The economy in 2026 - 6 possible transformations for Australia

By imagining for a few minutes that the year is 2026, we can get a better idea of how the Australian economy might evolve. Here six economists speculate on how the economy might change in the decade after 2016.

INTHEBLACK asked six leading economists to exercise their imaginations and invent a story of what Australia's economic evolution might look like by 2026. They invented economic environments with elements that we can already see, but with huge changes to jobs, businesses, cities and international relations.

Here, then, are six thought-provoking visions of possible economic changes ahead, each addressing a different element of the economy.

In the past decade hundreds of thousands of jobs have disappeared in transport, professional services, manufacturing, government and other sectors as machines have taken over repetitive tasks.

In the past, such transformations occurred over decades, giving displaced businesses and workers time to adjust, and the technologies that have driven the process have given rise to new industries.

Shane Oliver

However, AMP Capital Investors chief economist Shane Oliver says the decade to 2026 has been different. The rapid speed of change has been traumatic for many - old jobs have been destroyed at a much faster pace than new ones have been created.

This has caused a growing gulf between those in well-paid jobs, immune to automation, and the rest.

With less disposable income around, economic growth has slowed and social tensions are increasing. There are growing demands for the government to use the tax and welfare systems to even the spread of income, and people are loudly advocating a shift to a four-day week to share jobs.

All is not gloom, however. Cafes, tourism operators, gyms, gene therapy clinics and other personal service providers are prospering, and new jobs and businesses are appearing all the time. Despite this, the period of dislocation has been painful for many.

The plunge in office rents and property prices that began in 2021 shows little sign of letting up as the days of the corporate head office appear increasingly numbered.

Deborah Cobb-Clark

While a core of employees continue to work in the same physical space, for years now a growing proportion has been taking advantage of advances in communications technology to work from remote locations - homes, shared office spaces and even cafes with dedicated work areas.

University of Sydney professor of economics Deborah Cobb-Clark, who anticipated this development a decade ago in 2016, says this, combined with the increasing automation of many jobs, is transforming the way we live and work.

People have more leisure time as their workload shrinks and an increasing number are freed from having to undertake the daily commute.

The new model of work is changing the structure and purpose of cities. Increasingly, the CBD as a work destination is a relic of the past and the "peak hour" pressure on transport networks is receding. People still flock to cities, but mostly for their amenity and social life rather than work.

Having already helped to usher in land taxes in the states, the Federal Government is now facing an even tougher political fight over plans to increase the retirement age to 70 years, introduce death duties and establish a HECS-style scheme for the aged pension.

Stephen Koukoulas

Stephen Koukoulas of Market Economics says there is little choice. "It is a matter of dollars and cents," he says. "Community expectations are that the provision of services be held to a high level, and that is very expensive."

The nation's swelling ranks of retirees are driving ever-increasing demands for health care, community services and income support. The burden of this cost is falling on a shrinking share of working-age Australians.

The situation has called for radical solutions, and the government is now contemplating measures that 10 years ago would have been considered unthinkable - including a progressive scale of death duties and a "reverse-HECS" for pensions, under which a means-tested proportion of the welfare payments claimed by recipients are reimbursed to the government from their estate when they die.

"People want a decent level of government-provided services," Koukoulas says, "but without some serious action, there is a real risk of it becoming unaffordable."

Australia's biggest economic achievement of the past decade has been to solve the conundrum of chronically low productivity.

Mardi Dungey

By breaking down rigidities in the way work is conceived and structured, University of Tasmania professor of economics and finance Mardi Dungey says the nation has tapped into a rich pool of labour and expertise among those who in the past have been systematically excluded from the workforce, such as those with disabilities and chronic medical conditions.

By relaxing time constraints and instead conceiving jobs in terms of outcomes, the nation has opened up a swathe of opportunities for those who might take longer to complete a task, but can deliver results at least the equal of able-bodied workers.

Innovations like e-lancing and a more sophisticated approach to measuring production, particularly in the services, have helped drive the transformation.

Almost 20 years on from the global financial crisis, the Australian economy, like that of much of the developed world, continues to struggle to get out of second gear.

While Australia's record of 35 years of unbroken growth is remarkable, Lateral Economics principal Nicholas Gruen says there is little to celebrate from the last 10 years. The dark cloud of economic stagnation that settled over Europe in the wake of the GFC has spread Down Under.

Nicholas Gruen

The tough medicine policies forced on Europe's debtor nations (Italy, Spain, Greece) by Germany stoked deflationary forces that quelled growth there, and a similar dynamic has gripped Australia. Central banks around the world, including in Australia, have struggled in vain to lift the inflation rate.

Most workers have not had a real pay rise in years, and housing costs are claiming an increasing share of income, leaving fewer dollars left over for shopping and personal services. In turn, soft turnover has given firms little reason to hire more staff or make substantial investments.

In the past decade, annual growth has averaged 2.5 to 3 per cent, rather than 3 to 3.75 per cent. The result, says Gruen, has been to make the country 5 per cent poorer than it would otherwise have been.

Instead of acting to break out of this rut, successive governments have been complacent. "Now our unemployment rate is higher than the United Kingdom and the US, and there is no sense of urgency, or that something is seriously wrong," says Gruen. "It is a story of the great Australian complacency."

In the decade since 2016 the country has endured slowing population growth, a continued decline in the terms of trade and productivity, and an end to booming house prices. Yet the biggest shock has come from the liquidity crisis that crippled China's financial system.

Saul Eslake

The warning signs were already appearing in the middle of the last decade, says independent economist Saul Eslake, when the country's banking system developed some of the worrying characteristics of the American banking system before the global financial crisis hit.

"The GFC was not primarily caused by a huge increase in bad mortgage loans, but by a wholesale run on funds tied up in securities," Eslake said at the time.

"China's banking system has taken on some of that character. China's banking system has become much more dependent on the types of funding [securities] that brought down the Western banking system [in the GFC]," he adds.

The Asian country's massive foreign exchange reserves, worth around US$3 trillion, were of little help in what became a solvency crisis. For Australia, whose trade dependency on one nation was greater than at any time since the 1950s, the economic consequences have been severe.