Australia divided, misgoverned, in retreat: our nation in decline

Australia is a first-rate nation whose leaders just now are determining we’ll be second-rate. Across every indicator you can imagine – economy, living standards, social cohesion, health, military capability – we’re in serious trouble.

The main players of Australia’s political present and future. Artwork by Emilia Tortorella

Australia is a nation in decline. Across every indicator you can imagine – economy, living standards, social cohesion, crime, health, military capability, the creativity and virtuosity of the arts – we’re in serious decline.

This is not an anti-Australian statement. Australia is a first-rate nation whose leaders just now are determining we’ll be second-rate. Australia is a nation with a blemished but magnificent history, a nation once of ambition, achievement, accommodation, heroism, turning itself instead into a nation of mendicant mediocrity.

Nationals senator Matt Canavan launched his recent leadership challenge against David Littleproud because he sees that decline and wants something better. The agitation this caused led in part to the Nats deciding, temporarily, to leave the Coalition with the Liberals.

Canavan’s leadership bid was not born of personal ambition but policy frustration. He’s determined to force his party, and what he calls the “comfortable, coddled and second-rate political class of this country”, to confront the grave policy questions that both campaigns comprehensively avoided through the election.

The view of national decline is not confined to mavericks such as Canavan. The great National Party elder statesman, former deputy prime minister John Anderson, tells Inquirer he believes Australia is entering a sustained “structural decline”. He looks at the acres of red ink, the oceans of debt happily forecast in the medium-term future in Jim Chalmers’ budget, and makes a subtle point.

Australia’s national debt appears manageable now, though it’s much bigger than generally realised. But, Anderson believes, we’ve reached the point at which the nations we compare ourselves with, such as Britain and the US, lost control of debt, from which they cannot now escape.

It would be damaging if the Libs and Nats cannot form a Coalition. There would then be no coherent governing party alternative to Labor.

But the recent turmoil has one saving feature: it stems ultimately from policy disagreement. That’s the first sign of our political culture making any effort at all to come to grips with our national decline.

There’s one important paradox. Australia remains wealthy. Adam Smith observed, “there’s a lot of ruin in a nation”.

We’re a nation in decline but we’re declining from a high standard of living and national success. Because we’ve been so affluent we’re like the frog in the slowly boiling pot of water, increasingly uncomfortable but not sure why.

There’s no direct comparison, and the example is too stark. But tiny Nauru once had the second or third highest per capita income in the world. Then its luck ran out, meaning its phosphate resources ran out. It then became a much poorer country. Australia is a rich country because of its commodities – iron ore, coal, gas, gold, beef, aluminium, copper, wheat, sheep, uranium. How are we using those riches, will they last?

The OECD, the club of rich nations, conducts the Program for International Student Assessments. These show high school students in Japan, South Korea, Taiwan and Singapore are about four years ahead of their Australian counterparts of the same age in maths. We’ve gone backwards.

In 2023, our 15-year-olds performed at the level of 14-year-olds 20 years earlier. According to our own NAPLAN tests, in 2024 one-third of our students failed baseline tests in reading and maths. We spend more than the OECD average per student for a below-average result. The more we spend, the worse the results.

We have far fewer students performing at a high level or studying a foreign language than high-performing nations do. Why are we now so comfortably second-rate?

At least we’ve got fresh air and healthy lifestyle, yes? No. We are obese and overweight, substantially beyond the OECD average. Worse than we used to be. In 2022, two-thirds of Australians were overweight or obese. We have long life expectancy by the standards of English-speaking countries. But in the past few years we registered our first, albeit small, decline in life expectancy. Chronic disease, obesity and mental health problems mean we’re unlikely to resume increasing our life expectancy.

Mental health is mysteriously disastrous. Suicide is the leading cause of death among Australians aged 15 to 44. The incidence of mental ill-health in the young has risen by 50 per cent in the past 15 years. A Lancet study shows Australia second only to the US in rising mental ill-health trends.

At least we’re a rich country, so we can pay the medical bills? Maybe not in the long run. The Nationals’ revolt, Canavan’s revolt in particular, arises mainly over energy policy and economics.

Anthony Albanese has a mountain of economic and social issues to tackle in his second term.

The Nationals have established a small, high-quality think tank, the Page Research Centre, led by the impressive Gerard Holland. The next paragraphs draw on its snapshot of economic statistics.

