An Australian story - from fading uncle to economic success

In March 1996 the standard variable mortgage interest rate stood at 10.5 per cent. The standard variable mortgage rate now stands at 7.3 per cent. The reduction in interest rates over the past ten years has provided borrowers with substantial reductions in interest expenses. With the average new mortgage today at around $220,000, the fall in interest rates from the 1996 level of 10.5 per cent represents a monthly interest saving of $585.

As you compare Australia with other developed countries it is clear that Australia is a low tax country. We are the eighth lowest taxing country in the OECD. Our tax levels are actually in an even better position than the OECD figures indicate because our Budget is in surplus and government debt is practically zero. It should not surprise people that we are a low tax country, because we are a low spending country compared to international practice. The two go hand in hand.

In the OECD Australia has the second lowest level of government spending as a share of GDP at 35.7 per cent, lower even than the United States. According to the OECD the Australian level of government spending as a proportion of GDP has declined from the 1996 level of 38 per cent to 35.7 per cent.

Some people may wonder how it is that tax and spending have declined as a proportion of GDP, when they see that the government seems to be spending more. This is an important point to understand - the government has been spending more in critical areas but the rate of increase has been lower than the growth rate of the economy.

What is the end result of all of this reform? Well, we are currently in the longest growth phase in Australian history. Longer even than the famous ’50s boom which ended in recession in 1961.

People’s incomes have risen substantially, and more people are in jobs. In its 2004 Survey of Australia, the OECD noted that Australia has become:

… a model for other OECD countries in … the tenacity and thoroughness with which deep structural reforms were proposed, discussed, legislated, implemented and followed up in virtually all markets, creating a deep-seated “competition culture”.

What do I think when I reflect on these ten years? Let me go through a few disparate thoughts.

Economic management is a weighty responsibility. People’s livelihoods depend on it. Their mortgages, their jobs, their businesses, turn on it. People can see the discipline and seriousness we have brought to the task. They can judge for themselves the results.

Aside from what we have done, it is important to also remember what we have not done.

We could have tried to jump on the Asian Tiger model and run a corporatist government - we didn’t. We could have been swept up by dotcom mania, as urged by many - but we didn’t. We could have miscalculated in the face of the Asian financial crisis, or the worst drought in 100 years, or in the face of threats from terror or war or SARS or the current oil shock. We didn’t.

And while we have improved our position in the world we cannot sit back and relax. The world economy is ruthless, competition unrelenting, and to compete in the future we need to make all of our policy settings first class. We need to make every post a winner. We need to be willing to re-examine our existing policies to see if they cannot be improved.