The Australian economy is unusual, in both what it produces and its policy settings. That matters for the response to various challenges including a retreat from globalisation, the low-emissions transition, and stagnant productivity growth. Policymakers cannot borrow blindly from overseas. Researchers need to do their part by providing careful analysis of Australian circumstances. In that vein, this report sketches 5 unusual features of Australia’s economic structure:

1. Australia has high population growth and today has one of the world’s largest construction industries. Housing affordability concerns can be addressed at lowest cost with reforms to boost construction productivity per worker or improve the allocation of existing housing. By contrast, crude limits to immigration threaten to undermine a source of Australia’s economic success, and pursuing further growth in the construction workforce would have opportunity costs.
2. Australia has one of the smallest manufacturing industries in the developed world, sharply dividing opinion. Some see the Australian economy as insufficiently robust to trade disruptions as a result, or worry that Australian R&D spending is too low. Others point to Australia’s lack of comparative advantage and suggest that innovation in Australia’s large services industries is more important. A clearer consensus would benefit policymakers.
3. Australia’s system of award wages are the highest minimum wages in the developed world and uniquely complex. The effect is to substantially fix relative wages among a wide array of lower-paying occupations, and provide a complex legal benchmark for other employment agreements. The longer-term consequences remain an open research area.
4. Government cash transfers are exceptionally targeted at the poorest in Australia, providing good ‘bang for buck’ on poverty alleviation. This is achieved through relatively stringent income and assets tests. But a recent trend towards ‘in-kind’ transfers – delivering goods and services rather than cash transfers – is making spending less targeted overall. The implications for household welfare and fiscal sustainability warrant more attention.
5. Australians hold substantial private wealth, much of it in housing and superannuation, and yet the average Australian still has access to large amounts of liquidity. Australia appears unique for the widespread use of offset and redraw accounts, which offer a means for mortgage holders to build home equity without sacrificing liquidity. This contributes to liquidity being concentrated among older and higher-income Australians and has implications for households’ responsiveness to income and wealth shocks, including changes in monetary and fiscal policies.