Adolf Wagner, a 19th-century German economist, was not known for delivering inspiring speeches. Nevertheless, he offered a powerful insight: as countries become wealthier, their governments tend to expand significantly. Wagner’s Law proposes that with increasing prosperity, citizens expect their governments not only to fulfil basic needs but also to resolve everything from minor inconveniences to personal issues. In essence, there is a learned belief that almost nothing that governments are perceived as incapable of addressing.

In 2025, Wagner’s observation fits particularly well with Australia, where affection for government intervention seems stronger, and increasingly so, than in almost any other country. This inclination may stem from Australia’s historical prosperity; during the 19th century, it had the highest per capita income in the world and, in the 20th and 21st centuries, amongst the highest.

While Wagner drafted his ideas in the stately halls of Imperial Germany, their modern-day application is projected across Australia’s federal budget. Spending on social security and welfare is forecast to balloon from $274.9 billion in 2024-25 to a staggering $323.6 billion by 2028-29, a 17.7 per cent increase in just five years. That is not just outpacing inflation. It is outpacing Australia’s almost-zero economic growth many times over. And that is before you even glance at the welfare spending of states, territories and local councils.

Of course, budget forecasts in Australia are nowadays not so much economic predictions as they are political bedtime stories, crafted to soothe voters into believing all is well while the fiscal foundations quietly erode. This year’s budget, delivered in May 2025, is no exception.

Australians were asked to believe that NDIS spending will slow to seven per cent annual growth, that unemployment benefits spending will not rise much despite record immigration and a slowing economy, and best of all, that the cost of delivering these growing welfare programs will fall by 19 per cent.

You read that right. While the welfare state inflates like an overblown balloon, Canberra insists its own waistline is shrinking. Apparently, Treasury has discovered the mythical art of doing more with less, something no previous government in recorded history has managed.

Wagner assumed that as income rises, so too does spending. But leave it to Australia to break the model. Australia’s per capita income and disposable income are falling, and yet spending is still heading for orbit.

And let us not forget the backdrop: a worsening productivity crisis that even the Productivity Commission now describes as ‘dire’. GDP growth is limping. Private investment is disappearing. Real reform is missing in action, last seen somewhere around the Hawke-Keating era. Australia is pouring billions more into welfare while barely lifting defence spending in a geopolitical climate starting to look disturbingly like the late-1930s as war approached with Japan.

Here is the truth. Every dollar pumped into Australia’s overcooked transfer system is a dollar stripped from the productive economy. Money that could drive innovation and investment or, at the very least, fill a few more potholes. Instead, our public sector increasingly resembles a high-tech redistribution engine, with its smartest minds busy administering and exploiting a giant wealth distribution machine instead of building a better nation.

Yes, a compassionate society must support its vulnerable. But Australia’s budget now looks more like a fiscal laundromat where money goes in and comes back out, minus the large Canberra commission. Want proof?

Millionaires on the NDIS. Families earning half a million still getting childcare subsidies. Retirees lounging in waterfront mansions claiming pensions and concession cards like they are a birthright. This is not social policy. It is state-sponsored absurdity designed to lock even the rich into dependence on government.

Then there is the incentive problem. With welfare galloping ever upward, the difference between working and not working narrows disturbingly. Factor in brutal taper rates and punitive tax thresholds, and we have somehow built a system that penalises aspiration. Why climb the ladder when the safety net below is more like a plush hammock.

Add in the ‘ratchet effect’ where once benefits are introduced, they are politically impossible to unwind. In Australia, this is not a theory. Propose touching the NDIS and you are heartless. Suggest welfare reform and are ‘attacking the vulnerable’. Even whisper ‘means-testing’ and the social worker-ocracy mobilise like it is a national emergency.

This is not compassion. It is carefully designed political strategy at work. And the worst part is that higher taxes, redistributed right back to the affluent, make everyone feel dependent on government. It is not just bad economics. It is a strategic play to turn the upper and middle classes into vassals of the state.

The outcome is paralysis. Reform is a dirty word. All we get are glossy discussion papers, circular consultations and announcements of future announcements. Meanwhile, welfare spending surges and the productive economy slouches toward irrelevance.

It is time Australians were reminded of a fundamental truth that the role of government is not to redistribute wealth but rather to enable wealth creation. That means fostering entrepreneurship, rewarding work and investing in growth. Instead, Canberra has become the national ATM with a broken ‘decline’ button.

Wagner’s Law is not destiny. But avoiding it takes courage, something in pitifully short supply in both our parliament and bureaucracy. Welfare must be aligned with productivity with tight eligibility criteria. Every program should be subject to a brutal cost-benefit audit. There should be time limits, performance reviews and a rediscovery of that forgotten concept of accountability.

And yes, let us say it clearly: means-testing must come back. When nearly half the budget is welfare, universality stops being generous and starts being ridiculous. Bring in co-payments. Tighten eligibility. Stop sending taxpayer dollars to people who do not need them, to justify taking it from them in the first place.

Australia has long passed the fiscal fork in the road. We did not just take the wrong turn, we floored it, blindfolded, with the GPS switched off. We now live in a country where economic growth is assumed rather than earned, and where the only bipartisan policy is ‘spend more on everything’.

If our leaders continue treating every welfare dollar as sacred and every recipient group as untouchable, we will end up with a country rich in redistribution but poor in everything else.

And no, Wagner’s ghost will not save us. He is too busy laughing.