A visiting Canadian economist has warned that Australia requires urgent reform to its labour market laws if the nation is to remain internationally competitive.
A visiting Canadian economist has warned that Australia requires urgent reform to its labour market laws if the nation is to remain internationally competitive.
Speaking at the Australian release of the Fraser Institute’s Economic Freedom of the World index, hosted by another libertarian think tank, Subiaco-based Mannkal Economic Education Foundation, Fred McMahon said industrial relations laws were a key reason business conditions had declined in the past decade.
The Economic Freedom of the World index charts conditions for business and economic development across a series of key areas, including the level of taxation, rule of law, trade regulation and regulation of business and capital markets.
Mr McMahon said if Western Australia were considered its own nation, it would rank third in the world on the index, which is closely correlated with economic performance.
That would put the state behind Hong Kong and Singapore, on a score of just less than 8.5 out of 10.
Despite holding third place for the second year running, WA’s score fell marginally, driven by a fall nationally, with Australia at 7.8/10.
Mr McMahon said the danger for Australia would be in complacency, highlighting labour regulation as one area of particularly poor performance.
He said such regulations were usually used to benefit insiders, those with a job, at the expense of those who were unemployed or yet to enter the market.
Burdensome laws for hiring and firing of workers made it less likely businesses would want to employ, he said.
The national score for labour market regulation took a nosedive from 2009, when the previous Labor government passed the Fair Work Act.
That put Australia’s rating well below similar countries, Canada and New Zealand, at around 7/10.
Mr McMahon cited the example of Germany a decade ago, which he said had similarly poor labour laws that nearly crippled its economy.
Reforming those restrictions had unlocked the country’s potential for growth, he said.
Export pressure
Mr McMahon also warned that Australia, and WA in particular, could no longer expect China to drive growth through demand for commodities.
A long-term downward trend in the real price of most commodities and a lack of appetite for reform by the Chinese government meant the next upswing would likely not match that of the most recent decade, he said.
“There was no Chinese economic miracle … if you go from the world’s worst economic policy to a bad economic policy you have a spurt of growth,” Mr McMahon told those at the event.
“Then you tend to stall out.
“I think China has a little bit of a way to go (on reform).”
Mr McMahon warned that growth had stopped in nations that had held off on reforms, and that he wasn’t optimistic on the prospects of China undergoing that process.
There was some good news, however, with Australia’s recent trade deals with South Korea, China and Japan likely to contribute positively to economic development.
Correlation
Mr McMahon said there was a strong causative link between economic freedom, high scores of economic development and happiness.
That included lower income earners, who secured much higher living standards in countries with very high economic freedom.
Countries with high scores, and hence quality economic institutions, additionally benefited from higher literacy and better living standards.
The general trend in the index among developed countries in the Anglosphere was towards decline since the GFC, according to the report.
