World Competitiveness Yearbook: High tax, low vision drag down Australia

Australia’s competitiveness has slumped to its lowest level in 25 years because of plodding business leadership, high tax rates and a lack of innovation.

The study found Australia ranked poorly on personal and business tax burdens, management practices, digitisation, energy infrastructure, climate resilience and export diversity.

Australia’s global competitiveness has slumped to its lowest level in 25 years because of plodding business leadership, high tax rates and a lack of innovation, according to an international review of economic attitudes and conditions.

The nation has slipped from 18th to 22nd out of 64 countries ranked for prosperity and competitiveness in the annual World Competitiveness Yearbook prepared by the Swiss-based Institute for Management Development.

The study found Australia ranked poorly on personal and business tax burdens, management practices, digitisation, energy infrastructure, climate resilience and export diversity.

The slide in our rankings comes as Reserve Bank governor Philip Lowe said sustainable increases in living standards depended on reversing a decline in investment over the past decade.

“If we are to build the capital stock that is needed for a more productive economy and a durable expansion, a further lift in business investment is required,” Dr Lowe said on Thursday.

He said the Morrison government was right to focus on the digital economy, but ongoing investment was also needed in infrastructure, human capital and the energy sector, “where technology is evolving quickly, as are the attitudes of investors”.

IMD’s local partner is the Committee for Economic Development of Australia. CEDA chief economist Jarrod Ball said our performance slide had been years in the making and policymakers needed to address “all the things that make up the long-term fundamentals of growth. We need serious work to lift management practices, risk-taking and innovation along with growing and broadening our export markets.”

Despite early success in managing the Covid-19 pandemic and recent strong economic recovery, Mr Ball said Australia could not waste any time “getting match-fit for the post-pandemic era. The rankings show business will need to do a lot of the heavy lifting, with business efficiency leading Australia’s slide in the rankings, driven by a lacklustre 58th place for management practices.

“We are among the lowest-ranked of 64 nations on company agility, entrepreneurship, customer satisfaction and credibility of managers,” he said.

“But it is not just our management practices that are deteriorating – our heavy reliance on mineral resources and a narrow set of markets sees us rank in the 50s for our export sophistication.

“We will need to be a lot more dynamic, innovative and open up new markets for new goods and services in future to deliver another generation of solid economic growth, jobs and rising incomes.”

On the positive side, Mr Ball said Australia limited the economic damage of the pandemic far more than other economies, which saw us move up the rankings on economic performance.

“Australia’s skilled workforce, policy stability, legal environment, healthcare and life expectancy are all strengths for the competitiveness of our economy,” he said.

The IMD study looks at 330 criteria, with two-thirds based on statistical indicators, and one-third on a survey of more than 5700 international executives taken from March to April this year. The four main factors are economic performance, government efficiency, business efficiency and infrastructure.

Australia slipped 11 places on technological infrastructure and ranked just 44th for ICT services exports this year. Australia’s tax regime is called out as a drag on competitiveness, ranking 54th and 57th respectively for its corporate and personal income tax burdens, while ranking poorly on energy infrastructure (56th).

“We must boost our climate resilience and regain our energy advantage,” Mr Ball said. “The federal government should commit Australia to net-zero by 2050 and announce more ambitious policies to get us there.”

Overall, Switzerland rose to first from third in 2020, while Sweden jumped from sixth to second and Denmark slipped one place to third. Rounding out the top five, The Netherlands remained in fourth place, while Singapore dropped from first to fifth in 2021.