires the government, every five years, to produce an Intergenerational Report to assess long-term sustainability of policies over 40 years, including the implications of demographic change.
The annual budget tells us about the current year. The IGR should tell us about the effects of policy over the long term.
The very first IGR, released a generation ago in 2002, began as follows: “Commonwealth government finances are strong … commonwealth government net debt … has fallen … sound fiscal management has provided the platform for vigorous, lowinflationary growth, generating jobs and higher incomes for Australians.”
This was a pretty good starting point. We knew problems were coming. One was the declining birthrate. A declining birthrate means Australia is growing older.
Proportionately more people will be in retirement with less people of working age to support them and this puts pressure on public spending.
The first Intergenerational Report was a wake-up call. We didn’t want future generations to be saddled with higher tax and lower productivity. We had to cap our spending programs.
We set about building a strong financial position to insulate against suffocating tax rises.
There was an ambitious program to pay off sovereign debt and get the national government debtfree.
We established a sovereign fund – the Future Fund – to build savings. We went all out to enhance productivity.
For a while Australia was successful.
And then we lost direction.
Quite often people talk about the run-down of society. It is difficult to empirically measure it. But there is no dispute about the rundown of our sovereign economic capital. We can measure it. It is going south. Australia’s position is much worse than it was 20 years ago.
As well, our key economic indicators are declining. Productivity growth has slowed. Real wages are not growing; in fact, they are back at the levels they were more than a decade ago. Australians are paying more tax than ever. Takehome pay has declined.
In constant dollars, since 2007, tax per person has risen around 16 per cent – about 1 per cent per year – to $23,800. The government is softening us up for tax rises again.
Over the same time, in constant dollars, government spending per person has grown around 32 per cent – about 2 per cent per year since 2007. The difference between what government gets from tax and what it spends is growing. Both are rising but spending is growing faster.
To pay for this massive spending, the government is borrowing more than ever. Twenty years ago, we had no net debt. Today net debt is just under $20,000 per man, woman, child and baby.
The widest measure of what the government owes and what it owns is net worth. It includes its debt, it includes all the whiz-bang assets the government has spruiked in recent years, such as the NBN and Snowy 2.0. It includes the commonwealth’s only decent asset, the Future Fund. Despite all the fancy accounting, the government has not been able to hide one stark and sobering fact: the Australian government has no net worth.
It used to have net worth, but over the past 20 years government capital has run down $700bn. That is undisputed. This will particularly disadvantage the young.
It’s not just government finances that have gone south. So have living standards. You can see decline in many different indicators: real wages, take-home pay and, importantly, productivity. We used to lead the pack on productivity growth. Now we trail.
The US economy is growing around 4 per cent but inflation is contained because productivity is growing. Australia used to be able to do that. But with poor productivity inflation has broken out even though our economic growth is a paltry 2 per cent. Our economic speed limit is much lower these days.
That’s why interest rates went up three weeks ago. The spending binge is a big contributor.
Why did Australia slip over the last generation? Fixing deep-seated problems is likely to require patience and sustained effort. We live in an instantaneous on-demand world. Shortterm fixes are beguiling. Our leaders lost long-term focus. Government programs dramatically expanded. Much of it was haphazard, poorly designed and wasteful.
This expansion created new expectations and further demands.
We walked away from self-reliance as a public virtue. That has been a big change in the past 20 years. You can see from the runup in public spending that people are more reliant on government.
You can see from the run-up in tax that it is getting harder to be independent.
Self-reliance and independence are out because big government is in. It can take a long time for the results of an economic run-down to be fully felt, particularly if you start from a strong position.
But direction matters. You are either building better economic prospects or settling for worse. We settled for worse. Our prospects have declined.
This is the legacy we are leaving for the young. Our country is still better than most, but it could have been so much better still. To recover things, we need first to understand what happened. Then we need to take action to fix it. We did it a generation ago. We can do it again.
