Three decades of economic reform have boosted economic activity, generated jobs and increased wages for Victorian workers at higher rates than across the rest of Australia, a new report released by the state government reveals.
The recently released Australian Trade and Investment Liberalisation Report – carried out by The Centre for International Economics on behalf of the government – suggests that trade and investment liberalisation undertaken between 1986 and 2016 has led to the state’s gross domestic product (GDP) being 9.3 per cent higher than it otherwise would have been in the absence of reform. Real wages growth is also 9.3 per cent higher, while an additional 184,000 jobs have been created.
The report also indicates that Victoria’s share of the benefits of economic liberalisation has been slightly greater than the rest of the country – almost 2 points higher for GDP growth and 0.6 higher for real wage growth. Victoria’s export growth sits at 45.5 per cent, over 10 points higher than that experience throughout the rest of the country (32.1 per cent).
Merchandise trade liberalisation – particularly in the form of tariff reductions – accounts for the majority of the economic output gains attributable to trade and investment liberalisation in Victoria. This has led to a significant increase in merchandise imports into the state. The report shows, however, that the decreased share of the economic activity enjoyed by merchandise exports has also been accompanied by a relative increase in the value of this sector.
The report’s economic modelling suggests that the tariff reductions pursued over the last 30 years have engendered a structural shift in the Australian economy from import competing industries to export industries, with a concomitant rise in overall national productivity.
While the changes wrought by economic liberalisation have resulted in a broader shift from manufacturing industries to service industries in terms of overall share of the economy, the report’s modelling shows that, in 2015-16, Victoria had a higher share of output in the manufacturing sector relative to the rest of Australia. Moreover, while tariff reductions have led to a 50 per cent increase imported manufactures, the largest gains for Victorian exports generally have come in the area of manufactured goods.
The report recommends that the Victorian government pursue policies that support further economic reforms, develop strategies for encouraging international investment, and help domestic businesses take advantage of expanding opportunities in export markets.