Date posted: 10/11/2017 9 min read

Why Australia's prosperity has fallen in the past decade

Australia now ranks sixth in world prosperity rankings, down from second place in 2007. A new paper by CA ANZ analyses what this means for Australia’s future.

In Brief

  • Key concerns are a less open economy, waning trust in political institutions, lack of economic opportunity and environmental pressures.
  • Australia still ranks strongly for clean water and air, social capital, education and health, according to: The Quest for Prosperity: Shaping Australia’s Future
  • Australia has slipped in rankings for economic quality, business environment and natural environment.

By Garry Shilson-Josling

Australians have long patted themselves on the back for having the longest run of recession-free growth of all the developed economies, but a new paper suggests the self-congratulation is overdone and some humility might be in order.

The paper finds Australia has actually slumped to sixth place when ranked against developed economy peers, compared to second place in 2007. The Quest for Prosperity: Shaping Australia’s Future highlights four key challenges that need action if Australia is to deliver prosperity in the future. 

“In terms of the economy, Australia has declined because of trade barriers that have the potential to slow foreign direct investment and anti-monopoly policy that can inhibit domestic competition,” says Karen McWilliams, Ethics and Sustainability Leader at CA ANZ.

The paper recommends ways that government and business can work together to ensure prosperity for all. Some key recommendations are:  

  • Remove barriers to trade and strengthen trade agreements. Support innovation through funding and procurement.
  • Improve government transparency of decision-making. Ensure agencies are resourced to tackle corruption.
  • Ensure universal access to adequate early childhood education. Provide better support in schools for disadvantaged students. Build core skills into curriculums.
  • Fortify infrastructure against environmental change. Reduce resource use whilst still driving economic growth.

“Prosperity is much more than a financial measurement – it’s a vital indicator of a nation’s health in terms of the economy, society, industry and the environment,” says McWilliams. 

The paper, published by CA ANZ thought leadership division Future[inc] and partner the Legatum Institute, a London-based think-tank, clusters a wide range of indicators into nine “pillars” measuring different aspects of prosperity. The first Legatum Global Prosperity Index was published in 2007.

(Pictured: The nine pillars for analysing prosperity)

The nine pillars, which analyse prosperity across 34 countries, include: Economic Quality, Business Environment, Governance, Education, Health, Safety and Security, Personal Freedom, Social Capital and Natural Environment. They are distilled into a single measure, the Legatum Institute’s Prosperity Index. Australia has lost ground to other countries in all but one of the pillars. 

A less open economy

The first of the four challenges is the risk that Australia may be closing its doors to the benefits of international trade and competition within the domestic economy. The paper’s gauge of trade barriers shows Australia is down by five places at 22nd out of its 34 peers (the OECD plus Hong Kong and Singapore).  

The paper warns the overall direction of legislation is toward protectionism, in particular erecting non-trade barriers (NTBs).

“Since 2012, the number of trade facilitation changes have been vastly outweighed by the number of newly-introduced Technical Barriers to Trade (one type of NTB), with Australia making only one trade facilitation change made for every 209 new Technical Barriers to Trade,” the paper says. “Most countries have declined. It’s not unique to Australia, but Australia has actually declined more than most,” says McWilliams.

For anti-monopoly policy, Australia is down a dramatic 17 places, moving from third to 20th. The report says two bills currently before Parliament embodying  suggestions from the 2015 Harper Review of competition policy could improve domestic competition policy. But for the time being, Australia is stuck with its low ranking.  

For another two key measures, export quality and export diversity - Australia’s rank has slipped only slightly, but there’s a reason for that – it’s already near rock-bottom.

(Pictured: Australia's economic quality performance over the last decade compared to New Zealand, the UK and Singapore.)

“We are seeing a greater shift towards services in our domestic economy and we aren’t taking good advantage of those opportunities for exporting those services as well.” As a result, Australia’s ranking on the Economic Quality pillar has slipped from eight to 15.

We are seeing some trends now that indicate if we don’t deal with them soon, they could become an issue in the future for our prosperity
Karen McWilliams Ethics and Sustainability Leader at CA ANZ
 The second area of concern is decreasing trust in political institutions, resulting in Australia’s ranking on the Governance pillar at a lacklustre 13, three levels lower than in the Prosperity Index’s first year.

The new CA ANZ paper draws on the findings of the Edelman Trust Barometer, a 28-country survey by global PR firm Edelman. The report identifies frequent changes of leadership in the Gillard-Rudd and Abbott-Turnbull governments, as well as the dripping tap of expenses scandals, as catalysts for the erosion of trust.

“Generally people are a little bit unsure with the constant changes of leadership,” says McWilliams. Even so, the decline in trust cannot be pinned exclusively down to local issues. “It is something that you’re seeing globally and it’s not unique to Australia.” 

But whatever the cause, the erosion of trust cannot be ignored, she says. “We are seeing some trends now that indicate if we don’t deal with them soon, they could become an issue in the future for our prosperity.”

Lack of economic opportunity entrenches inequality

The third warning is that a lack of economic opportunity is resulting in inequality and preventing some Australians from sharing in the benefits of economic growth.

Despite rising two positions, Australia’s ranking for relative poverty – the proportion of the population living below the national poverty line is still only 26th. “While there has not been change in this variable, there is increased concern that the benefits of the economy are not being shared equitably,” the paper says.

In fact the Edelman barometer identifies this as a major reason for the global “implosion” in political trust. The failure of the economy to reward wage-earners is one issue.

In the past five years, hourly wage rates adjusted for inflation have fallen by 1.8 per cent, despite ongoing economic growth and rising productivity. Perhaps against this background, it should not be surprising that enthusiasm for the political process may be flagging.

McWilliams sees education, particularly early childhood education, as a remedy for economic disadvantage. “Education may not be the panacea to inequality, but it’s probably the closest thing,” she says.

The big problem is that investment in education takes many years to bear fruit. “And that’s one of the challenges with these programs - everyone wants results now.”  

Environmental pressures

The fourth warning relates to pressures that threaten Australia’s environment and, in turn, put a cloud over its economic growth prospects. Australia’s overall rank for the natural environment pillar has slipped by nine points to 14th.

Within that pillar, the good news is that Australia, thanks largely to its geography and low population density, has maintained its hold on the number one rank for both air pollution and clean water.

But failure to keep pace with its peers has pushed Australia from second to seventh spot for protection of marine areas, and down by six places to 32nd for protected land areas like national parks and reserves. Worsening outcomes for over-exploitation of fish stocks has also lowered Australia’s rank to 26, a 12-place slide.

“With 15 per cent of Australian fish stocks still being classified as either subject to overfishing or overfished in 2015, Australia has gone backwards since 2007,” the paper says.

A lack of progress on pesticide regulation has bumped Australia down by one place to second-last place at 33 – only one above the worst rank against its 34 peers. 

The environmental elephant in the room, climate change, poses challenges to research efforts like the Quest for Prosperity, that seek to compare nations.

“One, it’s a global issue because it’s a global environment and, two, certain nations are going to be very differently impacted compared to others,” says McWilliams. “And Australia is probably one of the countries that is probably going to be harder hit.” 

Report: Shaping Australia’s Future

CA ANZ paper outlines reasons for Australia’s fall in global prosperity rankings and why economy, trade and competition are major challenges.