Australia’s declining economic freedom

A recent study shows that Australia?s economic freedom has waned in recent years, highlighting the urgent need for an ambitious deregulatory policy agenda.

Since the 1990s various free?market think tanks around the world have developed statistical indexes of relative economic freedom for advanced and developing countries, aiming to show which countries are relatively freer than others and to what extent is this the case.

While economic freedom indexes do vary, they are usually comprised of a range of components, often related to government size, sound money, regulation, property rights, and the freedom to trade, which are drawn together to provide the comprehensive international rankings.

The latest economic freedom report was released earlier this week by Canada?s Fraser Institute, which found that, out of 152 countries, the diminutive city?state of Hong Kong was the freest economy in 2011 due, in part, to its low fiscal burdens and widespread trade openness.

Australia came into tenth position in the latest Fraser index, partly on the back of reasonably favourable ratings for maintaining a sound legal system and property rights protections compared with other countries.

However, what should be cause for concern is that our overall relative economic freedom ranking has, in fact, fallen from fifth in 2009 and 2010.

According to the 2013 ?Economic Freedom of the World? report, a larger size of government, increasing looseness of monetary policy, and more prescriptive regulatory burdens have each contributed to the fall in Australia?s overall freedom index ranking.

Other developed countries which have failed to respect individual economic choices and voluntary exchange over the years have suffered a similar fate to Australia.

The most prominent example of this is the United States, the widely perceived citadel of freedom, which has seen its global freedom index ranking drop from second in 2000 to seventeenth in 2011.

This trend has been driven by America?s retreat from sound money, through the Federal Reserve quantitative easing and depressed interest rate programs, an uplift in regulatory burdens in business, credit and labour markets, overgrazing of the fiscal commons, and government policies more routinely overriding private property rights.

Far from being academic or even ideological exercises, economic freedom indexes provide important warning signals for governments to ensure their policies do not unduly restrict the ability of market participants to provide goods and services, for the benefit of their customers.

This is because empirical studies illustrate that economically freer countries not only provide higher levels of output, but faster rates of economic growth, than less free countries, underpinning improvements in material living standards.

There is also evidence to show that greater economic freedom also assists in poverty alleviation, with incomes earned by the poorest ten per cent of the population higher in freer countries.

Studies also show some interesting statistical associations between relatively greater economic freedom and improved environmental amenity, greater civil and political rights, and reduced corruption.

If Australian politicians seek to do justice to their rhetorical undertakings to improve economic and social wellbeing, they would do well to arrest the concerning decline in our international economic freedom index rankings.

This country ranks poorly (72nd out of 152 countries) with regard to the fiscal burden components of the Fraser freedom index, as a result of our excessive public sector spending and uncompetitive tax rates.

The recent election was, like many others of the recent past, dominated by promises to increase government expenditures, particularly middle?class welfare, as opposed to the obvious need for governments to draw in their horns on spending for at least over the next decade.

The recent talk by state premiers and business leaders about lifting the GST rate draws our attention away from a more fundamental issue: how to reduce the overall burden of the hefty Australian tax regime, as an indispensable part of achieving generally smaller government.

Ideally, the forthcoming tax review of the new government would assume this lower?taxing stance as its guiding principle, rather than the implicit Henry Review model of seeking new ways of collecting taxes to pay for exorbitant spending.

The Abbott government could also consider extending its nominal two days of parliamentary sittings a year for regulatory repeal into a 24/7 disposition towards deregulation, striving to relieve individuals and businesses of regulatory burdens at every turn.

The latest economic freedom index study shows Australia to be situated very much at the crossroads, with additional constraints upon the market place likely to see us fall out of the top ten of economically free nations.

The challenge going forward for government will be to substantially reduce their involvement in private economic affairs, taking Australia firmly down the path of greater freedom for all.

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12 Responses to Australia’s declining economic freedom

  1. Rabz

    Australia?s economic freedom has waned in recent years

    Now, who or what could possibly have been responsible for that, I wonder?

    The worst government in this country’s history?

    Perish the thought.

  2. james

    Now, who or what could possibly have been responsible for that, I wonder?

    Fairies.

    Even when it was Goblins I knew it was the Fairies.

