Bludging off the kids

The 2014 budget debate has been like no other because there has been no genuine debate. From the outset Labor has refused to engage in economic dialogue, instead invoking faux outrage and playing the morality card to great effect.

But the truth is morality - namely, addressing gross unfairness dealt to younger Australians - is entirely on the government’s side.

Usually there is no drier debate than the budget. The national dailies run the obligatory "smokes, beers: up" but otherwise Australians are confronted by incomprehensible numbers, ideological banter between Keynesians and rationalists, and a host of experts interpreting economic gobbledygook. Soon even the economically literate switch off.

Not in 2014. Almost eight months on, deep and emotional divisions on the budget loom large in the community.

Sound economic management right now is harder than at any time in recent history. Labor left unprecedented deficits and government spending has been climbing fast. The terms of trade and credit booms - until now the golden geese for tax revenues - are in their final gasps. From here on, with China and India slowing, we will need to work hard for every dollar.

Yet Labor refuses to accept the need to tighten our belts.

Instead it has reframed the budget to focus on fairness and avoidance of harm - two powerful moral principles with strong appeal, reframing the nation’s desperately needed reforms into questions of right and wrong - with Labor simply asserting that the reforms are wrong.

This morality tale has played well. Talk of "cruel cuts hurting the poor" and "unfair reforms" get traction, regardless of the truth, because these claims pull the heartstrings, independent of the facts.

A large swathe of an increasingly polarised media is helping Labor to fuel its claims on morality - selling newspapers by appealing to the heart, not the head.

However, there is a far more powerful story to tell about the real victims of bad economic management: Australians aged under 50. This is a morality tale of epic proportions, exposed in a recent report from the Grattan Institute. Older Australians are wealthy and getting wealthier, while the young are going backwards.

For 20 years, house prices have been rising - driven by a combination of easy access to cheap mortgages, constrained housing supply and underinvestment in infrastructure to residential growth centres.

If you spent enough on a house early in this boom, mostly those over 50, you are sorted. Grattan tells us that, on average, your household is worth almost $1 million and your wealth has increased by about 20 per cent ($200,000) between 2003-04 and 2011-12. If you are younger, you probably missed out. You are worth half as much, or less, and your wealth has barely increased. You can get into the housing market only by giving a huge windfall to older Australians and taking on a mortgage of unprecedented size.

The result, terrifyingly, is that we have close to the highest household debt (mortgages and credit cards) in the OECD, which includes many of the world’s basket cases.

No wonder home ownership is falling sharply for younger Australians and they are nervous about the future.

Younger Australians are also the victims of our inflexible industrial relations system. The Fair Work Commission focuses on protecting older Australians. Youth unemployment is high and rising, with few realistic options or incentives for employers to take on younger workers given their lower productivity and high imposed wages and conditions.

To add to this, our welfare and health systems are providing enormous benefits to older Australians at the expense of young families.

Grattan estimates that older Australians (aged 65 or older) receive more than $30,000 a year in government transfers, up a staggering 50 per cent since 2004. Those aged 25 to 55 pay all of these costs.

This might be acceptable if incomes were rising quickly, as they have in the past. But prospects for increasing real incomes are grim given the falling terms of trade and sluggish labour productivity.

To add growing government debt to this burden is, quite literally, stealing from young people - at a time when they are already being raided. Future debts - or the need to raise taxes at some point in the future - will cost young Australians far more than older Australians.

Grattan estimates that recent deficits have driven up future taxes by almost $40,000 for the average 25 to 35-year-old household, with limited impact on older Australians.

It is the government’s job to explain this diabolical problem, and the solutions.

We need to remedy the unfairness by eliminating government deficits, encouraging growth in the supply of houses through massive investments in transport infrastructure, better targeting health and welfare spending (which mostly goes to older Australians), and continuing to support income, productivity and jobs growth by opening up new markets and eliminating red tape.

Few older Australians would condone stealing from their children and would not expect their children to put up with it. Australians will accept tougher policies if it means our children will be better off.

We need to call Labor’s faux moral grandstanding for what it is, and explain to Australians the real morality tale of our time.