Australia will run an overt command economy by 2040

Australia’s Fiscal Point of No ReturnLast September I wrote about Australian economic stagnation — how taxation past the Laffer curve’s point of peak growth, zero public sector productivity improvement since 2001, and the systematic eradication of manufacturing and ICT from the economy have combined to produce economic stagnation and flatlining living standards. The NDIS and similar social spending were the only parts of the economy “growing,” but because this spending is not cumulatively generative, it’s not able to sustain long term high quality public benefits. In other words, we’re burning the seed corn.[Edit: This post generated a surprising amount of coverage, including on news.com.au, The Australian, the Daily Telegraph. I’m pleased that the problem is now obviously undeniable. The question is what to do about it.]The post generated a question I couldn’t answer at the time: when exactly does this become irreversible? During my recent visit in December 2025, I paid close attention to the function (and dysfunction) of the service economy and was forced to the uncomfortable realization that government spending already controls and distorts such a large fraction of the market that it is not clear whether the Hayek knowledge problem is being solved at all. In other words, the economy is producing gross shortages and excesses of many goods because government interference in natural pricing mechanisms is so excessive that information transfer through prices no longer exists in a functional way. This is clear in the case of housing, education, healthcare, and now fuel, but also occurs almost invisibly in nearly every other economic edge node that Australians routinely use. This motivated me to investigate the situation more thoroughly. The answer is not unexpected but quite dire. Australia passed the point of no return in 2013, and is now 13 years into a probably irreversible zombie-fication of its economy.What GDP Actually MeasuresAustralia’s headline GDP is $2.75 trillion. It grew 1.3% in the year to March 2025. GDP per capita fell, for the ninth time in the last eleven quarters. The standard interpretation is that we’re in a “per capita recession” but the total economy is still growing.

This is wrong in a way that matters.GDP doesn’t distinguish between a dollar spent building a factory (i.e. becoming long term productive capital) and a dollar spent on a plan manager coordinating a support coordinator to arrange, say, an NDIS claim. Both show up the same. But only one of them leads to capital accumulation and becomes an engine of generational wealth growth.Both the private economy and the government spend on a range of things with a range of long term productivities, but as a de facto welfare monopoly and monopsony with the unique power of taxation, it is unavoidable that the government appropriates and ultimately compromises and destroys a lot of productive capital. Well and good, provided the economy can regenerate it at least as fast as it is harvested. Is this the case, remembering that the goal is to shear the sheep, not skin them!Let’s break down Australia’s economy by public and private spending.Strip everything tax-funded out of GDP. Government healthcare. NDIS. Aged care. Welfare. Defence. Public administration. Debt interest. To be complete, we need to include the nominally-private sector that exists solely to bill the government. NDIS plan managers. Private hospitals billing Medicare. The entire private health insurance industry, a $25B/year regulatory artifact that adds 15% administrative overhead to redirect money from taxpayers through insurers back to the same hospitals. What’s left is the wealth-generating economy that compounds over time.That tax-funded economy is about 34% of GDP and growing at 4–5.5% real, despite flat productivity since 2001. The productive remainder is ~66% and growing at maybe 1.0–1.5%, generously. Decompose per-capita GDP to exclude the care economy’s above-GDP growth, and the productive economy per Australian has been shrinking since roughly 2016. Not stagnating. Shrinking.What’s propping up headline GDP? Two things. First, mass immigration, keeping total population growing and consumption increasing. Second, government spending on itself, the public sector’s 5%+ growth rate dragging up the average. But neither of these factors actually supports long term economic growth or increases the growth rate. Mass immigration dilutes wealth and increases strain on public sector services that lack a market mechanism to respond to demand or to innovative on productivity.

