Our slowing and deformed economy. Blame it on the commissars of Canberra.

Dimitri Burshtein I 2 November 2024 I Spectator Australia

At a recent gathering of European leaders, Italian Prime Minister Giorgia Meloni noted that over the past 35 years, Europe’s share of world GDP declined from 26.5 to 16.1 per cent despite the number of member states increasing from 12 to 27. Over this same period, China’s share of world GDP increased from 1.8 per cent to 18 per cent with the US’s share holding at 26 per cent.

Offering an explanation, Meloni pithily commented that Europe’s economic atrophy was because ‘America innovates, China replicates, Europe regulates’.

Perhaps if Meloni had studied modern Australian economic history, she might have added that Australia seeks to replicate Europe’s passions for regulation but with a special antipodean cocktail of high-income taxes, excessive regulation and anti-business posturing. It is after all modern Australia where a business can’t make too much profit lest it be accused of gouging but at the same time needs to pay ever more tax because otherwise it would be accused of not paying its fair share.

Future case studies will be written about how Australia squandered its prosperity through a coordinated governmental assault on the productive capacity of this nation.

This assault was not started by the Albanese government but was greatly accelerated through its pursuit of poorly thought-out policies which have increased the cost of capital and energy at the same time as decreasing the productivity of labour.

It is not remarkable that Australia is experiencing inflation, a per-capita recession and social discord. It is remarkable that the government seems surprised.

At a recent Business Council of Australia dinner, Prime Minister Anthony Albanese adamantly claimed that his government was ‘pro-business and pro-worker’, all while his government’s policies were causing business contractions and job losses. But to the extent that the Albanese government is ‘pro-business and pro-worker’, it is only in service of the greater goal to extract more taxation to feed the insatiable government spending leviathan.

The economic problems faced by Australia are not because the government is or isn’t pro-worker or pro-business. The economic problems faced by Australia are because the government is anti-market.

Australia’s economic prosperity came not from commissars in Canberra selecting businesses or business sectors to support but rather because conditions were created for the most innovative and productive businesses to thrive and succeed.

Over the past two decades instead, successive Australian governments, Labor and Coalition, have consistently drifted away from pro-market policies toward ever more aggressive government interventions. Interventions that may have delivered short-term political success but at the expense of a slowing and deformed economy.

The damage from the Albanese government’s industrial relations reforms only adds to a long list of productivity-damaging policies, such as Scott Morrison’s ‘they don’t like you’ tax on big banks and the bipartisan cascade of increasingly harmful energy market central plans and interventions.

But when it comes to designing and planning an economic armageddon, there are no better experts than the Australian Greens.? Although they are not a party of government, the Greens political party seems to have concluded that it would take too long to socialise the means of production so better to achieve the same outcomes through a rapid expansion of taxes and regulations.

The Green’s ‘Robin Hood tax’ proposal to charge 40 per cent on the ‘excessive profits of big corporations to fund significant cost of living support’ would be particularly destructive, especially as many Greens representatives believe that any profit is excessive.

Meanwhile, as the political theatrics continue, the data shows Australia’s economic downslide.

Over the last 20 years, Commonwealth government spending has grown from 24 per cent of GDP to 26.4 per cent equating to an extra annual $70 billion in real terms. Gross Commonwealth debt has ballooned from $55 billion to $940 billion and is projected to crack $1 trillion next year. The RBA’s balance sheet has expanded from $130 billion to $430 billion having earlier peaked at $650 billion.

Total direct public sector employment is currently over 2.5 million out of a total workforce of 14.5 million. This does not count those who are employed because of government, such as the members of the regulatory compliance industrial complex or the lanyard class of lobbyists and consultants to government.? The volumes of publicly funded ‘care workers’ are also not counted.

Per capita government spending has also surged by 39 per cent in real terms, from $13,000 to $19,000 while per capita government revenue has risen by 26 per cent in real terms, from $14,000 to $18,000.

At the same time as Australia has experienced an extended per-capita recession, per-capita government spending has been rising rapidly.

Although Australia is in desperate need of productivity-enhancing economic reform, it is in greater need of a change of governing philosophy. From the big government and interventionist philosophy that has been proven to lead to misery and poverty everywhere it has been tried to a pro-market philosophy which has similarly been proven to lead to prosperity and tranquility, including previously in Australia.

Australia’s economic deterioration should perhaps not surprise given that Commonwealth Treasury now seems more focused on economic distribution rather than economic growth.

For bureaucrats who have never created wealth, it is much simpler to redistribute wealth.

Treasury’s advice to the government regarding changes to the Stage 3 tax cuts, which raised taxes on middle-to-high income earners to finance a tax cut for lower-income earners, heavily emphasised distribution but made no mention of economic growth, productivity or efficiency.

Treasury Secretary Steven Kennedy has even praised bracket creep, widely regarded as one of the most harmful and intergenerationally unfair means of generating tax revenue. And the government’s new large balance superannuation tax, possibly based on Treasury advice, will take what is a simple and efficient flat tax and turn it into a complex and progressive system subject to its own form of bracket creep.

This year marks 80 years since the publication of Friederich Hayek’s masterpiece The Road to Serfdom. In this book, Hayek reflected on the consequences of misguided government policies and concluded that, ‘We will not become wiser until we recognise that much of what we’ve done has been quite foolish.’

Given Australia’s downward economic trajectory, the time to acknowledge and reverse misguided government policies is now.

Author: Dimitri Burshtein