Economic outlook finally identifies long-standing structural issues but glosses over national security impacts

Over the last three decades, Australia’s economy has undergone a remarkable transformation, evolving from a comparatively diversified and industrialised economy into a resources and services-driven export economy characterised by low levels of complexity.

The 1990s marked the beginning of a golden era of economic growth, spurred by significant microeconomic reforms and a booming global demand for commodities.

Throughout this period, policymakers played a pivotal role, instituting a series of major structural reforms that enhanced productivity and competitiveness; however, they also presided over the hollowing out of the nation’s industrial base in favour of an economy dominated by resources, energy, agriculture, services and housing speculation.

Landmark initiatives, such as the floating of the Australian dollar in the 1980s and the partial liberalisation of trade and financial markets laid the groundwork for sustained economic prosperity.

Meanwhile, the early-2000s saw the Australian economy benefiting immensely from China’s rapid industrialisation and urbanisation, which saw the resource-rich nation become a key supplier of iron ore, coal and other commodities, fuelling an unprecedented mining boom. This era of prosperity was complemented by prudent monetary policies implemented by the Reserve Bank of Australia (RBA) and robust fiscal management that allowed the country to weather global economic shocks, including the 2008 Global Financial Crisis, with surprising resilience.

However, as the mining boom waned in the mid-2010s, cracks began to emerge in the economic narrative of the “Lucky Country”. Structural issues such as stagnant wage growth, rising household debt, and housing affordability crises first reared their heads and began to take a toll on the broader resilience, competitiveness, complexity and diversity of the Australian economy.

This was further compounded by global and regional shifts in the economic landscape, with slower growth in major trading partners particularly in China and Beijing’s own efforts to diversify its supply chains, coupled with increased geopolitical uncertainties impacting trade and investment flows.

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In the last half-decade, these challenges have culminated in a period of economic slowdown and decline, further exacerbated by external shocks, including the COVID-19 pandemic, further economic exposure and ensuing vulnerabilities that have resulted in long-term structural issues across the Australian economy.

In response, Australia’s policymakers have taken a number of different responses, prompting increasing debate surrounding the effectiveness of measures such as low interest rates and fiscal stimulus in addressing systemic issues.

Increasingly, critics have argued that successive governments have been reactive rather than proactive, failing to implement long-term reforms to boost productivity and diversify the economy in the face of mounting geopolitical competition and uncertainty, leaving the national economy in a precarious position.

As Australia faces this critical juncture, the lessons of the past three decades underscore the importance of visionary policy making and structural adaptation in navigating future economic and increasingly interconnected geopolitical uncertainties.

But at the core of this immense juncture is the health, resilience and competitiveness of the national economy and its foundational role in broader national security, hinting at this is a recent analysis of the nation’s declining economic performance by The Australian Financial Review’s economics editor, John Kehoe, in a piece titled, Australia’s economic problems have been brewing for years.

We’re here because of repeated failures

For any Australian, the last 24 months, in particular, have been a litany of financial and economic hardships combining in the worst cost-of-living crisis since the 1970s, of which neither side of the political debate seems to have any real, substantive answers to confront and overcome.

Recognising this, Kehoe began his analysis by citing the recent decline in the nation’s gross domestic product growth, rapid collapse of productivity and per capita living standards, and finally the mounting burden of public and private debt, all of which have a major impact on the national economy.

He said, “Labour productivity has failed to improve since 2016; business investment is languishing close to 1990s recession levels; there has been no serious economic reform; undisciplined government spending is in vogue after too much stimulus during the pandemic; and the Reserve Bank of Australia has been forced to push up interest rates to grind household and business activity to a halt and bring inflation under control.

“As a result of all of this, economic growth slowed to just 0.8 per cent through the year to September, and in per-person terms the economy has been shrinking for almost two years after adjusting for population growth. It is the most prolonged downturn since the 1991 recession. A better measure of living standards – disposable income per person – is 10.5 per cent below its peak.”

This snapshot of the data ultimately paints a rather gloomy outlook for the immediate and, indeed, long-term economic future of the nation at both the macro and micro levels.

But we didn’t get here overnight, rather it has been the result of successive failures over decades, leaving the nation in a precarious position as the balance of global economic, political and strategic power continues to shift, particularly close to home.

