A recent study shows that Australiaʼs 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 Canadaʼs 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 ʻEconomic Freedom of the Worldʼ report, a larger size of government, increasing looseness of monetary policy, and more prescriptive regulatory burdens have each contributed to the fall in Australiaʼs 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 Americaʼs 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.