Maintaining a strong economy
Over the past decade Australia has performed very well against the measures of income, wealth, human development and employment. This strong performance is based on a set of sound policies, institutions and investments that have enabled Australia to make better use of its resources.
The strength of the economic performance, and the Australian Government’s sound fiscal position, present a unique opportunity to implement a cohesive policy agenda that will underpin strong economic growth now and over the decades to come.
Just as the decisions of the past have created our prospects today, so too, the decisions made today and into the future will influence our long term prosperity and opportunity.
Those decisions will be taken against the background of population ageing, rising health and aged care costs, and threats to the quality of the natural environment that will challenge the sustainability of our recent impressive performance. Policy improvements implemented now can help to soften the downside risks of the future.
Realistic changes to rates of fertility and immigration would have little discernible impact on the rate at which the population is projected to age over the next half century. Therefore maintaining the per capita growth rates to which Australia has become accustomed will require ongoing improvements in productivity growth and labour force participation.
Strong, sustainable economic growth is needed to generate the public and private wealth to meet growing demands, not only to support the growing proportion of elderly people in the community, but also to fund increased expenditure on health care which will be driven not just by ageing but by technological improvements as well. Without strong, sustainable economic growth Australia would eventually be forced to adopt new or higher taxes to meet recurrent demands. High taxes and debt repayments would, in turn, act as a drag on economic growth.
The discussion in Building on a strong foundation focuses on the public and private decisions, and other domestic and international factors, that have produced the strong economic performance of the past decade or so. Policy has focused on improving the efficiency of the private sector and establishing a stable medium-term macroeconomic framework through a series of coordinated and complementary reforms. In combination, those policies have helped Australians benefit from favourable domestic and international influences and overcome adverse economic shocks such as global slowdowns.
The subsequent sections examine those policy reforms that, in light of the ageing population, are most likely to contribute to increased future prosperity. Such reforms could underpin productivity growth and increase levels of participation in both the paid and voluntary workforce.
As Being more productive discusses, that will require:
- further and ongoing improvement to infrastructure investment decisions;
- increasing competition through continued reform of domestic labour and product markets and enhanced international engagement;
- improving the cost-effectiveness of government;
- avoiding unnecessary regulatory complexity; and
- taking better account of costs and benefits in decision-making, particularly in making sound decisions on the use and maintenance of the natural environment.
With the ageing of the population it will be important that more Australians be given the opportunity of Improving participation and sharing Australia’s prosperity through policies that support participation in the labour force and society more generally. They include strengthening the capacity to participate through improved education and health, improving the balance of incentives to shift from welfare-to-work to avoid cycles of dependency, and enhancing the flexibility of working arrangements. Decisions to participate in paid or unpaid employment, and tradeoffs between work and leisure, are inherently personal ones. However, government policies can and do influence those choices.
Australia does not face the public debt problems of many countries. However, we will face stark choices in the future if we do not act pre-emptively to address emerging fiscal pressures from an ageing population. This requires Maintaining a disciplined approach to fiscal policy, including new strategies that take a broader view of the Australian Government’s balance sheet and address future pressures on the tax base.