  3. Craig Mc

    Completely off-topic, but may I say how much I’m enjoying the festival of teeth-gnashing stupid on the left since 7/9, or as I call it, Dummheitfraude.

    Amongst my old faves, LP is its usual woolly-headed despair, and Ellis’ posts careen between insane and inebriated. My new discoveries though are hilarious. Andrew Elder – I thought I’d never find anything as blowy and deluded as his rants, but the since discovered Victoria Rollison takes delusion to a whole other level. You’ll be terrified to know that Abbott is dooooomed, coz of teh tweets. Currently she’s a hair’s-breadth from going the full Oscar Schindler on Flannery’s Climate Council scam.

    What do they say about fools and money?

  4. james

    Ellis’ posts careen between insane and inebriated

    So no change then?

  5. Steve D

    This index should be a key metric for judging the Abbott Government. Let’s keep watching. And lobbying.

  6. Driftforge

    Having a glance through the tables, the decline in economic freedom since 2007 is reflected across a great many countries. It’s worth looking at those who are bucking the trend.

    Amusingly, Zimbabwe has increased the most, off a very low base, but still. Rwanda second, Dominican Republic third.

    Those making substantial gains (>0.2) with end results above 7.0:

    Philippines
    Peru
    Uruguay
    Poland
    Indonesia
    Croatia
    Hungary
    Dominican
    Rwanda

    Those making noticeable gains(0.1 – 0.20) ending above 7.5
    Jordan
    United Arab Emirates
    Sweden
    Taiwan

    Those making marginal gains (0.01 to 0.10) ending above 7.5
    New Zealand
    Mauritius
    Bahrain
    Finland
    Germany

  7. struth

    The problems Australia has and continues to face will not be fixed by this government until they take the politics out of the public service completely. That is where the rot is and I believe that they has a mandate to do just that. The public serviced generally is rotten to the core and it’s bureaucracy will now be hell bent on creating smoke and mirrors and undermining at every opportunity.I don’t care what this sounds like, I want these parasites pulled off the public purse, and for the good of the country I don’t care how loud they scream . A few symbolic departments, and people like Flannery are only the tip of the iceberg. These self appointed social manipulators need to answer to the people who pay them.

  8. Julie Novak

    Yes, driftforge, it is important to look at relative movements in other countries, and to recognise that available economic freedom indexes capture relative, and not absolute, rankings for freedom.

    I did notice the relative German improvement, though nothing immediately springs to mind concerning internal German policies reducing the intensity of government involvement in their (hampered) market-based economy. Been reading about proposals to force Merkel to impose an economy-wide minimum wage, as a condition for securing a grand political coalition, which will not promote economic freedom or employment for low-skilled people, in any way, in coming years.

    More generally, interesting to see how who fell, enabling Germany to climb a few positions on the “league table,” and to see how other EU countries have fared.

  9. Driftforge

    Digging in to Germany’s jump 2010-2011, the biggest change was due to their ‘Conscription’ score, with smaller inputs from changes to private sector credit arrangements and reduction in transfer payments.

  10. Dallas Beaufort

    All levels of government in Australia, Local councils, State and federal must cut the red and green tape stifling innovation and the private sector here as their blindness damages us all.

  11. Giuseppe De Simone

    “Nothing to see here – move along – move along.”

    The plodding governments of Australia will continue to ignore the decline in our competitiveness at the peril of future generations. It isn’t just the horror of welfarism and safety nets that have turned into overly comfortable hammocks swaying gently in the warm breeze at sunset. Darkness follows sunset and that is what we are about to experience. I see little hope of economic reform coming out of the current mandarin dependent governments. Taxes don’t just go up under ALP governments. They go up, albeit usually more slowly but only just, under Liberal governments too. The insatiable need to be electable requires ever more spending on health and entitlements.

  12. Col Harkin

    Julie, another very good article. Educational as well.

    This is my opinion – We the people are the problem. As long as we see others, especially government, being the fixer of our problems, nothing will change. The turnaround will come when the majority of Australians realise government is not and should not be the fixer of individual problems.

    It’s called personal responsibility and part of that is to insist that our political leaders don’t allow those who refuse to be personally responsible pay the price and not the rest of society. Freedom generally will always be at risk when we expect others to contribute to our cost of living.

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