Chapter 3 · The command-economy trajectory
The Ratchet
Nobody is going to vote for communism in Australia. Nobody has to. Every year the tax-funded share of the economy ratchets up another fraction of a percent, and the arithmetic below says when the productive remainder can no longer carry it. You can run the clock yourself.
What GDP actually measures
GDP doesn't distinguish between a dollar spent building a factory and a dollar spent on a plan manager coordinating a support coordinator to arrange an NDIS claim. Both show up the same. Only one of them leads to capital accumulation and becomes an engine of generational wealth. So strip everything tax-funded out of GDP – government healthcare, NDIS, aged care, welfare, defence, public administration, debt interest, plus the nominally-private sector that exists solely to bill the government – and look at what's left. That remainder is the wealth-generating economy that compounds over time.
The split, on Casey's decomposition: the tax-funded economy is about 34% of GDP and growing at 4–5.5% real, despite flat productivity since 2001. The productive remainder is about 66%, 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.
Headline GDP – $2.75 trillion, up 1.3% in the year to March 2025 – is propped up by two things: mass immigration keeping total consumption growing, and government spending on itself, the public sector's 5%+ growth rate dragging up the average. GDP per capita failed to grow in nine of the eleven quarters to March 2025 – seven falls and two flat, on revised data. The goal is to shear the sheep, not skin them. Is the fleece growing back as fast as it's harvested? That's a division problem, and division problems have answers.
The extraction clock
Two growth rates decide Australia's future, and neither is a secret. The tax-funded economy compounds at its rate; the productive economy compounds at its rate; the ratio between them is how many cents of every productive dollar are spoken for. Fold in the demographics – the working-age share slides from 64.5% today to about 57% by 2050, so ever fewer workers carry the ratio – and you get a date. Move the sliders and get your own.
Per productive dollar, 2026
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goes to the tax-funded economy
Crosses 80¢
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Casey's mid-2030s line
Crosses 100¢
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the arithmetic breaks
Escape velocity
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productive growth that keeps the ratio under 100¢ this century — even stricter than Casey's 3.5%+
Assumptions & formula
The 34%/66% split and both default growth rates are Casey's decomposition of ABS national accounts categories – Casey asserts the sector classification (which "nominally private" activity counts as tax-funded). The measured anchors bracket his 34%: public final demand is 28.8% of GDP and general-government expenses are 37.1% (2024-25, data), and real public-demand growth has in fact run at 4.2–4.3% in each of the last two full years, squarely inside his 4–5.5% band. On demographics, the ABS medium projection has the working-age share falling to 61.9% by 2050, not Casey's 57% – the default reproduces his model; the sensitivity is yours to test. One honesty note: the post quotes the 2024 extraction ratio as "roughly 66 cents", but 34 ÷ 66 = 52 cents, and the per-worker weighting that would bridge the gap is never specified. This model therefore starts from the reproducible 52¢. His crossing dates still roughly emerge – with demographics on and his growth rates, 80¢ arrives in the mid-2030s and 100¢ around 2040 – but the quoted starting level is one of the places the post asserts more than it derives. See Assumptions.
Communism via the back door
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 without anyone signing the paperwork. The ratchet has four clicks, and Australia has run the sequence in housing, healthcare and education already. Some fundamental necessity becomes unaffordable. The government subsidises demand – a first home buyer's grant, rent support, benefits – which does nothing for supply and marks prices up by roughly the subsidy. When the subsidy bill grows too big to bear but too popular to repeal, price controls: rent caps, anti-gouging provisions, single-payer fee schedules. Price controls disincentivise supply, the shortage worsens, and the state reaches further into the autocratic closet: nationalisation. Most Australian healthcare and education is already nationalised. The NDIS is 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. Australia won't choose a command economy. It will discover it's already in one.
The correct move at every rung is the one that never gets taken: back off and let the market clear. If housing is too expensive, make it easier to build houses – don't re-allocate scarcity.
The heavy hand: what the spending share misses
Government expenses are 37% of GDP, and it is tempting to read the other 63% as "the market". Don't. A sector counts as market-priced only if prices are free to move and entry is free to follow them. Walk the economy with that test and the undirected remainder shrinks fast. Private health insurance premiums require the federal Health Minister's signature. Retail electricity has the Default Market Offer; gas has a price cap and a mandatory code. Medicare and the PBS set fees for most of medicine; IHACPA prices hospitals and aged care; the NDIA publishes price caps. Childcare fees track an administered subsidy. In the labour market, 22.7% of employees are paid exactly the award rate an industrial tribunal sets and another 34.6% are on collective agreements the same commission approves – 57% of employed Australians on administered or vetted pay. Superannuation compels 12% of every wage into a regulated vehicle ($4.8 trillion and counting). And housing – the biggest line in every household budget – trades at prices the RBA's own researchers found sit 42-73% above the marginal cost of supply in the big capitals, a scarcity rent manufactured entirely by zoning. Mandated production below the market-clearing price is a tax on the producer; mandated purchase above it is a tax on the buyer. Neither shows up in the 37%.
How much of the economy does the government direct?
An explicit estimate — every contestable component is on a slider. Move them and see how hard it is to get the directed share below half.
The 57% of the labour market on FWC-set or FWC-vetted pay is not added to the bar — administered wages are an input to sectors already counted, and stacking them would double-count. It belongs in the argument, not the sum. Likewise the OECD's all-in compulsory-payment wedge (tax plus super) on the average single worker: 35.0% of labour cost against 29.2% for tax alone.
