Page 2 - FWP Wealth Adviser Issue 109

ISSUE 109
APRIL 2025

In recent years, Australia has witnessed growing political fragmentation.
In the 2022 federal election, nearly one-third of primary votes went to minor
parties and independents—a trend that continued into subsequent elections.

Australia’s Economic Challenges The Treasury’s projections for 2025 suggest cautious
and Opportunities optimism, with GDP growth expected to outpace 60% of G20
The Economic Landscape: A Report Card economies. However, these projections hinge on implement-
Australia’s economy has demonstrated remarkable resil- ing structural reforms that address underlying inefficiencies.
ience over the past decade, weathering global shocks such as
the pandemic better than many other advanced economies. The Role of Preferential Voting in Shaping Policy
However, beneath this resilience lie structural weaknesses Understanding Preferential Voting
that threaten long-term prosperity. According to recent data, Australia’s preferential voting system is unique among
Australia’s nominal GDP grew by 51% between 2017 and democracies. Unlike first-past-the-post systems used in
2024. Yet this growth masks deeper issues such as stagnant countries like the United States or United Kingdom, prefer-
real income levels and declining productivity. ential voting ensures that candidates must secure more than
50% of votes after preferences are distributed. This system
Key Challenges fosters broader representation by allowing voters to rank
1. Stagnant Real Income Growth candidates in order of preference.
Despite robust GDP figures, real income growth has failed
to keep pace with inflation. This stagnation has eroded Political Fragmentation: A New Era
household purchasing power, leaving many Australians In recent years, Australia has witnessed growing political
struggling to maintain their standard of living. The gap fragmentation. In the 2022 federal election, nearly one-third
between wage growth and inflation is particularly con- of primary votes went to minor parties and independents—a
cerning for middle- and lower-income households. trend that continued into subsequent elections. Preference
2. Cost of Living Crisis votes played a decisive role in determining outcomes in 136
Rising housing costs have made Australia one of the most out of 151 seats.
expensive countries in the world to live in. Sydney and This shift reflects widespread dissatisfaction with
Melbourne consistently rank among the least affordable traditional party politics. Voters are increasingly turning to
cities globally for housing. Meanwhile, household debt independents and smaller parties that address specific local
levels are among the highest in the OECD, further exacer- or ideological concerns. For example:
bating financial stress for families. • The rise of ‘teal independents,’ supported by Climate 200
3. Declining Productivity and Simon Holmes à Court, has highlighted voter de-
Productivity growth—a key driver of economic prosperi- mand for greater political accountability and integrity in
ty—has been on a downward trajectory. Factors contrib- governance.
uting to this decline include underinvestment in infra- • Minor parties such as One Nation have capitalised on
structure, inefficiencies in public services, and a lack of discontent with major party policies on immigration and
innovation in key industries. national security.

Opportunities for Reform Policy Implications
While these challenges are significant, they also present Preferential voting encourages coalition-building and
opportunities for transformative reform: compromise among parties, leading to more inclusive
• Taxation Reform: Simplifying tax structures could policymaking. However, it also creates challenges:
reduce inefficiencies and incentivise both domestic and • Strategic preference deals between parties can dilute
foreign investment. policy effectiveness.
• Infrastructure Investment: Prioritising projects in • The rise of single-issue candidates may lead to fragment-
renewable energy and digital infrastructure could boost ed policymaking rather than cohesive national strategies.
productivity while addressing climate change.
• Innovation Policies: Encouraging private sector innova- Despite these challenges, preferential voting remains a
tion through grants, subsidies, and partnerships could powerful tool for fostering democratic representation. By
help Australia compete on a global stage. understanding how preferences shape election outcomes,

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