The Wellbeing Economy in Brief #4: Australia’s economy needs new recipes



“We’ve now got shareholders, they’re the beneficiaries of the profits, but they’re saying, ‘Hang on, this is not right…’ We’ve got workers saying, ‘Why the hell would I want to work for you, given the damage that you’re inflicting on the natural environment?’ We’ve got consumers saying, ‘Why would I buy your products, given the damage you’ve been inflicting on the natural environment?”’ – Ken Henry, former Secretary of the Australian Treasury

Australia is often praised for its high standard of living and its performance on various economic, social and environmental indicators. As reported in the 2022 Budget Statement 4 Measuring What Matters, compared to other OECD countries, in terms of areas such as household wealth, employment, life expectancy, and premature mortality, Australia is among the best in class. 

However, just because we are doing better than others, that does not mean things are as they need to be. For example, over two thirds of Australians think that the differences in income in Australia are too large. More worryingly, behind these headlines, there are many troubling trends that threaten the wellbeing and progress of the nation and its people. These include negative trends in homelessness and housing, financial stress, mental health issues, wealth inequality, trust in government, biodiversity loss, pollution and native vegetation clearing. 

The 2022 State of the Climate report sets out the environmental aspect: 

“warming has now increased to 1.47℃…The year 2019 was Australia’s warmest on record. The eight years from 2013 to 2020 are all among the ten warmest ever measured…Since the 1950s, extreme fire weather has increased and the fire season has lengthened across much of the country. It’s resulted in bigger and more frequent fires…In Australia’s southwest, May to July rainfall has fallen by 19% since 1970. In the southeast of Australia, April to October rainfall has fallen by 10% since the late 1990s…Lower rainfall has led to reduced streamflow; some 60% of water gauges around Australia show a declining trend. At the same time, heavy rainfall events are becoming more intense.”

The University of Melbourne’s Pulse of the Nation results illustrate the social aspect:

“Today, more than half (53 percent) of Australians report just making ends meet or worse. Among those aged 18 to 44, the share with some financial stress has increased to 60 percent. In terms of bill paying, half of all Australians and more than 90 percent of those financially stressed indicate that they have had one or more challenges in paying bills or putting food on the table in the past three months. Across the board more than half (and in some cases much more) of Australians have reported increases in housing costs, missing meals or eating less, eating less nutritious meals, not being able to pay utility bills, and skipping doctor appointments or not filling prescriptions.”

Our economy is failing our society...

The current economic configuration clearly fails on many scores: socially and in terms of impact on the planet. Let us lay out the evidence of this, firstly as seen in social terms:

  • Inequality: While Australia can still boast that its levels of wealth inequality are below the OECD average, it has been getting worse over a period of decades with the apparent ‘steadiness’ of income and wealth inequality in 2007 to 2019 contrasting to a steep rise in inequality during the early 2000s. The gains of a growing economy have gone to those higher up the distribution, where those owning their homes and holding superannuation have benefited. Australia’s Gini coefficient (a measure of inequality) for wealth is almost double that of income. The Australian Council of Social Services (ACOSS) and the University of NSW report that Australia’s wealth inequality has increased substantially over the past two decades: for those in the top 20%, wealth increased by 82%, compared to 61% for the middle 20% and just 20% of an increase for the lowest 20%. 
  • Wages and work: Alongside these trends, price rises have meant slow real wage increases: only 0.1% per year over the past decade, and in 2021 a substantial decline. Australians are taking on additional work, with the number holding multiple jobs at an unprecedented level. While official employment figures might look good, many of the jobs are insecure with over one in five employees lacking a minimum number of guaranteed hours and almost one in four of all workers on casual contracts. As a Senate Committee recently concluded: “Job insecurity is at a crisis point in Australia. It is damaging the physical and mental health of Australian workers, and it is holding back Australian wages.” 
  • Poverty and financial stress: It is estimated that one in eight people (one in six children) live in poverty, (measured after housing costs).  Households are struggling to keep up with bills; for those in the lowest fifth of income groups, 41% are in ‘energy stress’ and 42% in ‘rental stress’. When the census was taken in 2021, one in fifteen of Australian households were either experiencing homelessness, living in overcrowded housing or in rental stress.  As Anglicare reported “The market for affordable properties is fiercely competitive, with many households on low incomes unable to get a look in to a rental.”
  • Mental health: Last year the ABS reported that more than two in five Australians aged 16-85 years had experienced a mental disorder at some time in their life and one in five in the last year. One in seven children have a mental health problem.
  • Loneliness: More than a quarter of Australians experience loneliness at any one time, with 37% of young people reporting feeling lonely.

