Australia is being warned that years of delayed economic reform are creating a growing fiscal challenge as an ageing population, expensive housing and rising government spending place increasing pressure on future budgets.
Federal government spending on health, aged care, defence and the National Disability Insurance Scheme is expected to rise substantially over coming decades.
At the same time, younger Australians are carrying increasingly large housing costs while the tax system remains heavily reliant on personal income tax.
Economists argue that without significant reform, governments will eventually face a difficult choice between higher taxes, reduced services or larger budget deficits.
Intergenerational pressure builds
Housing is central to the problem.
Younger households are spending larger portions of income on mortgages and rents while many older Australians have accumulated substantial wealth through property.
Australia’s population is also ageing, meaning a smaller proportion of working-age taxpayers will ultimately need to support larger health and pension costs.
Productivity growth could ease some of that pressure by lifting incomes and government revenue, but productivity performance has remained weak for much of the past decade.
The longer reforms are delayed, the more difficult they may become politically.
Changes to housing taxation, superannuation, pensions, income tax and government spending all create winners and losers.
That helps explain why governments have often preferred incremental changes over major restructuring.
But the underlying numbers are becoming increasingly difficult to ignore.
Australia still has lower government debt than many advanced economies, giving policymakers more room than some peers.
The risk is that this advantage gradually disappears if structural spending continues rising without corresponding reforms to revenue and productivity.
