The following is the Executive summary of the OECD assessment and recommendations, taken from the Economic Survey of Australia 2006 published on 31 July 2006.
Sometimes referred to as the “lucky” country, Australia has been riding the global boom in commodities, benefiting increasingly from its proximity to Asia. But Australia “has also made its own luck” through a series of structural reforms and the introduction of a robust macroeconomic framework which have bolstered resilience. This is illustrated by its macroeconomic stability in the face of a string of recent shocks, in stark contrast to the macroeconomic chaos which followed the commodities boom of the early 1970s. A further test of this new resilience will occur at some point when the terms of trade decline – this underlines the need to continue prudent macroeconomic policies.
Reforms have also boosted productivity, with living standards steadily catching up with the best performing countries since the early 1990s. The long-term challenge is to sustain this performance, particularly in the face of population ageing, which will require progress on a number of fronts:
Improving fiscal relations across levels of government. Many public services are funded jointly by the central government and the states. Clarifying roles and responsibilities would raise public sector efficiency. Particularly in the areas of hospital services and old-age care, fragmentation in decision making leads to cost and blame-shifting. Addressing these problems has been placed on the agenda.
Boosting productivity growth. Following a surge in the second half of the 1990s, productivity growth has reverted to its long-run average. Infrastructure bottlenecks have held back export growth in some cases. More importantly, there is still further business in the reform of network industries and inefficient use of water remains a major concern. The slow pace in overcoming market segmentation and instilling greater competition in these sectors is partly due to the joint responsibilities of the federal government and the states, although, the Council of Australian Governments has recently agreed to a National Reform Agenda that aims to re-invigorate and broaden the reform process. In this context, improving workforce skills will also be important.
Raising labour market flexibility and supply. The recent industrial relations reform is a further move away from a system that had been highly prescriptive. Room for further simplification remains, which would allow greater scope for bargaining over workplace conditions. In addition, labour supply can be raised further, particularly from lone parents, second earners, disability beneficiaries and those aged over 55. The recent tightening in eligibility requirements for welfare benefits goes in the right direction, but should also be applied to the stock of all beneficiaries. A priority for future tax cuts should be to reduce “low wage traps”.
Australia has a strong track-record in pushing ahead with sensible reforms. Further reform is needed to underpin vigorous growth and sustainable prosperity in the face of population ageing.
How to obtain this publication
The Policy Brief (pdf format) can be downloaded. It contains the OECD assessment and recommendations, but not all of the charts included on the above pages.
The complete edition of the Economic Survey of Australia 2006 is available from:
For further information please contat the Australia Desk at the OECD Economics Department at firstname.lastname@example.org. The OECD Secretariat's report was prepared by David Turner and Vivian Koutsogeorgopolou under the supervision of Peter Hoeller.