1. The occasion and the central argument
Mathias Cormann, OECD Secretary-General and a former Australian finance minister, gave this lecture for the fiftieth anniversary of the Centre for Independent Studies, a Sydney think tank known for promoting market reforms. His thesis is that Australia in 2026 looks a lot like Australia in 1976: living standards are stalling, the reform appetite has faded, and the popular remedies on offer would make things worse. He frames the whole talk around the issue voters rank first, the cost of living. In his view, most measures sold as cost-of-living relief only treat symptoms. The one durable way to make households better off, now and for the next generation, is to raise output per hour worked. Anything else either shifts the burden onto someone else or onto future taxpayers.
2. What the reform decades delivered
Cormann recalls that Australia ranked in the world's top five by income per head around 1950, then slid down the OECD rankings by the early 1980s while inflation and unemployment rose together. Over roughly two decades, governments of both sides then reversed course: tariff cuts starting in 1973; a floating dollar, financial deregulation, foreign banks, tariffs brought down to roughly 5%, enterprise bargaining and a national competition policy in the Hawke–Keating years; and, under Howard, an independent central bank with an inflation target, budget surpluses and debt repayment, the GST, lower company and capital gains taxes, financial-system reforms and further labour-market liberalisation. The payoff, he says, was labour productivity growth above two per cent a year in the 1990s, a competition-policy gain the Productivity Commission put at no less than 2.5 per cent of GDP, close to 29 years without recession, and real pay rises in most years. Later prosperity, he insists, was not just luck from Chinese demand: only a flexible economy could shift workers and capital into mining so fast and spread the windfall nationwide.
3. How the momentum was lost
From the mid-2000s, he argues, reform stopped across the whole political spectrum, in business and unions as well as in parliament, while the mining boom hid the cost. Reform is hard because its costs are immediate while its gains are delayed and diffuse; in good times voters see no need for it, and in bad times they reach for easy answers. The numbers he cites: since 2015, labour productivity has grown by less than 0.3% annually, compared with 1.6% on average over three decades and 2.2% at the height of the reforms; an OECD survey finding weaker competition, more concentrated markets, higher margins and construction productivity below its level of twenty years ago; real wages that dropped between late 2021 and mid-2024 and remained over 2% under their 2021 level at the start of 2026, something only six OECD members share; output per person falling for seven quarters in a row in 2023–24; and a combined federal-state shortfall close to 3.4% of national output in 2025, with outlays outpacing growth and bracket creep quietly raising revenue. The Productivity Commission estimates that returning productivity growth to its long-run average would make each Australian at least A$14 000 richer per year by 2035.
4. Why quick fixes do not lower living costs
Cormann ties expensive goods and stagnant pay to weak competition: under less pressure, firms raise prices and profits without improving efficiency. Productivity lowers production costs, competition limits margins, and handing out money without addressing either does not solve the problem. He goes through the usual alternatives. Cash payments and energy rebates add demand without adding output, so prices rise and the budget pays. Price caps reduce supply and turn the shortage into queues or outages. Tariffs raise costs for every farmer, miner and household. Mandated wage rises without more output lift prices rather than real pay, as Australia found in the 1970s.
5. The populist offer and his objections
He accepts that the complaints feeding populism are real: falling real incomes, young people unable to buy homes, higher energy bills, infrastructure lagging population growth and a sense of being ignored. But he argues that the solutions now gaining support were tried before and made Australia poorer. On manufacturing protection, he sees a tax on consumers and exporters that hits regional Australia hardest. On migration caps, he acknowledges that the public worry is mainly about housing, since for three years the population expanded about twice as fast as the housing stock, but says the remedy is more homes, infrastructure and services and a better skills mix. He cites OECD regional research showing that higher migration went with faster job growth for Australian-born workers and no measurable wage effect, notes that Australia's migrants are the best educated in the OECD, and stresses that without new arrivals the number of people of working age would already be falling, whereas projections show the OECD labour force declining by 13% and the EU's by 23%. He also defends foreign investment, which Australia has always relied on, and says a minerals exporter gains security by being a reliable, competitive supplier rather than by withdrawing. Politically, he observes that mainstream parties that copied populist economics lost support, while governments that delivered results, such as Greece under Kyriakos Mitsotakis and the coalition that won in Poland in 2023, weakened the populists. Lasting reform, he adds, requires public consent won through open debate.
6. Two factors that did not exist in 1976
The first is ageing. The median age has risen from about 28 to 38, and the number of working-age people for each person over 65 has fallen from more than seven to fewer than four, heading below three by the 2060s. With the working-age share set to decline, higher living standards must come mainly from higher output per hour, supported by a skills-based migration program matched by housing and services. The second is artificial intelligence, which he sees as the first innovation in decades capable of a large productivity jump. The Productivity Commission expects Australia, on present settings, to capture only about half the gain of the leading adopters, because the benefit depends on diffusion to small firms, hospitals, schools and councils. Shielding the country from it, he warns, would only leave Australia further behind.
7. His reform agenda
He proposes one measurable goal, lifting productivity growth to 1.6% annually within ten years, with federal payments to the states tied to reforms that are verified as delivered. Tax: shift the mix away from company and income taxes, which supply about 62 per cent of Australian revenue against roughly 35 per cent on average elsewhere in the OECD; widen the GST, charged at about half the typical OECD rate and on roughly half the usual base; replace stamp duty with land tax; index income-tax thresholds; and cut company tax, broadly as the 2010 Henry Review recommended. Competition and regulation: apply the renewed national competition policy with payments for results, adopt single national licences and approval processes with deadlines, and accept trusted foreign standards; restoring early-2000s competition could raise GDP by 1–3%, about 2 000 to 6 000 dollars per household a year. Housing: treat it as a supply problem, allow medium-density building near major public transport with approval within thirty days, use one national construction code and pay for homes completed, citing Auckland's 2016 zoning reform. Energy: a technology-neutral path to reliable clean power, no legal bans on any technology, a single national auction for firm capacity and faster approvals for transmission, storage and gas. Labour: quicker agreement approvals, much shorter awards and worker choice between casual and permanent work, with every change tested against jobs, real wages and productivity. Budget: a binding rule keeping real spending growth below economic growth until a structural surplus returns, policed by the Parliamentary Budget Office, including reform of care and disability-scheme costs. Trade: build on the new EU agreement and remove remaining small tariffs unilaterally. Schools: reverse two decades of falling PISA results, which declined despite about 40 per cent more real funding per student, through early phonics checks, explicit teaching and funding linked to course completion. Technology and migration: regulate AI through existing laws and regulators, approve data centres within twelve months, make public data open as the rule, and keep the migrant intake in line with home building.
8. The closing message
Cormann concludes that 2026 resembles 1976 in its drift but differs in two ways: Australia now has evidence of what works from its own reform era, and a new technology able to raise productivity. The real test, in his view, is whether today's leaders will accept short-term political costs for gains that arrive after the next election, as earlier leaders from both major parties did; each generation, he says, must win the argument again.
