PETER VAN ONSELEN: The three wise men of Australia's economy have spoken. This is what must be done to turn the country around... as living standards crash

By PETER VAN ONSELEN, POLITICAL EDITOR, AUSTRALIA Published: 23:26, 23 July 2026 | Updated: 23:27, 23 July 2026 Your browser does not support iframes. Australia is on track for its weakest decade of growth in living standards in more than a century. That's an unbelievably bad statistic for the country. No, we aren't reverting to some sort of pre-industrial age. This isn't a disaster movie made in Hollywood. But the rate at which our material lives are improving has almost ground to a halt. And we can all feel it.  GDP per person has risen by just four per cent this decade. Former Reserve Bank governor Dr Philip Lowe notes there has been no net growth in per capita incomes for eight years. Meanwhile, real wages remain about five per cent below their level five years ago. In other words, people are earning less than they used to, given that wages haven't kept pace with inflation. For households, the statistics translate into a painful reality: housing, energy, insurance, groceries and childcare all cost more.  But pay packets have failed to keep pace with living costs, shaking the core societal promise that each generation will live better than the one before it. Given the bipartisan responsibility the major parties share for this failure, is it any wonder that One Nation has climbed to 30 per cent in the latest Newspoll, level with Labor and well ahead of the Coalition? GDP per person has risen by just four per cent this decade. Former Reserve Bank governor Dr Philip Lowe (pictured) notes there has been no net growth in per capita incomes for eight years Average Aussies are feeling poorer as housing, energy, insurance, groceries and childcare all cost more (file image)  Pauline Hanson routinely survives controversies that would destroy a conventional politician. Each time commentators pronounce that this time she has gone too far, her support holds steady.  For many, a vote for Hanson is not a character reference but a blunt instrument wielded against the political establishment. When the economic system stops working, voters become willing to forgive or even embrace conduct they might otherwise reject.  Every Hanson controversy is weighed against a larger grievance: the sense that Labor and the Coalition govern for everybody except the people who elected them. The major parties can condemn Hanson's rhetoric and policies all that they like, often with justification but they can't shame financially anxious voters back into the fold. Yes, the pandemic, the wars in Ukraine and Iran and global inflation have caused genuine damage... but they don't excuse a malaise that predates and outlasts each of these shocks. A key issue is both sides of politics have taken comfort in rising headline GDP figures rather than undertaking the harder task of raising GDP per person.  Labor and the Coalition have relied on population growth to enlarge the national economy, expanding spending while avoiding serious reform of tax, energy, housing, regulation and business investment.  The result is a country told it's growing... while many of its citizens go backwards. Former ACTU secretary Bill Kelty savaged the quality of Australia's economic management, arguing the real problem isn't high wages but falling living standards amid a commodity boom Politicians have repeated the word 'productivity' so often now that it has lost its meaning, but it is the key to turning the ship around.  You only achieve 'productivity' in two ways: an economy only produces more per person if more hours are worked per person. Or, more value is produced in each hour worked. The first option is simply more labour: longer weeks, fewer holidays, later retirement or a greater proportion of the population working.  Australians show little appetite for this American model, and the union movement is actively pushing for shorter weeks and stronger leave entitlements. So if Australians choose a better work-life balance over longer hours worked, each hour of work must become more valuable. For example, keeping a barista behind the counter for an extra two hours produces more coffee, but giving that same worker a better machine and a smarter ordering system allows them to make 50 coffees in the time it once took to make 30. Scaled across an economy, that better coffee machine is akin to new software, robotics, reliable electricity, faster freight or less red tape preventing businesses from flourishing. Productivity isn't about making people sweat harder, it's about equipping them with better tools, skills and systems to produce more. If Australians choose a better work-life balance over longer hours worked, each hour of work must become more valuable. For example, giving a barista a better machine and smarter ordering system allows them to make 50 coffees in the time it once took to make 30 (file image) Governments, businesses and unions will still argue over how to share the gains fairly. But without productivity growth, they are fighting over a stagnant or even shrinking pie. Sustainable wage rises ultimately require workers to produce more value per hour, which is not happening. Achieving this heavily depends on private investment. Australia has rapidly expanded its workforce through immigration, but the stock of productive capital hasn't kept pace.  Adding workers without sufficient equipment, housing, transport or energy is like hiring more builders without buying additional utes and cranes. Total output rises because more people are working, but output per person stagnates. This helps explain the growing backlash against mass immigration. Population growth is no substitute for productivity. If capital and infrastructure lag behind it, the headline economic figures rise while individual Australians see little benefit. Economist Christopher Joye argues that Australia has morphed from the lucky country into the 'lazy land', where politicians treat private enterprise as a revenue source to tax and redistribute rather than the engine that funds wages and public services. His proposed medicine is radical: slashing public spending, overhauling the NDIS, selling the NBN and lowering income and business taxes via a higher GST. But Australians don't have to swallow Joye's entire solution to recognise that something is badly wrong. Commonwealth spending is now running at about 27 per cent of GDP. More spending isn't automatically valuable simply because the government does it. The state competes with businesses for workers, materials and capital. A continually expanding public payroll and poorly targeted programs can crowd out the private investment needed, while unproductive borrowing by the state transfers today's debt to tomorrow's taxpayers. Economist Christopher Joye says Australia has become 'lazy land'  Labor points to a productivity agenda based on streamlined regulation and faster approvals, initiatives that deserve credit when they work.  Yet these sit uneasily beside continued spending growth and tax changes affecting capital gains, negative gearing and trusts, which can act as a handbrake on investing, resulting in a flight of capital overseas. Whatever the intent in terms of fairness or housing affordability, the law of unintended consequences can make a bad situation even worse. The Coalition's hands are no cleaner than Labor's. It abandoned meaningful company tax reform, presided over years of weak business investment and failed to deliver durable economic reforms.  Instead, it relied on migration and booming asset prices to disguise weak per-capita growth and debt kept ballooning anyway. Former ACTU secretary Bill Kelty has savaged the quality of Australia's economic management, arguing that the real problem isn't high wages but falling living standards amid a commodity boom.  He was an important player in the 1980s reforms that locked in decades of national prosperity. Kelty knows that we need another round of such reforms to avoid future generations paying the price for this generation of politicians failing. Australia needs spending discipline and the maturity to distinguish productive investments from politicians picking winners. Supporting business means making Australia an attractive place to build a productive enterprise. It requires a tax system that rewards work, risk taking and business creation. The major parties continue to treat Pauline Hanson as a communications or moral problem, assuming the next controversy or parliamentary censure will finally send her voters elsewhere. They are misreading the electorate. Population policy must be explicitly linked to housing, infrastructure and capital investment. Increasing migration without creating the conditions for new arrivals and existing workers to become more productive doesn't help our situation. Hanson isn't the answer to Australia's economic problems, and many of her prescriptions would likely worsen the situation. But her rise is a symptom of a profound political failure. Voters who no longer believe the establishment can improve their lives will pick up whatever political weapon is at hand to make their point.