Spooked by the government’s efforts to shore up the economy during the greatest economic crisis in over a century, Australia’s politicians and the media are warning we are setting up the next generation to be crippled by today’s debt.
But is this true? What happened the last time Australian governments incurred high debts?
In 1946, Australian government debt reached 140% of GDP after six years of war. As a 2009 Treasury paper, ‘A History of Public Debt in Australia’ describes.
“Gross Australian Government debt increased from around 40 per cent of GDP in 1939 to around 120 per cent of GDP in 1945.“
“Australian Government debt was progressively reduced after the Second World War and largely eliminated by the beginning of the 1970s.“
After the first round of government support packages during the current crisis, Australia’s net debt is expected to hit 26% by June this year.
Today’s debt level will get substantially higher as unemployment continues to soar, government revenues collapse and industries line up for support packages. It’s likely Australia’s government debt will exceed 1946’s in the near future.
So, given we’re facing levels of government debt not seen since the end of World War II, what happened to the generation ‘shackled’ by those deficits?
We now call them the ‘Baby Boomers’ and, as a group, they did pretty well despite those debts.
source: CEIC Data
Source: Australia’s century since Federation at a glance, Australian Treasury 2019
As economist John Quiggan writes in The Conversation, following World War II, governments were determined to avoid the mistakes made after the Great War which resulted in years of depression and unemployment.
Many of those post-war policies, based on direct government intervention and designed to ensure full employment, were abandoned by governments around the world, including Australia’s, from the 1980s.
Looking at the graph of Australia’s GDP growth, it’s striking how economic growth slowed from the end of the 1980s to the anaemic levels of the post-GFC years.
So there are lessons from the periods of high debt after the two world wars, that the choice to inflict austerity upon a generation is a political decision.
We have to make it clear to today’s political leaders that crippling a generation to pay down today’s debt is not acceptable. When the crisis passes, rebuilding the economy can – and should – including improving our children’s standard of living.
Out of today’s dire crisis, we have the opportunity to build a better economy and society. We have no reason to shackle the next generation as we repay our debts.