Home ownership, the essence of the Australian dream, for those under 40 is at record low rates. The median home price nationally is nine times the average annual income and in Sydney 13 times.

Fertility rates have plummeted to 1.44 children per woman, the lowest in our history. This is below what demographers call ultra-low fertility. If that persists for a few years it’s almost impossible to recover from because the number of women entering child-bearing years becomes so small.

This is not women choosing career over motherhood. There’s overwhelming sociological evidence that people are unable to afford to have the number of children they want to have.

Australia’s federal government debt this year will reach $1 trillion. It’s actually worse than that because there are many billions of dollars of borrowed money in so-called “off budget” expenditures. These aren’t registered as normal government debt because they’re notionally investments that will generate returns. Classic cases such as the NBN never generate anything like forecast returns.

On top of all this, there are the states’ debts. The Victorian government’s debt alone will reach $200bn in the next few years. The commonwealth in effect, if not legally, guarantees all this debt.

Credit ratings agency S&P Global accused the Albanese government of hiding fiscal deterioration with so much off-budget spending and said Australia could lose its AAA credit rating. Australia has this rating because John Howard paid off all the national debt and establish­ed a sovereign wealth fund, and because high commodity prices boost revenue. But we can’t live forever off Howard, and commodity prices are on a downward trend. Losing the AAA rating would increase borrowing costs.

Already Australia will spend $27bn this year paying interest on the debt, which will keep rising.

Long-term Treasury estimates are wildly optimistic because they use ludicrous assumptions. They believe, on the spending side, the National Disability Insurance Scheme will rise by only 8 per cent annually, there will be unprecedented spending restraint across the rest of the budget, there will be no need for increased defence spending, and on the revenue side that productivity, having been disastrously negative for years, will shoot back up to 1.2 per cent positive growth, while governments continue to increase taxation via bracket creep.

Already Australia has a higher top marginal tax rate than the US or New Zealand, and this cuts in at less than twice average earnings, much lower than the cut-in level in the US or Britain. Our deficits and debt will be worse than forecast.

Overall, productivity, that is output per unit of labour, fell by more than 5 per cent in the three years of the Albanese government. Per capita economic growth, higher living standards, are impossible without productivity growth. Productivity has now fallen for five consecutive quarters. In the 1990s reform era it often rose by 2 per cent a year. Australians’ real income fell by 8 per cent in the past three years, due to inflation, bracket creep and high interest rates. This was the greatest fall in average income in the OECD, or in modern Australian history.

Australia’s settled policies will make matters much worse. Much of the productivity increase in the Hawke-Howard years came from greater flexibility in industrial relations. All that momentum for flexibility stopped the minute Howard lost power in 2007. In the Coalition’s decade in office from 2013 it was too cowardly to attempt to promote any significantly enhanced industrial relations flexibility. The Albanese government is re-regulating the labour market and entrenching union power. These dynamics are the deadly enemy of productivity.

Traditionally, Australia’s two great economic advantages were abundant commodities and cheap energy. Now Canberra’s commitment to net-zero carbon emissions by 2050 means we’ve much more expensive energy, a dreadful impost we’re placing on ourselves. Running a renewables energy system is vastly more expensive than one based on a mix of fossil fuels, nuclear power and renewables. Renewables work at scale in those countries whose topography and rainfall suit hydro-electric schemes.

Net zero is a fraudulent concept, as everyone knows. The idea that eight billion people can live, several billion of them at modern standards, without generating CO2 emissions, or just generating so few emissions these can be offset by planting trees, is utterly ludicrous.

Almost no one in the world really believes it. Almost no country in the world is acting to try to achieve it, only a few deindustrialising European powers and Australia.

The global south has a pass. China promises net-zero emissions by 2060 – these are the folks who promised never to militarise the South China Sea – and India by 2070. Beijing is deploying large amounts of renewable energy but, as Canavan says, it opens about two coal-fired power stations a week.

The US under Donald Trump has left the Paris Agreement and is promoting all fossil fuels. The biggest emitters – China, the US, India, Russia, Indonesia – aren’t remotely moving towards net zero. Even the share of global energy generated by fossil fuels has not shifted much despite decades of notional climate action. Many global south nations pay lip service to net zero but continue to expand fossil fuel use.

