Statement 4: Sustaining strong growth in living standards
This statement discusses factors that will affect income growth and living standards over the medium term.
Australians have high living standards relative to the rest of the world, and these have been boosted by rapid growth in incomes over the past two decades. This income growth has been shared broadly across the community.
To a large extent, this growth in national average incomes reflects the pay offs from economic reforms undertaken previously that increased the economy's productive potential, opened up access to overseas markets and capital, and made businesses more competitive.
Australia now faces a number of challenges that are likely to slow growth in incomes in the future. Australia's population is ageing, which means that we will continue to see a lower proportion of our population in the workforce. In addition, Australia's terms of trade have fallen from their historic highs and are projected to continue to fall over the next few years.
For incomes to grow in the future, we will have to pursue new growth opportunities and use our resources more productively. Ultimately, it is the efforts, creativity and risk‑taking of businesses, investors and workers together that create new and better goods and services, and more efficient ways of doing things. This then creates wealth, jobs and opportunities. Government policies and decisions influence how well markets operate and incentives for work and enterprise, and can have a profound impact on current and future rates of economic growth.
There is significant scope for structural reforms to improve the productive potential of the Australian economy. At the heart of the changes required is a mindset and culture that rewards individuals' and firms' hard work and initiative. This change in mindset needs to be shared by all sectors of society, including individuals, business and government. On the Government's part, this requires changes to policy settings to encourage people to work and to innovate, and which promote greater openness and competition in markets. This Budget makes a significant down payment on these reforms.
This Budget also begins the task of restoring discipline to public spending while also re‑focusing spending to areas that build the economy's productive capabilities. Importantly, this Budget will help the economy to transition from the end of the resources investment boom, including by facilitating targeted infrastructure investment.