Is Australia’s Luck Running Out?

Photo by Jamie Davies

Describing Australia as “the lucky country” has long been a metaphor for how “well” Australia has been doing economically. Unfortunately, for many Australians, things haven’t been going “well” for quite some time. Australia’s past prosperity had precious little to do with luck.

Years ago, many analysts saw Australia’s luck as a product of its abundant natural resources. But a number of countries around the world have found themselves endowed with plentiful resources yet remained in dire economic straits. Australia’s past wellbeing rested almost entirely on the quality of its political, economic and social institutions, not luck.

“Good” institutions enable greater prosperity. More importantly, these institutions enable the equitable sharing of this prosperity. Defective institutions, in contrast, feed extreme inequality and the monopolies and abuses of power that inequality fosters.

In most capitalist countries, the political struggles of the Great Depression years fostered the institutions of more equal societies and the greater prosperity and wellbeing these institutions encouraged. But since the 1970s powerful elites around the world have weakened these institutions. Australia has been no exception to this trend. Its institutions have deteriorated over recent decades, letting everyday Australians down and leaving the country more unequal.

During this time, unbridled capitalism has made it more difficult for people to get jobs and keep them. And even people with full-time jobs —  and those who work full-time hours via more than one part-time job — have become progressively worse off. Australians today have witnessed the emergence of a “working poor.”

Australia’s increasingly deficient institutions have produced a poverty rate higher than the OECD average, a significant decline in real wages relative to labor productivity, and high rates of unemployment and underemployment. Meanwhile, at Australia’s economic summit, we see ever higher concentrations of income and wealth and considerable reductions in taxes on high incomes.

None of this should come as a surprise. The quality of our institutions primarily determines our economic and social wellbeing. Institutions that encourage excessive inequality will, over time, reduce prosperity for all. “Trickle down” does not work.

Nations with tax systems robust enough to underwrite quality institutions and fair enough to win widespread public support enjoy greater economic and social wellbeing. Australia’s current tax system advances neither of these criteria. Australia’s extremely complicated — and open to abuse — tax system needs an extensive overhaul.