In last month's Informant, Mikayla Novak outlined her perspective on Australian government debt. This article is an extended response to hers, though I should point out that Novak is far from alone in her views.

Australia has enormous problems with inequality, chronic poverty, underprivilege and unemployment, to name a few challenges. By contrast, we are unaware of anyone who has been hurt by a government security. Government securities are the main manifestation of government debt and people willingly buy Australian government securities in their billions. No one is ever forced to buy a government security.

The title of the Novak article was "Public debt is a serious problem now, not later" and, as one goes through it, there seems to be remarkably little to back up the various propositions it advances. So it is important to put the counter-argument.

Novak's first sentence includes the proposition that "public sector debt is presently unsustainable". Possibly in some circles one can get away with such an assertion. But if something is unsustainable it cannot persist, so one is left wondering in what sense she thinks it cannot persist. BHP Billiton's last annual report showed it has total debt of $60 billion and has been in debt for much of its 130-year existence. Is that also unsustainable?

We should not forget that the present pattern of debt is really just the accumulated government deficits (plus or minus any minor valuation effects). The latter were higher than they might otherwise have been because the Rudd government reacted to the global financial crisis with stimulus spending and, given the subsequent economic underperformance, governments since have not wanted to pursue too much austerity. Hockey has made it clear that a serious debt reduction strategy now would undermine the fragile economy. We had a fairly clear choice: more unemployment or more government debt/deficits. Novak possibly thinks more unemployment is better or she subscribes to pre-Keynesian thinking about the economy – a sort of fiscal policy denialist position. A possible alternative is that, like the present government, she thinks all government activity is bad and anything that undermines its legitimacy should be supported no matter what the evidence may say. Hence, a mindless "debt is bad" slogan is supported because it implies action to limit government activities that people otherwise support.

But let's consider the merits of the "debt is bad" argument.

At any one time in Australia, there is a mountain of debt issued by households, businesses and, yes, governments. The latter are a modest part of the total. All these debts are eagerly held by other companies, individuals, superannuation funds, insurance companies and so on. When they hold them, we call them "financial assets". Perhaps a lot of us never stop to think that the financial assets we hold are the debts of someone else. We should also point out that former treasurer Peter Costello had the chance to reduce debt to zero but the market insisted that the government needed to maintain some outstanding government securities because they serve important functions in the marketplace, being the only risk-free financial asset denominated in Australian dollars.

There is a view echoed by Novak that debt imposes a burden on future generations. A strange thing is that we rarely hear a generation complain about the imposition of earlier generations. Nothing of the sort was heard when, in the early postwar years, Australians had a debt burden of over 100 per cent of GDP.

But consider this: if, in 20 years, there is still outstanding government debt (despite Tony Abbott and Joe Hockey's best intentions) someone will hold that debt as a financial asset. If the liability is a bad thing for someone then it will be a good thing for whoever holds the asset. Debt must be serviced. So, yes, there will be government spending in the form of interest payments to the holders of the debt. But if those interest payments are "bad", the interest receipts must be "good" and they will net each other out. Indeed, irrespective of what we do now, there will be a pattern of interest payments and receipts going from households to households, to banks, to government, to the corporate sector, to other businesses and so on, and back in the other directions.

Those people 20 years hence might not like the pattern of payments and receipts and, if so, it is up to them to do something about it themselves. But government interest payments will be just one of the payments some might not like. There are others, such as the payments consumers make to mortgagors, monopoly rip-offs to supermarkets and other corporate predators, franchisees to franchisors and so on.

Some of Novak's article seems to suggest that the government's debt will need to be repaid. This is commonly heard. But, just as BHP Billiton has shown, there is no reason to repay debt – it can simply be rolled over as it matures. There is a ready market in Australian debt.

After all these considerations, there is another point to make: Novak mentions Greek debt. We rarely ask why Greece's experience is dramatically different to many other high-debt economies. However, the answer is rather simple. Greece does not issue its own money and there is no fiscal mechanism to support the eurozone's failing regions. On the other hand, Japan, with similar debt ratios, can issue government bonds that are willingly taken up at zero interest rates. There is no question but that Japan will honour government bonds issued in yen. Between the wars, Australia was much like Greece in that it had no independent central bank and its monetary system basically depended on a balance of payments surplus to bring in pounds sterling to back Australian banknotes. However, part of the Commonwealth Bank evolved into a central banking role. That later became the Reserve Bank of Australia. An independent central bank in Australia was able to free Australia from the constraints of a sterling-backed monetary system and there is now no doubt that Australia will honour its debt in Australian dollars.

So what about sustainability? Sustainable is often used deliberately as a vague concept but, if it is to mean anything, then it must mean the opposite of something that cannot persist indefinitely. A bit of elementary school maths shows that if the deficit is a certain percentage of GDP and GDP is growing at a certain rate, then the ratio of the two will be the debt to GDP ratio towards which we are headed. In that sense and within reason, most deficits are sustainable and imply a stable debt to GDP ratio. It may or may not necessarily be society's preferred outcome, but it is sustainable.

While it is important to answer the panic of those with debt fetishes, it is also important to think of all this a bit more widely.

French economist Professor Thomas Piketty reminds us that it is the rich who tend to pay disproportionately more of the taxes and they also accumulate disproportionately more of the financial assets. So, as Piketty puts it, governments can finance their spending either by borrowing from the rich or taxing them more. The Australia Institute has also discussed the need to, among other things, properly tax capital gains, resist calls for company tax cuts, and stop the unsustainable subsidies going to high-income earners' super accounts. These are unsustainable in the sense that they are growing at twice the growth of the economy as a whole.

In the meantime, we can rest assured that no one is going to be hurt by government debt and we should not lose any sleep over it.

David Richardson is a senior research fellow at The Australia Institute. david@tai.org.au