According to The Heritage Foundation (Heritage), a US research institution, Australia now ranks fourth in terms of how free its economy is, compared to 180 other countries.
In its 2020 Index of Economic Freedom[i], published annually, the organisation reports that Australia overtook Switzerland and now ranks above the UK (7th), Canada (9th), the United States (17th), Germany (27th), Japan (30th), France (64th) and Italy (74th).
First published in 1995, the Index of Economic Freedom is jointly compiled by Heritage and The Wall Street Journal. It measures economic freedom based on four broad categories:
- Rule of law (property rights, government integrity, judicial effectiveness)
- Government size (government spending, tax burden, fiscal health)
- Regulatory efficiency (business freedom, labour freedom, monetary freedom)
- Open markets (trade freedom, investment freedom, financial freedom).
Australia: one of only six economies rated ‘free’
The 2020 survey produced a global average score for economic freedom of 61.6, the highest recorded in the 26-year history of the Index. Of the 180 economies ranked in the Index, six are considered ‘free’, and an additional 93 are rated at least ‘moderately free’. However, 81 economies still received average scores below 60 and are rated ‘mostly unfree’ or ‘repressed’ (see map).
New Zealand, Australia, Switzerland and Ireland join Singapore and Hong Kong as the only economies considered ‘free’, with economic freedom scores above 80 on the 0–100 Index scale. At 82.6, Australia’s overall score has increased by 1.7 points, led by improvements in scores for government integrity and fiscal health.
The survey has rated Australia a leader in economic freedom since the inception of the Index in 1995. In 2020, it noted:
‘Far from resting on its laurels, the new [Australian] government plans to promote investments in infrastructure, cybersecurity, and digital payments platforms while also pursuing further regulatory and industrial policy reforms as well as personal income tax cuts, all of which should drive economic freedom in Australia even higher.’
In comparison, the Index scored the United States’ economic freedom at 76.6. The country’s overall score has dropped slightly, by 0.2 points.
Asia-Pacific: home to four of the six most-free economies
The Asian region is distinguished by an extraordinary disparity in levels of economic freedom among regional economies. Four of the world’s 10 most-free economies are in this region — Hong Kong, Singapore, New Zealand and Australia — yet a large number of the other countries remain ‘mostly unfree’.
China’s economic freedom ranking declined in the 2020 Index, although its overall score rose by 1.1 points to 59.5 due to increases in scores for business freedom and property rights. Overall, China’s economic freedom score has improved over the past five years, with most of the gains in the rule of law and, more recently, business regulation.
India’s economic freedom score and ranking improved in the 2020 Index, led by a higher business freedom score. Although it still languishes in the mid-range of the ‘mostly unfree’ category, India has benefitted from several recent waves of economic liberalisation.
[i] For the 2020 Index, most data covers the second half of 2018 through the first half of 2019. To the extent possible, the information considered for each factor was current as of June 30, 2019.