Imagine lending money to a sibling, confident they'll repay you once they settle into a job. But when the time comes, despite having the cash, they always have an excuse. Eventually, you stop lending. This simple analogy, from economist Adam Triggs, frames a growing concern for Australia's economic future.
A Perfect Storm for Reform, Wasted
Australian governments at the federal, state, and territory levels are currently in an enviable position to tackle their unsustainable debt and deficit problems. High inflation provides ideal economic conditions for budget repair, while politically, many governing parties hold strong parliamentary majorities against weakened and divided oppositions.
Yet, despite this rare alignment of favourable circumstances, meaningful tax and spending reform is not happening. Governments are doing the bare minimum or nothing at all. As Triggs argues, this inaction is failing the easiest economic test they will face.
The Looming Market Reckoning
The danger lies in global financial markets reassessing their assumptions. Markets have been lending to Australian governments on the belief that, when conditions allowed, they would act responsibly to fix their budgets. That belief is now being tested.
While Australia is not at risk of a Greek-style debt crisis—it borrows in its own currency, and the Reserve Bank could step in—the absence of crisis does not mean the absence of cost. If markets lose faith, they will demand higher interest rates on government debt.
The interest rate on Australian 10-year government bonds has already risen by 20 per cent since the start of November 2025, outpacing similar moves in the United States. While likely driven by inflation expectations, it shows how quickly sentiment can shift.
Why Inaction Now Will Cost Every Australian
Higher government borrowing costs have a direct trickle-down effect. They lead to a larger interest bill for taxpayers, forcing even more debt, less spending, or higher taxes. Crucially, they also push up interest rates across the economy, as financial markets use government debt as a benchmark.
The result would be a weaker economy for all Australians:
- Reduced investment by businesses
- Lower consumption by households
- Increased mortgage and loan repayments
The political calculus for inaction may be clear: why give a fractured opposition a unifying cause? But economically, it creates a paradox where reform is avoided in both good times and bad.
Australia's saving grace may be that much of the world is also grappling with debt. However, as Triggs warns, being "not as bad as the others" is not a strategy that inspires long-term confidence. With majorities in hand and economic conditions ripe, the question for Australia's leaders is stark: if not now, when?
