National decline doesn’t always announce itself with boarded-up shops and panicked politicians holding emergency press conferences. Sometimes it just creeps up on you. That’s what’s happening to Australia right now.
In truth, it’s been years in the making, decades in fact. But we’ve reached a critical juncture.
For many, wages no longer cover mounting bills. Young people who work hard still fall further behind. Businesses, especially small businesses, are drowning in regulatory overreach, and families are paying higher and higher taxes for public services that somehow keep getting worse.
This is the uncomfortable message from OECD Secretary-General and former Australian finance minister Mathias Cormann.
He says Australia is slipping into ‘slow relative decline’ as productivity collapses and governments abandon the economic reforms that once made this country a global success story.
Relative decline means rival nations get richer and more competitive while we congratulate ourselves for standing still. The economy can keep growing on paper, pumped up by rapid population growth.
But individual living standards stagnate or even worsen. Politicians point triumphantly to headline GDP numbers, but life becomes harder for individuals.
It’s why more and more Australians listening to Albo or Jim Chalmers talk up the economy question what they hear. Australia has natural advantages, but we aren’t doing the things necessary to maximise what we’ve been blessed with.
Australian families are paying higher taxes for public services that keep getting worse
Labour productivity in Australia has grown by a miserable 0.66 per cent annually over the last five years
For much of the 20th century, governments protected industries behind high tariffs and centrally fixed wages, and competition was limited. Ordinary Australians paid for it through higher prices and fewer opportunities. By the early 1980s, we were sliding down the international wealth rankings, so something needed to change.
Bob Hawke and Paul Keating floated the dollar, cut tariffs, opened up the banks, and drove enterprise bargaining to modernise the industrial relations system.
John Howard delivered the GST, gave the Reserve Bank formal independence, and further opened up the industrial relations system.
These weren’t painless changes. They were driven by a basic understanding that you can’t protect Australians from an increasingly globalised world.
The consequences were profound. Productivity surged, investment flowed, and Australia enjoyed almost three recession-free decades, a feat that was virtually unique globally. Crucially, as Cormann points out, the mining boom didn’t render these reforms unnecessary. The reforms allowed us to capitalise on the boom.
But once Chinese demand for Australian resources started sending money pouring into the country, political courage evaporated.
Governments stopped reforming and started spending. Surging commodity prices, soaring property values, and mass migration concealed the rot that was already well underway.
We began living off the reform dividends of an earlier generation. It’s worth noting that this was happening, at least in part, while Cormann was sitting around the Cabinet table.
OECD Secretary General and former Aussie finance minister, Mathias Cormann has warned Australia is slipping into ‘slow relative decline’
He was finance minister to three Liberal prime ministers, and senate leader to two. So his assessment is at least partially self-loathing in its reflection, which adds to its value.
Labour productivity in Australia grew by a miserable 0.66 per cent annually over the last five years. We’re now down at the OECD average.
Cormann estimates that restoring our competitive intensity at the start of this millennium could lift GDP by up to three per cent. Only political cowardice prevents achieving that.
Productivity might sound like the bloodless jargon economists use, but it’s the only way wages rise without prices rising with them. It doesn’t necessarily mean forcing Australians to work harder. It ensures their efforts produce more, benefiting everyone.
Instead, Canberra’s answer to every problem seems to be another subsidy. Cormann calls it the ‘new protectionism’.
While Australia needs domestic capacity in strategic areas, when every industry declares itself strategically essential, government assistance devolves into a taxpayer-funded queue for handouts.
Politically connected companies hire lobbyists to secure grants. Governments hold press conferences to boast about ‘investments’. The successful applicants pocket the cash, while households pay through higher taxes, higher prices and more debt.
We are a mid sized trading nation, we can’t win a subsidy war against the US, China and Europe. Trying to do so with a stalled productivity agenda is a spectacularly expensive path to mediocrity.
Australia needs infrastructure and housing that keeps pace with population growth
Australia needs faster approvals and simpler taxes (pictured is Treasurer Jim Chalmers)
This isn’t exclusively Labor’s failure. As noted Cormann was himself part of the problem during his own political career in this country.
The Coalition talked up smaller government while presiding over more spending and regulation. Labor has accelerated the retreat, addicted to subsidies and centralised workplace rules.
Australia needs faster approvals, simpler taxes and industry assistance that’s transparent and temporary. It should also be rare.
We need infrastructure and housing that keeps pace with population growth, rather than using migration to artificially inflate the macro economy while per capita living standards often degenerate into a per capita recession.
Economic growth can’t be pitched as the enemy of social policy, it’s what pays for social policies! Without productivity growth, politics is just a zero-sum argument over how to divide a stagnant pie.
Cormann is right to sound the alarm. Australia’s decline, unless addressed soon, will be fully felt years from now by future generations we will have let down. Long after the political class most responsible for the failure will have retired to enjoy their taxpayer funded parliamentary pensions.
