Mr Costello said there shouldn't be any surprises that Australians have increased their borrowings in a period of low interest rates. Credit:Andrew Meares But it, plus health and education, are even bigger when you remember how they dominate the states' budgets – a reminder that federal and state budgets need to be considered together, and that cutting federal grants to the states, and cost-shifting by the states back to the feds, aren't genuine solutions. Health cost surge Of three categories – welfare benefits, health and education – the intergenerational reports make it clear health will be by far the fastest growing. That's not so much because of ageing as because advances in medical technology are hugely expensive, and it's quite unrealistic to imagine that Australian voters will settle for anything less than gaining subsidised access to the latest and best technology ASAP.

Since this is the political reality, the problem (and much of the pressure on budgets) is easily solved. As Prime Minister John Howard avowed "Small Government" Credit:MARK GRAHAM Our politicians simply need to be brave and tell voters the truth: if they want ever more and better healthcare then, as with everything else, they'll have to pay more for it – in the form of, say, regular increases in the Medicare levy. That's the fundamental solution, but we could also do more to slow the rate of growth in healthcare spending by removing at least some of the waste and inefficiency that everyone in the system tells us exists. Illustration: Ron Tandberg

Education lessons Much could be done to make education spending more effective. Instead, however, since the national knockback of the 2014 federal budget, the government's done little but crack down on the previous year's crackdown on the welfare cheats the Liberal hard right has convinced itself are ripped off billions every year. Sorry, not nearly good enough. Nor is preaching the evils of tax increases while you wait for bracket creep to claw back the eight successive tax cuts we were awarded when Peter Costello thought the resources boom would run forever. If you think you can do better than the public system by making private arrangements, feel free. But don't expect other taxpayers to subsidise your efforts. The trouble with many professed supporters of Smaller Government is that they want to have their cake and eat it.

They want to reduce government spending so they can pay less tax, but they don't want to give up the middle-class welfare they enjoy – much of it awarded to them by the great man who didn't believe in smaller government, John Howard. Much of Howard's handouts to the comfortable came in the fifth big spending area, tax expenditures – which have the same cost to the budget as ordinary expenditures, but are hidden away on the tax side where they aren't noticed. Tax taking These include various new benefits for supposedly self-funded retirees, the private health insurance tax rebate, big increases in grants to non-government schools and Costello's unsustainably generous increase in superannuation tax concessions for high income earners. To be fair, Malcolm Turnbull has made a good start to cutting back the super concessions – over the vociferous opposition of his hard right backbench.

More must be done to cut back rapidly growing tax expenditures. But if we're genuine about achieving fiscal sustainability while restraining the rise in tax rates, we need to embrace a new principle to sit beside our heavily means-tested welfare system (which is the main reason Australia's overall level of taxation is so much lower than almost every other developed economy). The companion principle should be: we're no longer prepared to subsidise positional goods in the name of encouraging "choice". We'll put all our effort into providing a good public health system and a good public education system, and that's it. Of course, it's a free country and if you think you can do better than the public system by making private arrangements, feel free. But don't expect other taxpayers to subsidise your efforts to get better than they're getting. In any case, the easier you make it for punters to enjoy positional goods, the less positional you make them, cheating the better-off of their feeling of superiority.