Assumptions & formula
data for the anchors: dwelling services ≈ 9% of GDP (ABS industry GVA); the RBA zoning-premium estimates (Kendall & Tulip: detached prices 73% above marginal cost in Sydney, 69% Melbourne, 54% Perth, 42% Brisbane); premium approval, DMO/VDO, PBS/MBS/IHACPA/NDIA price administration are statutory fact. Casey asserts — and the sliders own — the classification judgments: which sectors count as administered, and how much of the housing scarcity rent to attribute to regulation. The default lands near 46% directed before the super mandate. Full component list and sources on the Assumptions page.
The inflation you're allowed to see
Inflation is the other tax that never faces a vote, and it operates twice. First, bracket creep: tax thresholds are fixed in nominal dollars, so every year of inflation quietly raises average tax rates without legislation. The PBO's arithmetic: the average personal tax rate goes from 24.9% to 28.6% by 2035-36 with no policy change at all – 0.37 percentage points a year of tax increase nobody votes for – and the rise from 12.5% in 1960 to 23.5% in 2022 was, in the PBO's words, almost entirely bracket creep. That is the Chapter 1 wedge drifting upward on autopilot. Second, the index itself. The CPI is an acquisitions index: the new-dwelling component counts the cost of building a house and excludes the land under it, and measured rents average across all existing leases, lagging the market rents a new household actually faces. This is published ABS methodology, openly defended – the CPI answers "what do currently-consumed goods cost", not "what does it cost to buy the life your parents had". Casey calls the omission deliberate; call it what you like, the arithmetic is the same: wages deflated by an index that excludes land will always look healthier than the position of the person saving for a deposit. The chart shows the gap – and note that even on the CPI's own terms, wages have lost ground since 2012.
Wages, prices, and the price of the thing that matters
CPI, wages, and the mean dwelling price, indexed to 2012 = 100
Sources: ABS CPI (6401), Wage Price Index (6345), Total Value of Dwellings. The dwelling line is the one the CPI's construction excludes. Details.
Four dates that locked it in
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2007–08Structural
Productivity growth downshifted from ~1.5% to ~1.0% when the mining capex boom ended, and never recovered. From here the productive economy grew slower than the care economy's structural rate, and the tax-funded share of GDP started rising monotonically. The boom had been masking the rot for years.
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2013Political — the point of no return
The NDIS was legislated with bipartisan support: a fourth uncapped, demand-driven entitlement alongside Medicare, the PBS and the Age Pension — no fiscal cap, no means test, no GDP-linked growth constraint. Scoped for ~410,000 participants; now ~740,000; projected to pass a million by 2034. After 2013 the only variable was speed.
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2015–17Fiscal
The per-worker extraction rate permanently exceeded per-worker productivity growth. Each productive worker has fallen further behind every year since, and the model above says by how much.
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~2024Democratic
Healthcare workers, NDIS participants and their families, pensioners, aged-care recipients and public servants add up – after Casey's overlap adjustment, which the post does not show – to about half the voting population. Once a majority depends on the tax-funded economy, no democratic government can run on structural reform, and every election becomes a bidding war. Casey asserts the overlap arithmetic.
The NDIS trajectory
The scheme costs about $46 billion this year and has been growing at 8–12% a year, in an economy growing at 2. You don't need a supercomputer to see how that movie ends – you need a compound interest table. The sliders below are the whole argument: pick the scheme's growth rate, pick the economy's, and read off the year the line stops being a budget item and becomes the budget.
Cost this year
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≈740k participants · scoped for ~410k
Share of GDP now
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for one scheme, ten years old
Share in 2040
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at these growth rates
Share in 2062
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IGR horizon
Assumptions & formula
Data: scheme cost and participant counts from NDIA reports and budget papers; growth ran 19–24% a year through the early 2020s, 10% in 2024-25, and 5% in 2025-26 — the essay's "8–12%" was true when written; the 8% target is currently being beaten, which is what the slider is for. The dashed reference line marks 6.3% of GDP by 2062. Source check complete: that figure appears in the 2023 Intergenerational Report only as the illustrative no-reform scenario ("without the Sustainability Framework"); the IGR's central projection is 2.1% of GDP at maturity in 2043-44. The essay quotes the scenario as if it were the projection — Casey asserts; details on the Assumptions page. The point survives either way: pick any growth rate above GDP's and the share compounds without bound; the only question is the year.
The feedback loop, and the way out
Government expands spending → the spending shows up as GDP → the growth masks private-sector contraction → the government sector bids up wages in healthcare and the NDIS → labour drains out of the productive sectors → the tax base erodes → more government spending required → repeat. Meanwhile the same government suppresses provider prices through Medicare fee schedules while creating insatiable demand through uncapped entitlements, and the gap shows up as wait times, burnout and cost-shifting to emergency departments. This is Baumol's cost disease fused with a monopsony, inside a democracy where the beneficiaries now constitute a voting majority.
What would actually fix it? The model gives a number: hold the sliders at Casey's defaults and the productive economy needs sustained growth around 3.5%+ to outrun the machine. No technology revolution in Australian history has closed a gap that large on a sustained basis – the IT revolution came closest, about 1.3 percentage points, and it lasted eight years. The only thing that has ever produced a sustained 2+ point productivity acceleration is a cheap energy revolution. Steam. Electrification. Petrochemicals. Australia is sitting on the best solar resource in the developed world, a continent of sunlit rock and empty gigawatts, and doing approximately nothing useful with it at industrial scale.
The fiscal math doesn't care about your feelings. It doesn't care about your policy preferences. If Australians want sustainable publicly funded services, the denominator has to grow at 3.5%+, and there is exactly one lever in the national toolshed rated for that load. Pull it.