Australia’s challenge

This is because prosperity ultimately depends on the behaviour of people. To embed incentives for education, innovation, and endeavour, people need confidence in the institutions that govern them, and the belief that they can build a meaningful life, no matter the cards they are dealt.

Conversely, extractive societies – that natural or human resources to enrich a colonial power or a narrow segment of the community – do not thrive in the long run.

If we are to achieve a prosperous future in Australia, we have some pretty profound policy challenges to confront. More than ever, we need institutions that can devise and maintain rules that strike a good balance across the interests of the broad public, and maintain high levels of trust and confidence.

The world today is more unstable and less democratic. The needs of our ageing population are placing more pressure on working people, our health system, and our public finances. Productivity growth has slowed, and climate change is already upon us.

Perhaps most destabilising, people are increasingly getting their information from dispersed sources on social media that evade scrutiny of their claims.

We come to this period of history from a place of relative strength. Australia enjoyed a golden run in economic terms, built on social and economic reforms over the 1970s, ’80s and ’90s. The transformation of the Australian economy and society over the last quarter of the 20th century exemplifies the importance of institutions that support broad-based inclusion.

Our strong safety net across health, education, minimum wages and social security, and an approach that treats migrants as new Australians, not guest workers, has underpinned Australia’s move to dismantle protection, liberalise its economy and face the world.

Australians display higher trust in their public institutions compared with many other advanced economies.

But there has been a slow and steady decline in the proportion of Australians who trust the government. The recent COVID-19 inquiry confirmed a decline in trust after the pandemic.

And if we break down trust in government by age, we see that younger Australians have much less confidence that it can be trusted to do the right thing.

The lost decade on climate action and the lack of bipartisan agreement on the path forward play an obvious role. Young Australians resoundingly believe this is a priority the government must take seriously, despite the objections of vested interests.

There is also an economic dimension to the trust story.

The disparity in wealth between older and younger Australians has escalated over recent decades. Older Australians have had a steep rise in wealth through a mix of restrictions on housing supply in well-located areas and favourable tax treatment.

Since the pandemic, this wealth inequality has played out in very concrete ways, creating parallel economic realities. Those buffered by wealth have continued to spend despite the Reserve Bank’s efforts to cool the economy, while younger Australians have had to cut back harder and longer than they otherwise would have needed to.

Yet our tax and transfer system heavily favours older Australians. Households with identical incomes face markedly different tax bills depending on their age.

The institutional economists will tell us this is not the path we want to be on.

It is in the interest of everyone that younger generations experience a system of government that works fairly, even if it is not perfect. We need young people to believe, with good reason, that we have an economic system whereby the decks aren’t stacked against them.

We cannot take for granted their acceptance of our economic institutions in their current design – especially if those institutions are seen to be working not for the long-term benefits of all but rather for the short-term interests of a few.

Having a voice

A key factor that influences people’s trust in government is having a say in decisions.

Yet, the perspectives of Australians under the age of 40 are woefully underrepresented in our positions of power. Australia is one of the worst performers in the OECD in terms of under-representation of under-40s in the national parliament.

Declining trust in our institutions is not a story of economic resentment fuelling self-interest.

Rather, it’s a wake-up call – if we will hear it – to remind us that our institutions need to serve the public interest over the long term, and to warn us not to give in to the zero-sum politics of division and anger.

Older Australians must get on board this shared mission. Having benefitted from Australia’s golden run, they are in the best position to set us up for an equally prosperous future.