The World Economic Forum (WEF) has released its Global Competitiveness Index for 2015-16, which reveals that Australia has reversed a four year slide in its ranking, increasing one spot to 21st in the world (from 22nd last year and 15th in 2009-10). Australia’s overall competitiveness score is now on par with the advanced economy average (see next chart).
According to WEF, Australia’s performance is generally good, although it is poor at innovation (ranked 26th) and business sophistication (27th), which makes it ill-equipped to move up the value chain:
[Australia’s] performance remains strong across all categories of the Index, particularly in education (9th in basic education and 8th in higher education) and financial market development (7th). Australia leapfrogs 20 places in the labor market efficiency pillar (36th), which has traditionally been its weakest aspect. Despite world-class education and universities, however, it continues to lag behind most advanced economies in innovation (23rd, up two). With global commodity prices set to remain low for the foreseeable future, along with the slowdown in China, the country must diversify further and move up the value chain.
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The below graphic shows the breakdown of Australia’s rankings (the interactive graphic can be found here):
Taxation policy is one particular area where Australia is failing, ranking 91st on the “effect of taxation on incentives to invest” and 110th on the burden of taxation on incentives to work.
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Commenting on the report, the Australian Industry Group (WEF’s official research partner in Australia) noted that Australia lagged countries with similar economic profiles, and needs to drive policy reform:
Countries with similar economic profiles scored better than Australia 21st position, with Canada at 13th (up from 15th in 2014-15) and New Zealand at 16th (up from 17th in 2014-15). Australia’s single largest trade partner, China, was ranked the 28th most competitive economy, the same position it held in 2014-15…
“We continue to lag globally on labour market efficiency (36th) with Australia ranking very poorly on hiring and firing practices (126th); flexibility of wage determination (117th); and the effect of taxation on incentives to work (110th). Our innovation rankings are also disappointing – we rank 27th for company spending on R&D and 25th for capacity to innovate.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