The evangelical fervour with which the Labor Party and many government-funded elites have embraced net-zero hot gospelling is really contemporary evidence of what critic AA Phillips in 1950 called Australia’s “cultural cringe”. Australian elites who claim net zero is a global consensus have a classically cultural cringe view of “global” as consisting entirely of San Francisco, New York, Paris and London; certainly not Delhi, Beijing, Hanoi or Jakarta.

Windfarms near Portland, in Victoria’s southwest. Picture: Alex Coppel

Even in London consensus is evaporating. British Conservatives have abandoned net zero by 2050. The more popular Reform UK of Nigel Farage, currently leading the polls, rejects net zero. Even Tony Blair distressed bien pensants by doing what he occasionally does – telling the truth. Net zero is irrational, he said, phasing out fossil fuels won’t work.

The Libs and Nats just got creamed at the election, so obviously they should sign up to net zero, or at least so all their enemies say. In fact, whenever the Coalition has fought net-zero nuttiness as an economic issue it has won. When it has gone along with net zero, it has lost. Public opinion for a long time strongly favoured the Indigenous voice proposal. Coalition senator Jacinta Nampijinpa Price campaigned passionately against it and won the debate. Scepticism on net zero doesn’t require scepticism on climate change.

The Coalition could easily argue the cost of current policies is crippling, they won’t yield any benefit to the climate. Australia will make a no-regrets contribution to reducing its emissions and greening its environment but won’t be bound by a ruinous target.

To do this, it would have to campaign constantly and hard – something it seems to have lost the muscle memory for.

Canavan is urging that, or something bolder. The nation deserves this debate. It’s not an anachronistic “climate wars” indulgence, it’s a rational policy debate.

Australia is pursuing policies of industrial relations rigidity, increased business and corporate regulation, high wages, endless and proliferating universal welfare schemes and payments, and expensive energy. While our commodities exports give us enough money, we can lavishly subsidise some manufacturing in Australia, as the government is currently subsidising steel, but we’ll never reindustrialise, never re-establish manufacturing, with these policies.

Canavan points out we’ve recently lost, or mostly lost, three industries, Urea (fertiliser), plastics and nickel. As we lose companies and whole industries we borrow vast sums of money to pay for government paid workers and congratulate ourselves on job creation.

Our economy is bound to continue declining. This has security consequences. Even this briefest of surveys cannot omit our declining military capabilities. In 1990 we had 17 million people and 69,000 full-time members of the Australian Defence Force. We now have 28 million people and 59,000 full-time ADF members. We’ve gained 11 million people and lost 10,000 soldiers. We are militarily weaker now than when the Albanese government was elected.

We have the oldest naval surface fleet we’ve ever had. We’ve retired one antique and lightly armed Anzac-class frigate. Our six subs are elderly pensioners. We have one type of armed drone notionally in our order of battle. Modern armed forces have hundreds or thousands of different drones. Militarily, we are somewhere between asleep and hopeless.

The overall story of national decline is undeniable. A thousand other statistics could be added.

We’ve embraced such very poor economic performance partly because the language of economic policy has been utterly corrupted in a George Orwell, Nineteen Eighty-Four-style reversal of meaning. In particular three words – reform, investment and productivity – have been so prostituted of meaning that if anything they convey the opposite of their dictionary meaning.

Thus we get sentences like: The government will reform the care sector by making a greater investment in the workforce in order to lift productivity.

Translated into English that means the government will spend more on the care sector by spending more on workers’ wages with a theoretical increase in workforce participation by some beneficiaries of the welfare – thus the fraudulent productivity claim.

In reality it just means more workers in low productivity occupations. It may be good social policy but bears no relation to economic reform or investment and it lowers productivity.

We are in some measure re-creating the Australia of the 1960s when we weren’t a failing nation but we were slipping behind. Consequently, we couldn’t deal with the disruptions of the 70s.

In 1964 Donald Horne wrote, in The Lucky Country: “Australia is a lucky country run mainly by second-rate people who share its luck. It lives on other people’s ideas and although its ordinary people are adaptable, most of its leaders (in all fields) so lack curiosity about the events around them that they are often taken by surprise.”

The disruptions of the coming decade will be more severe than the 70s. Canavan has made a serious, laudable effort to get the nation at least to consider these challenges.

It’s more likely we’ll continue our recent practice; we’ll just look away and assume, without any justification, that decline will always be gentle.