For about seven decades after becoming a nation in 1901, Australia’s economic policies had been quite successful. The country achieved one of the highest living standards in the world. Australia became one of the earliest welfare states, with free health care for all and generous pensions and welfare. The country developed excellent infrastructure; a world-class education system with top-rated universities, modern ports and telecommunications; cheap and high-quality housing.

Australia has emerged as one of the most dynamic economies in the world in recent times. The country’s recovery has been impressive considering that in the 1980s, it had faced a crisis of sorts. Australia had been on its way to becoming a banana republic in the words of the then treasurer (finance minister), Paul Keating. Keating and Prime Minister Bob Hawke implemented tough measures such as the near-elimination of tariffs, the floating of the exchange rate, the first introduction of enterprise-level rather than industry-wide pay bargaining that broke the power of Australia’s unions, bank deregulation and compulsory saving for pensions. The labor reforms, supported by the opposition Liberal Party, have virtually transformed Australia. The country has become a model of economic liberalization for countries across the world. Many analysts consider Australia to be one of the best places in the world to do business.

Australia, in its 15th successive year of continuous growth in 2005, continues to enjoy low inflation, the lowest unemployment for almost 30 years, negligible government debt and regular budget surpluses. Australia has not been significantly affected by its main trading partners’ crises—Asia’s financial meltdown of 1997-98, Japan’s decade of stagnation and America’s tech crash in 2001.

But even as it receives applause for its great performance, Australia faces new challenges. The most important of these are supply side bottlenecks. Australian labor policies and the school education system also need a major overhaul. Would Australia be able to reinvent itself and build on the tremendous progress it has made in the past 15 years?

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