Instability undermining policy
Political instability continues to undermine sound policy development and implementation underpinned by a long-term vision. In August 2018, Australia had another change of prime minister, again without an election. There have now been seven changes of prime minister in 11 years, with only two of these the result of a federal election. While intransigence of the Senate – which no government has had control of since 2007 – has been a factor in frustrating policy action and creating instability, a much more important factor has been disunity within the major political parties.
Boom’s end demands
Since the end of the mining boom in 2012, Australia’s economic circumstances have fundamentally altered and living standards have remained stagnant. The government’s fiscal position has also deteriorated precipitously, although it improved somewhat in the review period thanks to the strength of commodity prices. Difficult fiscal policy decisions will be necessary over the coming years, yet there does not appear to be much appetite for these among the political leadership. That said, after an initial period of policy paralysis, in the last two years the Turnbull government had started to experience some success in passing legislation to achieve reform. To a significant extent, this reflected the government adopting a more moderate or balanced agenda, which was more acceptable to independents and minor parties. This has broadly continued under the new prime minister, Scott Morrison.
New sources of
Under Turnbull’s leadership, the government recognized the need to develop new growth industries. The former prime minister emphasized the need for Australia to be “innovative and agile,” although he did not lay out a plan for fostering innovation and agility. One factor supporting the economy is the continued relative weakness of the Australian dollar, which improves its competitive position for tourism and education services in particular. The end of the housing boom may result in declining domestic demand and could end Australia’s 27-year-long phase of economic growth.
Outcomes generally strong despite concerns
Economic and social outcomes continue to be relatively good in absolute terms, and sustainable policy performance compares reasonably favorably with many other developed countries. In particular, the fiscal position continues to be considerably stronger than in many other OECD countries. However, real wages and household incomes remain stagnant. The last year has also seen sizable declines in house prices in Sydney and Melbourne, which together account for half the Australian housing market by value. This is generally a positive development, but poses risks for the financial system and the wider economy.
Little change, with room for improvement
Overall, policy performance remained relatively unchanged in the current review period compared with the previous one. There is consequently considerable scope for improvement in governance. In its early years, the coalition government cut public sector employment, reduced funding for several government agencies, and partially reneged on the health and education funding agreements reached between the state and territorial governments prior to the 2013 election. More recent government actions have only slightly improved the situation. In particular, many persistent problems remain, including the vertical fiscal imbalances between the federal, state and territory governments; the lack of a coherent, effective and sustainable energy policy; the absence of legally protected human rights; the politicization of the public sector; and the degree of concentration in media ownership.
Problems passed to successor
The former prime minister, Malcolm Turnbull, demonstrated an appreciation of the problems currently faced by the country, along with a willingness to negotiate and compromise with other parties to achieve policy reforms. Unfortunately, he was unable to translate this into substantive change. It remains to be seen if his successor fares any better.