Kehoe highlighted this reality, stating, “For years, serious economists have warned Australian economic policy was on the wrong track. Now it is coming home to roost.”

This is subsequently reinforced by Alex Sanchez, former economic adviser to Prime Minister Anthony Albanese, who, in speaking to Kehoe, added, “The sad thing as a country is that we’ve known about it, but done nothing to arrest it … It just seems to have gotten all too hard, which is not characteristic of our country’s nature.”

Importantly, Sanchez added, “I hold myself to account as well.”

This is an important moment of self-reflection from a former senior, personal adviser to the sitting prime minister; however, there needs to be broader recognition and acceptance among the policy-making community that business as usual will no longer suffice, nor will passing the buck or the blame.

Lucky Country’s luck runs out as ‘burnout economics’ takes hold

Recognising this, Kehoe highlighted the “business as usual” cycle, one that any Australian paying attention is by now well acquainted with, that of political buck-passing that is resulting in the nation increasingly experiencing the phenomenon of “burnout economics”.

Kehoe said, “Making matters worse, profligate spending by federal and state governments is now in direct conflict with the RBA’s efforts to tame inflation. Governments have their foot on the accelerator as the RBA keeps its foot firmly on the brake.”

The resulting devastation of this “burnout economics” is writ large for all to see and is serving to have a detrimental impact on the prosperity of the nation at both the macro and micro levels and is leaving many wondering, has the “Lucky Country’s" luck finally run out?

Yet despite this concern for many Australians, we see state, territory and the federal government continuing to spend up a storm, which has seen their combined spending nearly 30 per cent of the nation’s gross domestic product and putting the peddle to the metal on the national economy.

Detailing this, Kehoe said, “Total federal and state government spending in the September quarter was at a record 29 per cent of nominal GDP. Extraordinarily, it is the same level it reached during the peak of the pandemic lockdowns in mid-2020 when massive stimulus payments including JobKeeper were flowing.”

Even if not continued at this rate, this level of spending, for all intents and purposes, bakes in serious structural deficits across the nation, requiring a heavier tax burden on an already overtaxed population, which of course forms a feedback loop, placing increased downward pressure on the national economy.

Highlighting this is the recent report from McKinsey, titled Reviving the ‘golden goose’ of Australia Inc, which detailed that the nation is fast becoming an “economic problem child” and that while “Australia has coasted on the easy gains from the mining boom and high immigration. Labour productivity growth has been virtually zero since 2016 and has slumped to 30th out of 35 rich countries. McKinsey’s ‘national emergency’ warning is no exaggeration”.

Going further, the McKinsey report stressed once again the growth of public spending and its detrimental impact on the nation’s economic stability and prosperity, “Governments are pumping in more money to the non-market economy (such as the NDIS, aged care and public service), which is expanding at almost triple the pace of the private sector. While higher demand for social services seems inevitable as the country becomes richer and older, bigger government is indisputably weighing down productivity.”

This, as a consequence, leads to major impacts on the private sector economy, which underpins the national economy, which Kehoe highlighted, saying, “The key to getting private sector productivity firing is business investment, and it has been stuck around 1990s recession levels as a share of the economy for the past eight years under both Coalition and Labor governments.

“Less investment in new tools and equipment and a shallowing of the capital stock makes workers less productive. Business cannot afford to sustainably pay higher real wages unless worker output is rising. Or if employers are forced to lift nominal wages without a productivity offset, the cost pressures will inevitably be passed on to consumers through higher prices, contributing to inflation.”

But what does all this dry, seemingly boring economic talk have to do with Australia’s national security? Well, surprisingly, or perhaps unsurprisingly, a lot.

A strong economy is essential for national security

No doubt a lot of readers will be saying, “Well duh, of course we need a strong economy to have strong national security”, and that does go without saying.

This means we need to break free from our “luxury beliefs” and “luxury economics” which emphasises priorities like environmental, social and governance priorities, “ethical” investments and other “luxury beliefs” all encapsulated in the “End of History” theory of international relations, devoid of both historic context and reality in a rapidly deteriorating geopolitical situation.

As we have already established, in the aftermath of a confrontation between the United States and the People’s Republic of China, the Australian economy would be devastated, with core exports like iron ore, natural gas, coking coal and others stopped overnight (either by government mandate or as a result of shipping insurance companies refusing to cover ships travelling through “high-risk” areas).

