The Australian economy is now in the sixteenth year of uninterrupted expansion, the longest boom in its history. In the last fifteen years wealth has more than doubled, output has increased by nearly two thirds, the capital stock by more than half, labour productivity by a little under half, and the number of jobs by a quarter. The growth of income per person has been faster in Australia over the period than in Canada, the United States, the United Kingdom or New Zealand. The Australian economy has become more closely integrated into the global economy, with exports and imports increasing as a share of GDP, and Australian businesses often now investing more in the rest of the world than foreign businesses invest in Australia. The performance of the economy since 1991 is all the more remarkable because during the previous twenty years it experienced five recessions, two of them very severe. This Paper asks where the long expansion came from, what its defining characteristics are, and where it is going. Reviewing Australia’s recent economic history it argues that the long upswing had its origin in the economic reforms of the nineteen eighties and early nineteen nineties, and especially in the change in wage-setting. More recently Australia’s economic success has been grounded on its closer integration into a global economy which has become bigger, more diverse, and more congenial as Australia has become more completely a part of it. Moving towards the third decade of continuous expansion the economy is now encountering new challenges.

Twenty years ago the issues confronting Australia were reducing inflation and wages growth, reducing unemployment, enhancing competition, discovering a confi dent purpose in the world economy, and renewing Australia’s belief in its capacity for economic success. In the course of the long boom all those issues have been addressed. The new challenge is not to overcome failure but to entrench success. Productivity growth in the last six years has slipped compared with the previous six years, and so too output growth, the growth of per capita income, and the growth of export volumes. The gains from reducing unemployment and overcapacity, from increased competition and deregulation of product and labour markets, have been taken. The gains from more market reforms may be worthwhile but will be marginal. Output growth will likely be permanently lower with lower workforce growth, increasing the importance of education, training, innovation and research and development — all objectives currently low on the list of national economic priorities. With the long sequence of large current account defi cits in the last two decades Australian liabilities to the rest of the world now match nearly six tenths of output, and will continue to grow faster than GDP unless and until Australia can run a persistent surplus of exports over imports. While the global economy has become more congenial and its centre of gravity is moving towards the Australian time zone, the impact of a prolonged commodity boom poses some diffi cult issues for the structure of the Australian economy. These are formidable challenges. The long run of success has prepared Australians to more confi dently meet them, but also obscured their urgency.