Australia is sleepwalking into decline – and the warning signs are now impossible to ignore: Peter van Onselen
OECD Secretary-General and former Australian finance minister Mathias Cormann has warned that Australia is slipping into "slow relative decline," as productivity growth stalls and successive governments fail to pursue the economic reforms that once drove national prosperity. Commentator Peter van Onselen argues this matters because relative decline is easy to miss: headline GDP figures can keep rising, propped up by population growth, even as individual living standards stagnate and ordinary Australians face rising costs, stagnant wages, higher taxes and worsening public services.
The article traces the problem back to the reform era of the 1980s and 1990s, when Bob Hawke, Paul Keating and John Howard floated the dollar, cut tariffs, opened the banking sector, introduced the GST and modernised industrial relations, driving nearly three decades free of recession. It contends that once the China-driven mining boom began flooding the country with money, political will for further reform evaporated, with governments spending rather than reforming. Cormann's figures show labour productivity growth averaging just 0.66 per cent annually over the past five years, now at the OECD average, and estimates that restoring earlier competitive intensity could lift GDP by up to three per cent.
- Cormann warns Australia faces "slow relative decline" amid weak productivity
- Reform momentum from the 1980s-90s has stalled since the mining boom
- Productivity growth has slipped to just 0.66% annually over five years
New here? Start with this
Australia's economy has been under scrutiny after Mathias Cormann, head of the OECD and a former Australian finance minister, warned that the country risks falling into gradual relative decline compared with other developed nations. The concern centres on productivity, essentially how efficiently the economy turns work into output, which has grown only slowly in recent years even as the population and overall GDP figures have kept climbing.
The comparison being drawn is with the reform period of the 1980s and 1990s, when governments led by Bob Hawke, Paul Keating and John Howard made major changes to how the Australian economy worked, including floating the currency, cutting trade barriers, opening up banking and overhauling workplace rules. These changes are widely credited with helping Australia avoid recession for close to three decades, and are being used as a benchmark against which today's economic performance is being measured.
The reason this matters to ordinary readers is that rising national income figures can mask a decline in individual living standards, particularly when wages stagnate, costs rise and public services come under pressure. The debate touches on why momentum for economic reform slowed after the resources boom driven by demand from China, and what, if anything, might be done to address slowing productivity growth going forward.
Both sides, in good faith
The strongest fair case each way — we don't pick a winner.
The case for
Advocates of the reform argument point to hard data: labour productivity growth has slumped to just 0.66 per cent annually, dragging Australia down to the OECD average after decades of outperformance, while GDP figures masked by population growth conceal stagnant or falling living standards per person. They argue that without renewed structural reform akin to the Hawke-Keating-Howard era – tax simplification, deregulation, competition policy and industrial relations modernisation – Australia risks locking in permanently lower productivity, higher costs and worse public services, and that political caution or complacency born of mining-boom riches has left the economy under-prepared for a more competitive world.
The case against
Sceptics of the decline narrative argue that comparing today's mature, diversified economy to the exceptional circumstances of the 1980s and 1990s – when Australia was starting from a heavily protected, over-regulated base – risks overstating how much low-hanging reform fruit remains. They contend that productivity statistics are volatile and affected by factors like the pandemic, energy transition investment and a shift toward services, that GDP and living standards are still comparatively strong by international measures, and that pursuing rapid deregulation or industrial relations changes could undermine wages, job security and social protections without any guaranteed productivity payoff, making caution and targeted, evidence-based reform more prudent than a sweeping return to 1980s-style shock therapy.