Another year, another disappointing revelation about Australia’s stagnating economic competitiveness, resilience

Depending on who you ask, the Australian economy can be described as “steady and sturdy”, defined by an underlying “position of relative strength”, for others, particularly young Australians, simply put, the economy as it has developed since the 1980’s, doesn’t work.

Yet, despite this, hasn’t Australia enjoyed a record setting, three-decade period of recession-free economic growth and prosperity? How could this be the case?

Well, in perhaps an unsurprising twist of events, Australia, like much of the rest of the world, was buoyed by the voracious demands of the world’s emerging superpower, the People’s Republic of China, thanks in large part to the period of economic liberalisation and reform initiated by Deng Xiaoping in the late-1970s.

This period of economic reform was precipitated by a broader push towards geopolitical “normalisation” launched by the reopening of Communist China by Australian Prime Minister Gough Whitlam in 1971, and then US President Richard Nixon in 1972 as a means of counterbalancing the Soviet Union.

The economic incentives which characterised China’s period of “Boluan Fanzheng” or “Eliminating Chaos and Returning to Normal” rapidly hollowed out many national industrial bases and by extension, national economic diversity.

In the Australian context we have seen the transformation, although some would strongly argue devolution of the national economy from a diverse, manufacturing focused, “industrialised” economy to a mining, resources, services and agriculture-dominated economy, with an ever-declining level of complexity.

The Australian public in large parts have increasingly recognised the inherent vulnerability that now characterises the national economy, with this uncomfortable reality only reinforced in recent years with the Russian invasion of Ukraine and increased Chinese antagonism towards Taiwan.

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This has only been reinforced by Beijing’s period of open and seemingly unrestricted period of trade warfare against Australia during the height of COVID-19, serving to shatter the illusion of a rules-based order at home and abroad.

While Australia is not alone in confronting this new reality, our history of over-dependence on both a small section of the economy to provide prosperity and stability, coupled with our over-dependence on a single market, spells major trouble for the average Australian and our national security.

Highlighting this, Dr Kevin You, Senior Research Fellow at the Melbourne-based Institute of Public Affairs in a parliamentary research brief titled, “Australia’s economic competitiveness in continuing to decline”, articulates the declining competitiveness and its impacts on our long-term national security.

Economic freefall

Setting the scene for just how far we have fallen, Dr You looks backward to go forward as the old saying goes, stating, “Australia’s success in the pool and on the track at the Sydney 2000 Olympics was only surpassed by our rapidly growing economy, which was the envy of the world.

“During this period, our economy was fuelled by the hard-won gains of economic reforms including tax cuts, deregulation and policies to support small business. Together these delivered a boom time,” Dr You explains.

However, now the wheels have fallen off Australia’s economic dream, with the Albanese government’s own Intergenerational Report 2023: Australia’s future to 2063, detailing some of the major headwinds coming our way, namely: “Major forces will shape the economy in coming years, including population ageing; rising demand for care and support services; climate change and the net zero transformation; technology and digital adaptation; and geopolitical risk and fragmentation.”

Unpacking these impacts, Dr You states, “our economy has plummeted in key economic measures compared with the rest of the world. Analysis of key indicators, as measured by the Institute for Management Development, reveals Australia’s economic competitiveness ranking has plummeted 15 places from first in 2004”.

Further unpacking the startling decline in our national economic competitiveness, Dr You’s report states, “Australia has seen a significant drop in its World Competitiveness Ranking since the 2000s. In 2004, Australia was ranked the fourth-most competitive economy in the world, behind only the US, Singapore and Canada.

“Australia is now ranked 19th overall. Over the last 20 years, the rankings of several other advanced economies have also worsened. But Australia’s decline from 4th to 19th has been more severe than the decline of comparable nations.”

Yet despite this, Treasurer Jim Chalmers, at a press conference on 6 September, told reporters, “The Australian economy remains steady and sturdy in the face of unrelenting pressure. Economic growth held up relatively well despite the inevitable toll of higher interest rates, high but moderating inflation and continuing global uncertainty, particularly as it relates to China. We know that there are challenges ahead but we face them from a position of relative strength.”

However, over the immediate term, it is clear this “position of relative strength” is readily overstated, as the national economy is significantly exposed to relationship, demand, and whims of our major trading partner and major strategic threat, the People’s Republic of China.

This is something Dr You further expands on stating, “Australia was once a global standout for its low government debt, ranking eighth out of 64 nations, but today we are ranked 47th. This is because government debt is growing faster than the economy and, with rising interest rates, debt servicing costs are rapidly rising. In fact, interest payments on government debt are the single fastest growing item of government expenditure.

“On energy, again Australia used to be a powerhouse, boasting among the lowest electricity prices in the world. Now we are ranked 52nd, the result of a failing transition to net zero emissions. On tax and red tape, Australian policymakers are engaging in economic self-harm. We are one of the highest taxed people in the developed world.

