Inside Australia’s ‘quiet collapse’ that could be impossible to fix

Australian society is at risk of fraying because of worsening wealth inequality and a dangerously narrow focus on mineral exports, an American finance expert says.

Despite its reputation as a stable and prosperous ‘lucky country’ with strong legal institutions and stunning beaches, Australia faces serious challenges that are leaving it trailing behind other economies, Darin Soat warned in a video posted to YouTube.  

A former investment banker, Mr Soat is now the Los Angeles-based founder of the Works Media Group who hosts and produces YouTube videos on economics.

He said that Australia’s abundant mineral resources have created some wealth,  much of it has been eroded by ‘outrageously’ unaffordable housing, which leaves mortgage holders and renters with very little disposable income.

‘The Australian right in the middle of the lineup from the richest to the poorest is more than twice as rich as an American in the same position,’ Mr Soat said in his popular How Money Works video.

‘We have an inequality problem with a small group at the top massively dragging up the average at the expense of everybody else in line.’

He said Australia’s narrow focus on mineral exports means it ranks as one of the world’s least developed nations, with its range of export industries ranking below Uganda.

Here is his full analysis of the economy.

Unaffordable housing

Mr Soat said Australia’s housing crisis was getting harder to fix.

‘The cost of housing in Australia has made every single problem so far even worse,’ he said.

‘And it’s also going to make it much harder to fix.’

Houses in Australia’s capital cities now typically cost more than $1million, or almost ten times the average, full-time salary of $102,742.

But in Sydney, the mid-point house price of $1.474million is more than 15 times the typical pay, CoreLogic data showed.

The American thinktank Demographia regards Sydney as the world’s second least affordable housing market after Hong Kong. 

Mr Soat said record-high immigration levels above 500,000 per year ‘into cities that couldn’t expand fast enough’ had made housing even more unaffordable.

So too has NIMBYism which prevents high-density developments, with existing house owners near the city loathe to have new apartments flood their suburbs.

‘Immigration to Australia has been some of the most intense in the world and the country has become highly dependent on low-income immigrants to do a lot of the jobs they aren’t willing to and high-income immigrants to also buy into their asset market,’ he said.

High population growth has also fed property market speculation, he said, with house investors able to get solid capital growth and strong rental returns, making real estate a better bet than shares.

Negative gearing allows property investors to claim rental losses on tax, and the policy is so entrenched that Labor lost two elections, in 2016 and 2019, after vowing to scrap it for future real estate purchases. 

‘This effectively makes every person in Australia their own little business that can accrue expenses to offset their tax,’ Mr Soat said.

‘This tax structure has encouraged high-income earners to favour investing in real estate. There is now so much debt and wealth tied up in Australian housing that the economy could be wiped out by even the indication that the government could rein in these incentives.’

Many older Australians in their sixties are now resorting to raiding their superannuation to pay off their mortgage, and relying on the age pension to survive – undermining the point of compulsory super. 

‘For many households, this has made one of Australia’s great wealth-building tools just another way to prop up a real estate market that is already so expensive that the rest of the world should be afraid of it,’ Mr Soat said.

Mr Soat said this was ‘outrageous’ and made even the most overpriced cities in the United States like San Francisco ‘look downright affordable by comparison’.

‘Housing is just one symptom of much bigger structural problems that the country has been quietly trying to ignore,’ he said.

Narrow mineral wealth focus

Commodities including iron ore, coal and liquefied natural gas were Australia’s top exporters in 2023-24, followed by university education – the nation’s top services export.

‘Australia has become so wealthy by getting lucky in just a few key industries,’ Mr Soat said.

‘And by going all in to keep those industries alive by any means necessary, including its own long-term viability.

‘The key to Australian wealth is dirt – either digging it out of the ground to export as improved natural resources, or by selling it back and forth to one another.’ 

High commodity prices provide state governments with healthy mining royalties as the federal government collects more company tax revenue. 

But in 2010, the big miners BHP and Rio Tinto lobbied against then Labor prime minister Kevin Rudd’s plans for a mining super profits tax, which saw the party replace him with Julia Gillard as leader ahead of an election and water down its proposal.

Liberal PM Tony Abbott’s government axed the mining tax in 2014. 

‘The problem Australia has had is turning a revenue source that has been good for Australia into money that is good for Australians,’ Mr Soat said.

‘Australia has tried in the past to generate more government revenue from its resources but heavy lobbying won out.

‘Having such a resource-dependent economy means investors have to decide between funding new innovations that could improve the world, or at least provide sustainable cash flows, or they could invest into developing more mines to export more resources to an existing list of willing buyers,’ Mr Soat said. 

Lack of innovation

The high returns from minerals and housing meant there was very little money invested in anything else, and that had robbed the nation of innovation, he claimed.

‘It is severely behind in other areas of innovation like technology and advanced manufacturing,’ Mr Soat said. 

