Australia’s economic performance has been mixed compared to OECD peers. The labour market has proved resilient to a surge in immigration-driven population growth, with strong employment growth keeping unemployment rates low. On the other hand, the level of labour productivity has fallen in recent years, deepening somewhat the gap in output per hour worked vis-à-vis the upper half of OECD countries.

A decline in the relative importance of fossil-fuel extraction, an ageing population and the net zero transition require an adaptable economy and a dynamic business sector, a challenge aggravated by Australia’s remoteness. Reducing regulatory barriers to competition and improving access to fast broadband connection would facilitate the entry and growth of innovative start-ups.

Australia enjoys high living standards, but experienced weak growth in recent years and real disposable incomes declined markedly as the post-pandemic inflation surge eroded real wages and entailed bracket creep and rising mortgage payments. The economy is normalising, but long-standing challenges of slow productivity growth, strained housing affordability and high carbon emissions should be addressed. Competition has waned across the economy over the past two decades, as business dynamism has declined and market concentration and profit margins have risen. With economic growth returning to potential and inflation expected to stabilise within the target range, fiscal policy should focus on steadily reducing the budget deficit while improving the efficiency of the tax system. To address high housing costs in many Australian cities, land-use restrictions should be eased to allow more and denser housing construction. To make further progress in addressing the climate transition, the government should develop a strategy to reduce emissions from agriculture and gradually raise taxes on motor fuels. The government’s Competition Review has taken promising steps towards revitalising competition, but additional measures, including strengthened competition policy enforcement and reduced regulatory fragmentation across states, are needed.

SPECIAL FEATURE: REVITALISING COMPETITION IN THE AUSTRALIAN ECONOMY

Key Resources:

• Press Release