“On corporate tax and personal income tax we are ranked 56th and 57th of 64. And on the key metric of ‘bureaucracy not hindering economic activity’ Australia has plunged 14 places since our peak in 2004. This means there are more bureaucrats, permits, forms and red tape getting in the way of businesses which want to invest and employ Australians in secure jobs,” Dr You explains.

This combination of factors, ultimately has a dramatic and lasting impact on the economic competitiveness, vibrancy and diversity of Australia, with equally devastating impacts on the average Australian.

Dr You explains this, stating, “This is a huge problem for our nation. An economy which is becoming less competitive means we, as a nation, are less able to produce wealth-generating goods and services and the things we do produce cost you more.

“Worryingly, at the same time as our production capacity is shrinking, the government is forging ahead with a record, unplanned migration intake. Last year saw the largest ever annual intake in our nation’s history. The intake is set to rise to a record 1.5 million arrivals between now and 2028.

“The Reserve Bank of Australia has noted rapid and unplanned growth in population will be inflationary and is one reason why interest rates are rising and are likely to continue to do so. If our leaders lack the courage to put the national interest first and deliver policies that set us up for real economic growth, Australia risks another decade of declining household incomes, unsustainable housing costs and sharply rising utilities and grocery bill,” Dr You further details.

A mixed bag of growing weakness and declining strengths

Where successive governments of both persuasion have repeatedly told Australians a variation of Treasurer Jim Chalmers’ 6 September comments about the national economy being characterised by resilience and a “position of relative strength”, the reality seems to be further from the truth.

Even more concerning is that in areas of our “traditional strength” particularly in our resources, services, and agriculture sectors, the key driving forces of the national economy, weakness now is the norm.

Dr You’s report articulates this, stating, “Despite the overall decline, Australia has demonstrated strength and resilience in a number of important criteria. Australia ranks first in the world in terms-of-trade, namely the ratio between the prices of exports and the prices of imports. Australia has consistently topped the ranking for this criterion over the course of the last five years.”

Going further, Dr You states, “Australia’s exemplary terms-of-trade ranking is attributable to the strength and resilience of our resources and agricultural sectors ... Over the last decade, Australia’s has consistently ranked in the top 10 world-wide for agricultural productivity, and is ranked fourth in 2023. But overregulation of farmers and graziers puts productivity in the sector further at risk.”

At the same time, the government, in Treasurer Jim Chalmers, continues to stress the major achievement that is our otherwise sluggish economic growth and performance in the year to June, which saw our gross domestic product drop from 2.3 per cent annually in March to 2.1 per cent, this is coupled with a fall in productivity by 3.6 per cent, according to data from the Australian Bureau of Statistics.

This reflects the very real reality identified in the government’s intergenerational report which states, “The Australian economy, like other advanced economies, is projected to grow at a slower pace over the next 40 years than in the past 40 years. Real GDP is projected to grow at an average annual pace of 2.2 per cent – 0.9 percentage points lower than the average of the past.”

Yet despite this, we see declining wealth per capita, declining living standards for the average Australian, as the powers that be seek to paper over the very real and glaring structural weaknesses and vulnerabilities in the Australian economy as it has been shaped over the last three decades.

Ultimately, Australia and Australians face these two, concurrent, yet interconnected challenges which stand as the greatest challenges of our age, so which way Australia? Do we want to be competitive, consequential and thriving, or do we want to be “steady and sturdy” in our managed decline?

Final thoughts

Australians are going to be asked to accept a number of uncomfortable realities in coming years. First and foremost, we will have to accept that while the world is increasingly becoming “multipolar”, the Indo-Pacific, in particular, is rapidly becoming the most hotly contested region in the world.

This has been underpinned by the emerging economic, political, and strategic might of powers like China, India, Pakistan, Thailand, Vietnam, and the established and re-emerging capability of both South Korea and Japan, in particular, are serving to create a hotbed of competition on our doorstep.

Second, both the Australian public and our policymakers will have to accept that without a period of considered effort, investment and reform, or as I like to colloquially refer to it, our rocky montage moment, current and future generations of Australians will be increasingly impoverished, living in a nation pushed around by the region’s now rising powers.

Recognising this array of challenges and opportunities, both the Australian public and its policymakers need to look beyond the myopic lens of short-termism that has traditionally dominated our diplomatic, strategic, and economic policy making since Federation.

Ultimately, we need to see Australia begin to play the long game to fully capitalise on the opportunities transforming the Indo-Pacific.

The most important question now becomes, when will we see a more detailed analysis and response to the challenges and opportunities facing Australia and when will we see both a narrative and strategy that better helps industry and the Australian public understand the challenges faced and opportunities we have presented before us?

As events continue to unfold throughout the region and China continues to throw its economic, political, and strategic weight around, can Australia afford to remain a secondary power, or does it need to embrace a larger, more independent role in an era of increasing great power competition?