Every Australian would be more than $70,000 wealthier by 2025 and the nation would rise to a ranking of third richest in the developed world – but only if important reforms to the economy were made now – according to new research by the Business Council of Australia.
Releasing the research report on the eve of the first majority Senate in 20 years, the BCA has urged all political parties to work constructively to achieve the changes needed to lock in prosperity for all Australians in the long term.
The report Locking in or Losing Prosperity: Australia’s Choice demonstrates that economic reform has had a major positive impact on the lives and opportunities for average Australians over the past 20 years.
It also shows the extent to which average Australians and the community would be better off over the next 20 years, if further reforms were started now to maintain a strong economy for the long term.
“The research aims to demonstrate conclusively that when reforms are made and the economy grows strongly, the vast majority of Australians directly benefit – through more jobs, higher wages and increased prosperity,” BCA President, Mr Hugh Morgan, said.
“The research demonstrates the reverse is true – if reform stops and we allow the economy to stand still or be overtaken by our competitors, everyone loses.”
The research, carried out on behalf of the BCA by economic modellers Access Economics, found that if reforms were made that allowed Australia’s economy to grow at 4 per cent per annum during the next 20 years (the average rate which it has grown a year over the last decade), the results would be:
- Every Australian would be $74,000 better off in today’s dollars by 2025.
- This is on top of the $83,000 in increased wealth that has flowed to the average Australian as a direct result of economic reforms since 1983.
- The economy would be 40 per cent bigger than it would otherwise be.
- Australia would be the 3rd most prosperous nation in the world.
- The federal government would have more than $80 billion in extra revenue – enough to fund Australia’s new spending needs to meet the demands of an ageing population, or alternatively, taxes could be cut by 30 per cent.
- Without workplace reform undertaken since 1983, unemployment in Australia would have been 8.1 per cent compared to 5.8 per cent in 2003–04. This put an extra 315,000 people in jobs as a result of these reforms.
The report also says that unless future reforms are carried out to keep the economy strong and competitive, Australia could slip to 18th in the league ladder of developed countries, the same place it occupied in 1983 when Australia’s economy was at an historic low.
Mr Morgan said the difference between a prosperous future for Australians and one where living standards fell relative to other countries depended on whether Australia decided to pursue either a strong, or low-growth future.
The Access Economics analysis defines strong economic growth as 4 per cent year.
The definition of low growth is based on the government’s own projections that the economy will slow down, and grow by an average of just 2.4 per cent per annum over the next 20 years.
Importantly, the research showed that closing the gap between 2.4 and 4 per cent would not require a program of radical reform.
Rather, locking in prosperity for the long term would require an extension of reforms in areas such as workplace relations, tax, infrastructure, business regulation and immigration that Australia had put in place over the past 20 years.
“We need to start these changes now, because there are a growing number of signs that the performance of Australia’s economy is slipping and we are heading for trouble,” Mr Morgan said
“Our productivity has declined, household debt is fuelling growth in an unsustainable way and business regulation is strangling innovation and diverting a huge amount of productive resources into red tape compliance.
“But a low-growth future and its consequences are not inevitable.
“Our recent prosperity has come about as the result of making deliberate choices about the sort of Australia we wanted and having the courage to make reforms that stood us in good stead.
Mr Morgan said Australia now faced a similar choice to that which it faced in the 1980s.
“We urge our policy and political leaders to use this window of opportunity to opt for a future of prosperity and strong growth, rather than a future of decline,” he said.