That is a pity considering that Australia invented the Ford ute during the 1930s along with the post-war Victa lawnmower and Hills Hoist clothesline. 

The federally funded CSIRO invented WiFi in the 1990s during the early days of the internet. 

The government agency also played a key role in advancing solar panel technology, modern medical tools, and even developed technologies that contributed to the creation of Google Maps. 

‘Any of these alone would be a major contributor to the country’s relatively small population,’ Mr Soat said.

‘When it came to actually commercialising these technologies, the country lost out because its dependence on natural resources undermined its business environment.

‘Investors would rather the safe, predictable option and so these technologies naturally moved to where they could find funding from other sources.’

Australian technology success stories such as Atlassian, a workplace software company, and Canva, a graphic design program, have raised their founding and expansion capital in the United States by listing on the Nasdaq exchange.

‘We have more investors that are willing to put money into companies that aren’t in gambling, mining or real estate,’ Mr Soat said.

Addiction to gambling 

The Australia Institute estimates Australia has 18 per cent of the world’s poker machines, despite having only 1 per cent of the world’s population, with various state governments allowing pubs to have them since the 1990s.

The Australian Institute of Family Studies in 2017 estimated Australian adults typically wagered $1,000 a year in all forms of gambling, with online betting particularly prevalent.

Much of the money bet on racing and sports is sucked out of the country, as the major online bookmakers are foreign-owned. 

Mr Soat said the reluctance of Australian parliaments to properly regulate the gaming industry highlighted how vested interests controlled lawmakers.

‘It’s emblematic of a lot of genuine issues that aren’t getting address because no one wants to be responsible for shaking up the delicate balance of prosperity,’ he said. 

Lack of economic complexity 

The lucrative mineral export trade also masks Australia’s lack of economic complexity.

‘A country that only exports a few goods that lots of countries also export would have low economic complexity,’ he said. 

Harvard University’s Atlas of Economic Complexity index put Australia at 102 out of 145 nations, behind even Senegal and Uganda in Africa.

‘That has been falling consistently since the 1950s when it was in the top 30 thanks to a combination of manufacturing as well as research and development coming out of the country,’ Mr Soat said.

Australian governments from both sides of politics have been consistently cutting import tariffs since 1988, leading to the demise of local car manufacturing by 2017 when Holden made its last car in Adelaide. 

Despite that, the Swiss UBS bank still regards Australia as having the world’s second highest median wealth per capita, after Luxembourg. 

Super

Australia’s $4trillion in retirement savings makes the nation look rich with compulsory employer contribution climbing to 12 per cent in July.

Superannuation has been compulsory since 1992.

But Mr Soat said Australian super funds were often more likely to invest in the American share market, to capitalise on innovation, instead of the Australian share market.

‘That is not a bad way to diversify risk outside of Australia,’ he said.

‘The real problem is that Australia is technically taking cash which is propped up by a mining industry and them giving it to (Americans) so that we can build businesses here in America.’ 

Weak Australian dollar

The Australian dollar earlier this month fell below 61 US cents for the first time in five years.

That was well below the 75 US cents average since the currency was first floated in 1983, and a far cry the parity levels reached in 2010 and 2011 as the China-led mining boom continued after the Global Financial Crisis.

Mr Soat said the weak Australian dollar was no longer so strongly tied with commodity prices, and a weak currency was more than an inconvenience to Australians travelling overseas.

‘It could actually be the biggest indication that Australia has dug itself into a hole, both literally and figuratively,’ he said.

A weak Australian dollar also makes imports more expensive and adds to inflation in a nation that makes fewer goods. 

What Aussies said about his analysis

Many Australians agreed with Mr Soat’s views and shared concerns about the country’s economic situation.

One joked: ‘A famous economist once said: “If Steve Jobs had been born in Australia, Apple would never have existed, because the Australian banks would have told him to borrow money to buy a house instead of chasing stupid business dreams”.’ 

A second said: I’m an Aussie and I’m living in this nightmare.

‘I worked hard my entire life, went to uni, got an undergrad and a master’s degree and worked as a uni college teacher yet homelessness is just around the corner for many of us. 

‘I don’t recognise this country anymore. Greed, greed, and more greed.’

A third said: ‘Us Aussies are over-taxed, over-levied, over-dutied, over-rated, and over-fined. 

‘Yet, we are citizens of one of the most beautiful and tourism-rich countries, and one of the most resource-rich countries. 

‘More and more people may face a tough time in retirement. Low-paying jobs, inflation, and high rents make it hard to save. 

‘Now, middle-class Australians find it tough to own a home too, leaving them without a place to retire.’

Another said: ‘It’s sad to be a young person here. Most of my friends have already given up on buying their own place and are simply waiting for their parents to die to inherit it. 

‘If your parents don’t own their home and you have to pay rent it’s almost impossible to buy your own place unless you move over an hour out of a major city.’