And public expenditure on welfare and services, while serving laudable social goals, consumes rather than produces net new wealth.Communism Via the Back DoorHere’s the part that made me uncomfortable.If the only “growing” part of the economy is government-funded services, and government-funded services are by definition centrally planned — administered prices, administered eligibility, administered supply — then what we’re watching is the gradual adoption of a command economy through the back door. Nobody voted for communism. But every year the tax-funded share of GDP ratchets up another fraction of a percent, another tranche of the economy moves from price-signal allocation to bureaucratic allocation, and another cohort of workers shifts from producing things people voluntarily pay for to producing things the government has decided they should have. We are sleepwalking into a planned economy, funded by the shrinking productive sector that hasn’t yet noticed it’s being eaten alive. The Fabians would be thrilled. The rest of us should be terrified.This isn’t hyperbole. The NDIS is already closer to central planning than to a market. The government defines eligible populations, approved services, price caps, and quality standards, then funds everything through a single agency. Medicare is a monopsony with administered prices. Aged care is shifting to government-set pricing through the Independent Health and Aged Care Pricing Authority. At some point the “private provider” wrapper becomes pure overhead on what is functionally a state employment and service delivery system. Australia won’t choose a command economy. It will discover it’s already in one.The parallels are even stronger. In a capitalist economy, workers are free to move to work in different fields for different employers, they’re free to critique (productively or otherwise) their industrial sector, and generally enjoy liberty and the freedoms we take for granted. In a communist economy, a government bureaucratic official decides what you are paid, what you do, where and when you do it, how you can do it, controls access to clients/customers, controls licensing, insurance, and explicitly prohibits any form of criticism internally or externally, lest it harm public trust in the service.

Government policy on provisioning and rationing of inherently scarce public services is routinely updated, but you’ll never hear a word of commentary or constructive criticism from the actual people who work in those sectors, which is strange until you realize that some unelected unaccountable bureaucrat can simply revoke your right to work in your profession with no due process, depriving you of your livelihood. When any society or sector moves to crush dissent, it destroys the feedback system necessary for the most qualified and motivated people to advocate for reforms that help everyone. And here’s the kicker: a competent command economy would at least be cheaper. Strip out the plan managers, the support coordinators, the LACs, the NDIA assessors, the AAT appeal lawyers, the compliance officers, the fraud investigators — the entire intermediation layer consuming 15–20% of NDIS costs — and just employ the support workers directly. You’d lose consumer choice. You’d save $7–9B a year on the NDIS alone. The current system manages to combine the allocative inefficiency of central planning with the transaction costs of market intermediation. We have the worst of both worlds, and nobody seems to have noticed.When Did We Pass the Point of No Return?Four key dates matter. At each of these times, Australia locked in a different dimension of the trap.2007–08 (Structural). Productivity growth permanently downshifted from ~1.5% to ~1.0% after the mining capex boom ended. From here, the productive economy’s growth rate dropped below the care economy’s structural growth rate and never recovered. The share of GDP consumed by tax-funded services started rising monotonically and hasn’t stopped. The mining boom had been masking this for years. Once the mask came off, the underlying rot was already advanced.2013 (Political). The NDIS was legislated with bipartisan support. This created a fourth uncapped, demand-driven entitlement — joining Medicare, PBS, and the Age Pension — with no fiscal cap, no means testing, and no GDP-linked growth constraint. Originally scoped for ~410,000 people. Now at ~740,000. Projected to hit a million by 2034. The scheme costs $46 billion this year and is growing at 8–12% per annum.

The 2023 Intergenerational Report projected NDIS costs reaching 6.3% of GDP by 2062 without reform — higher than projected health spending over the same period. The issue isn’t that the NDIS is a magnet for fraud, though of course there is some and of course the optimal amount of fraud is non-zero. NDIS currently spends about $12b a year on administration, part of which is intended to limit fraud, while Bill Shorten called estimates of $2 billion per year in fraud “egregious.” The Grattan Institute found that projected fraud savings over three years total $424 million — less than 0.3% of scheme expenses. Fraud isn’t the core problem. The core problem is uncapped demand in a system without effective eligibility gatekeeping creating incentives for large swaths of society to see themselves as permanently disabled instead of pursuing the dignity of meaningful and sustained contributions to our society despite the depredations of time and fortune that will ultimately take us all. 2013 was the point of no return. The only variable was speed.2015–17 (Fiscal). The per-worker extraction rate — tax-funded economy divided by productive economy, weighted for working-age population share — permanently exceeded per-worker productivity growth. Each productive worker started falling further behind every year, and hasn’t stopped. By 2024 the extraction ratio hit roughly 66%: for every dollar of GDP the productive economy generates, 66 cents goes to fund the tax-funded economy. That number is heading for 80% by the mid-2030s and 100%+ by 2040 — a mathematical impossibility resolved only by unbounded debt growth, money-printing, or collapse.~2024 (Democratic). Healthcare workers (~2M), NDIS participants and families (~2.2M), pensioners (~2.6M), aged care recipients (~1.3M), and public servants (~2.1M), after overlap adjustment, add up to about 50% of the voting population. Once a majority of voters depend on the tax-funded economy, no democratic government can run on structural reform. Every election becomes a bidding war to expand public spending. This is the Italian/Greek path, except without the EU backstop.