Labour market holds back Australia’s competitiveness

Australia has been ranked 21st among 137 countries on the World Economic Forum’s global competitiveness index.

Australia has been ranked 21st among 137 countries on the World Economic Forum’s global competitiveness index and is being held back by an inflexible labour market, high tax rates and excessive red tape.

The Global Competitiveness Report for 2017-18 notes that Australia’s “overall performance is not remarkable” with the nation being outperformed by New Zealand (13th), Canada (14th), the United Arab Emirates (17th), Luxembourg (19th) and Belgium (20th).

The top three countries were Switzerland, the US and Singapore.

The index showed that when measured against 12 broad indi­cators gauging competitiveness, Australia does not, for most of them, “rank among the top 25 countries”. These 12 indicators are referred to in the report as “pillars.”

The results show that Australia performed best in the higher education and training pillar (9th) and the financial market development pillar (6th), but scored poorly on labour market efficiency (28th) and business sophistication (28th).

Each “pillar” or category is further broken down to measure the performance of the Australian economy against more specific criteria. For example, within the ­“labour market efficiency” pillar, Australia scores towards the bottom of the pack on wage flexibility (109th) as well as on flexibility in business hiring-and-firing prac­tices (110th).

Australia’s ranking lifts moderately when looking at co-operation in labour-employer relations (72nd) and redundancy costs (46th), but sinks again when ­examining the total tax paid by a business in its second year as expressed as a share of commercial profit (102nd). The previous survey had Australia at 22nd.

Other findings show that when comparing the burden imposed on business by government red tape, Australia slides down the rankings (80th) while public trust in politicians does not land Australia in the top 20 countries (22nd).

According to the World Economic Forum’s Executive Opinion Survey, respondents identified “restrictive labour market prac­tices” as being the biggest problem when doing business in Australia, while “tax rates” and “inefficient government bureaucracy” were the next most popular responses.

Australia was marked highly on the strength of its institutions, including the independence of the judiciary (8th) and tertiary education enrolment rates (5th), and topped the list in terms of its ability to control inflation (1st).

The stability and strength of the financial sector was also recognised in the index with Australia scoring highly in terms of the soundness of its banks (4th) and in the regulation of securities exchanges (7th). “Australia performs comparatively better in the higher education and training pillar ... which reflects its capacity to produce a large pool of qualified workers,” the report says.

Australia was marked down on its performance in the “infrastructure pillar” with its ranking falling from 17th in the 2016-17 index to 28th. Despite an escalating crisis in power generation, the index has ranked Australia in the top 50 ­nations in terms of the quality of electricity supply (44th).