Is Australia still the economic wonder down under?

Australia continues to gain international recognition for its exemplary economic performance and to be highlighted as a case study in successful economic reform.

Readers of London-based newspaper, The Economist, would have seen a feature article in the latest issue titled ‘The wonder down under’. And last month, Australia was invited to make a presentation on its experience with economic reform to a high level workshop at the IMF/World Bank annual meetings.

These are just the latest in a long stream of accolades. There is no doubt Australia has a success story to tell the rest of the world, but the story is wearing thin and it seems odd that the plaudits are continuing to flow when so much is going wrong here — and other international comparisons show our economic freedom ranking on the slide in recent years.

A glance at the table of economic and financial indicators at the back of The Economist shows Australia leading the pack of advanced countries in GDP growth, and this has been the case for many years. However, our population growth is also leading the pack, and in per capita terms our growth rate is now unexceptional.

GDP is also an overarching indicator that conceals as much as it reveals. For example: household consumption spending is robust, but how long can this continue on the back of a falling saving rate and world-beating household debt levels? Meanwhile, business investment is weak.

The reality is that Australia’s performance looks good in the rear view mirror, but there are good reasons to be concerned about the road ahead. The economic reform effort petered out years ago and is now going from reform drought to damaging policies. The Economist gives little or no space to the energy policy fiasco, threat of an antediluvian industrial relations system, or prospect of damaging tax policies. The pathetic state of federalism doesn’t rate a mention.

It is for these kinds of reasons that Australia’s relative economic performance is at risk of decline and we may become a lesson to other countries in what not to do. The Economist recognises there are problems, but almost as an afterthought to the main theme. The last sentence of the feature article warns that “If politicians do not sort themselves out, Australia risks becoming as troubled as everywhere else.”

How true — and that is the message we need to absorb, not that we are still the ‘wonder down under’. The more people hear of the latter, the longer the sense of complacency continues and the more Australians take prosperity for granted.