Conversely, Australia’s imports of critical items like high-quality pharmaceuticals, fertilisers, plastics, microprocessors, high-technology components, consumer goods, refined oil and other energy forms, including battery, wind and solar generation technologies and materials would all be dramatically impacted, effectively taking Australia back to an almost entirely pre-industrial era.

This doesn’t account for the vast quantity of capital outflow that Australia would experience as a result of Chinese investors selling their Australian real estate holdings (both residential and commercial) as well as from institutional and individual investors from across both the region and the globe, seeking to limit their exposure to the world’s most “developed” banana republic.

The world’s devolution into and coalescing around a number of hubs competing for access to raw resources, industrial inputs, agricultural produce and consumer goods (albeit in a significantly reduced sense) doesn’t necessarily have to be a death sentence for Australia’s current standard of living and an expansion of our prosperity.

But if we continue on our current trajectory, it will become evidently clear, “luxury economics” will have been the primary driver behind Australia’s economic decimation.

So how do we set about to correct the course before Australia’s economic ship runs aground?

First and foremost, correcting the course begins with a commitment by both Australia’s policymakers and the Australian public to commit to becoming economically sovereign, secure, resilient and competitive both in the Indo-Pacific and the broader, multipolar world.

This will require a focus on building resilient and competitive Australian supply chains, a robust, motivated, competitive workforce and the foundational pillars across the economy that provide these capacities.

Next in line is the development of a truly reliable, cost-effective, long-term focused national energy market devoid of ideology but balancing our environmental ambitions by increasing and expanding the industrial base of the nation through access to cheap, long-term reliable baseload electricity supply.

Take from that what you will.

Following this, we will need to emphasise competitive tax rates (both individual and corporate) as opposed to direct incentives which will only serve to build unproductive, uncompetitive industries as was the case with Australia’s failed auto industry.

This approaches flies counter to the long-standing status quo of policy making in this country, particularly as it relates to industry policy which defers, in many cases, to the heavy hand of the state as opposed to the state simply providing the environment and then getting out of the way to let industry do what it does best.

Such reform is highlighted by Dimitri Burshtein, principal at Eminence Advisory, that Australia requires an intense period of economic reform in order to avoid, as he believes “Canberra [is] driving us down the long, slow road to economic ruin.”

Burshtein detailed the importance of considered, thorough economic reform, saying, “Modern economic history has repeatedly shown that competitive tax rates, limited regulation, and restrained government spending are preconditions for prosperity. Yet, based on the flawed logic that any problem can be resolved through a tax, subsidy, law, or regulation, governments have continued to throw sand into Australia’s economic engine. And when the engine starts to sputter, delivering inflation and a slowing economy, the electoral incentive is for even more sand to be thrown.”

This position has been extensively reinforced by Dr Kevin You, Senior Research Fellow at the Institute of Public Affairs, who said, “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.”

Final thoughts

For generations of Australians in the early to middle stages of their careers, at the time that they should be settling down and starting families, our system is unavoidably stacked against them.

Is it any wonder alternative methods of political engagement, policy making, and economics are attractive to people when they are promised the world for little to no effort?

At the same time, we have seen a corresponding rise of social, cultural dislocation and disconnection coupled with individual aimlessness and the resulting impact on personal identity and mental health among younger Australians.

By helping to provide a rallying call – creating a compelling narrative full of excitement, opportunity, and purpose – policymakers can help reverse the trend of stagnation and decline, allowing Australians to turn the tide and build a resilient and competitive nation for this era of renewed competition between autarchy and democracy.

Equally, we must be focused on expanding and enhancing the opportunities available to Australians while building critical economic resilience, and as a result, deterrence to economic coercion, should be the core focus of the government because only when our economy is strong can we ensure that we can deter aggression towards the nation or our interests.

If we are going to emerge as a prosperous, secure, and free nation in the new era of great power competition, it is clear we will need to break the shackles of short-termism and begin to think far more long term, to the benefit of current and future generations of Australians.

Get involved with the discussion and let us know your thoughts on Australia’s future role and position in the Indo-Pacific region and what you would like to see from Australia’s political leaders in terms of partisan and bipartisan agenda setting in the comments section below, or get in touch at This email address is being protected from spambots. You need JavaScript enabled to view it. or at This email address is being protected from spambots. You need JavaScript enabled to view it..