...and our environment

Statistics such as these illustrate a situation where too many people are struggling in the face of business as usual, a set up that has also brought with it extraordinary pressure on the planet and Australia’s natural habitat:

Intersecting issues

These various dynamics do not operate and impact in isolation – they overlap and reinforce each other. For example:

  • Life expectancy and loneliness: Lonely people are more at risk of death, with the impacts being equated to smoking 15 cigarettes or having six alcoholic drinks per day. 
  • Environmental impact and health: Air pollution (from transport, mining, and power generation using fossil fuels) is thought to account for 2% of Australian deaths (2,600 people) each year.  
  • Climate change vulnerability and income: Climate change hits those on low incomes the hardest, with people on low incomes lacking the financial resources to buffer the impacts (unable to afford air conditioning or insurance, for example). 
  • Income and health: People on lower incomes and with less wealth have ‘a health burden 40% higher for anxiety, twice as high for heart disease and more than twice as high for diabetes’. Researchers explain this link as stemming from “disempowerment, social discrimination and disadvantage. Poor health can also perpetuate financial hardship through reduced access to education, employment, and other key social resources, leading to a vicious cycle.” 
  • First Nations and health: Such dynamics are particularly acute for many of Australia’s First Nations People. For example, it is estimated that 30-50% of the health gap between Aboriginal and Torres Strait Islander people and other Australians can be attributed to what is referred to as the ‘social determinants of health’.

Does a rising tide really lift all boats?

One of the characteristics of the current economic model is the apparent importance of economic growth, which is often touted as ‘lifting all boats’ (the assumption being growth improves wellbeing for the population). Yet, this has not occurred to a degree that would justify carrying on with business as usual. Until the COVID recession of 2020, Australia had a world-record breaking run of nearly thirty years of uninterrupted economic growth, and in recent years Australia has had what would be deemed strong growth – GDP increasing, for example at 3.3% in 2021. Australia’s GDP growth of recent decades has come at the cost of great harm to the planet, and hasn’t enabled enough people to thrive. Indeed, the current economic configuration, which encourages asset price speculation and the extraction of short-term profits, is driving inequalities and over-consumption of the Earth’s resources. If growth was the answer to Australia’s social and environmental problems we should have seen clear progress – perhaps even some of these problems solved – during this time. Instead, we saw deterioration in many of the measures we care about and an undermining of the long-term sustainability and resilience of the Australian economy, ecology and society.

The Herald/Age-Lateral Economics Wellbeing Index adjusts GDP to create a broader indicator that takes account of changes in education, health, work life, social inequality and environmental degradation. The outcomes are expressed as a dollar figure which allows both economic and non-economic aspects of human wellbeing to be compared in a tangible way. The result is a much fuller gauge of national progress than GDP. This work demonstrates that, while our economic output continues to grow, our collective wellbeing in recent years has levelled off.

The extreme costs of bandaid solutions

One of the reasons why these problems persist is that policy responses tend to focus on treating the symptoms, rather than addressing the root causes. For example, the amount of money now being spent on mitigating the impacts of climate change on communities and places could have been avoided if previous governments had prioritised reducing greenhouse gas emissions. Similarly, Australian governments and families spend a lot of money on health care, but not enough on preventing chronic diseases and promoting healthy lifestyles. Governments also spend a lot of money on providing temporary accommodation for homeless people, but not enough on ensuring accessible and affordable permanent housing or on reshaping our macroeconomy so that fewer people end up destitute. This react and repair approach is inefficient and ineffective. Here are some of the figures that illustrate this:

  • Economic inequalities in Australia are reduced by the government undertaking considerable redistribution via taxes and transfers. The magnitude of this redistribution is considerable: ‘on average, income tax and transfers reduce income inequality by about one third’. This is a significant moderation by government, and still Australia is less equal than Australians would like it to be.
  • Almost half (45%) of the Victorian Government’s budget is deployed on acute (downstream) services, such as prisons and child protection. 
  • Loneliness costs Australia $2.7 billion, approximately $1565 per person per year.
  • Australia’s extreme weather brings direct costs, costs that are estimated to grow by 5.13% each year (before inflation) to $35.24 billion (in 2022 dollars) by 2050. In 2050 Australian households will be paying an average of $2,509.16 every year for the direct costs of extreme weather events…every Australian taxpayer will be contributing to the $12.1 billion [by 2050] used to pay for disaster recovery and the increased cost of insurance. One example of this sort of expenditure is seen in Melbourne’s appointment of ‘chief heat officers’ whose task it is to reduce heat risks facing vulnerable people in times of extreme temperatures.
  • Just looking at the 2022 Federal Budget, there were a range of spending pledges that could (or at least portions of them) be described as avoidable costs. These include: $3 billion over 4 years for floods and other disaster response payments; $630 million over 4 years to increase resilience to disasters; $225 million over 4 years to reduce rate of native species decline; various cost of living supports; $560 million for community sector because of increased demand amongst vulnerable communities; $115 million for mental health services and counselling; and $3.4million for climate change responses in health systems.

About the Wellbeing Economy in Brief Series

These mini-briefings look at the idea of a wellbeing economy, how it relates to other ideas for economic change, and what some of the core elements of a wellbeing economy are. They reflect on why Australia needs to build a wellbeing economy.

This series of ‘mini-briefings’ attempts to clarify terms and expressions and associated wellbeing economy ideas so that discussions can take place from a basis of shared understanding and language.

Read the rest of the series