To remain one and free, Australia must confront three key systemic challenges

March 7, 2026 — 2:00am

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Reading the Liberal Party’s review of its election performance reminds you of catching a Qantas flight. The endless bungles make you wonder if they’ve ever done this before. The main difference is that Qantas hasn’t crashed. And it seems to understand which business it’s in.

It’s hard to say the same about the Liberals. They’ve not only crashed twice in succession, they don’t seem to know which business they’re in.

The Liberal review concluded that the “worst campaign the party has ever fought” chiefly was “the result of an extraordinary combination of internal errors”.

It places an over-emphasis on the breakdown in relations between then-leader Peter Dutton and the head of the party’s organisational wing, Andrew Hirst. If that were the main problem, then all is well. Dutton campaigned himself out of parliament.

But, of course, it’s not. The review, leaked this week, does acknowledge that the very existence of the party is now on the brink. After 80 years. But the report’s treatment of the existential problems is almost cursory.

At core, the Liberal Party not only fails to represent most of the population, it has stopped trying. This is the path to extinction. Put starkly, the Liberals last year were competitive only among old people, men, and people who live outside the main population centres. They couldn’t have hoped to win power with this constellation of support.

While the review notes this, it makes no effort to suggest solutions. Perhaps because the authors – Liberal troopers Pru Goward and Nick Minchin – know the futility of efforts to reform the party.

Every election review points to the party’s failure to appeal to women and young people. Yet every election it gets a smaller share of each.

The truth is that the Liberals have purged themselves of most of their moderates and are happy to be more authentically a faction than a party. Then vice-president Teena McQueen spoke for the conservative majority when she celebrated in 2022 that “the good thing about the last federal election is a lot of those lefties are gone – we should rejoice in that”. She was talking about Liberal members of parliament.

It’s supposed to be a catch-all party to govern from the centre, but its revealed preference is to be a club. And, since last year’s election, it seems the Liberals have lost their competitive advantage with even their remaining catchments. They spent years systematically losing city voters to Labor and the teals, and now they’re losing their regional and rural support to One Nation.

The dominant conservative faction is seizing on this as an opportunity to move yet further to the right. The pretext? That they must recover voters lost to the xenophobic populist One Nation. Like a snake swallowing its tail, it’s a formula for continuous contraction.

Yet the Liberal woes are a subset of a larger phenomenon. Australia continues to lose its interest in either of the once-major parties. The Coalition won a mere 31.8 per cent of the primary vote last year. Yet Labor won 34.6, only 2.8 percentage points more than the Coalition. It was Labor’s superior approach to tactical voting that magnified this small margin of votes into a huge majority of seats.

Combined, Labor and the Coalition garnered 66.4 per cent, a record low. Labor is vulnerable, too. Which helps to explain Anthony Albanese’s signature cautiousness.

But this loss of faith in the long-dominant parties is, in turn, a part of a fading national faith in democracy itself. As the Australian Election Study reports, one in three Australian adults do not agree that democracy is always preferable to other forms of government. Wariness of democracy is strongest among young voters.

Former US president Joe Biden used to say that “we have to prove democracy still works and we can deliver for our people”. Americans responded to his efforts by voting for a man who does not believe in democracy.

Worldwide, democracy has been in retreat since around the time of the global financial crisis, according to the various annual measures published by Freedom House, the Economist Intelligence Unit and V-Dem.

Autocracy is on the rise. Only 25 of the world’s 200 countries are still classed as full democracies, according to the Economist Intelligence Unit’s annual list, encompassing just 6.6 per cent of the global population. The US is not among us.

It’s not just the Liberal Party that seems to be a busted franchise; the two-party system is in retreat. Democracy itself appears to be an exhausted creed. The Liberal Party review was a moment to reflect on this, but it was only one pointer to the three exhausted systems that manifested in Australia this week.

The economy might look better, but it’s still coughing

Those of us who remain in countries enjoying full democracy carry a large responsibility to see if it can be renewed. As Biden said, that will turn largely on whether democracy can deliver. With inflation resurgent, this gets harder. Inflation erodes living standards and destroys governments.

In Australia’s case, we’ve discovered in the past year that the economy has developed a lower speed limit than we’d thought. It turns out that Australia’s economy can grow only something like 1.5 to 2 per cent a year in real GDP terms without heating up inflation.

This is unwelcome news. It means Australia is now straitjacketed as a low-growth economy. In simple terms, this means what we have today is as good as it will get. Low growth limits income gains and constrains living standards.

Politicians keep telling us that we’re doing it tough. But, realistically, it won’t get any better. If governments spend more or try to increase growth, inflation will rise, and the Reserve Bank will be obliged to slow it again with higher interest rates. Indeed, this is exactly the current outlook. Not for a month or a year but permanently.

Australia’s economic model, as it stands, is exhausted. This was the second exhausted system confirmed this week when the publication of the national accounts showing annual growth of 2.6 per cent was taken as confirmation that interest rates must continue to rise.

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The high-growth, high-productivity model that Bob Hawke and Paul Keating gifted Australia a generation and a half ago has run its course. Unless the federal government can snap the economy out of its newly discovered speed limit. The onus is on Treasurer Jim Chalmers to deliver a budget that raises productivity. That’s the key to extracting more growth from existing inputs of labour and capital. And raising the speed limit.

Chalmers tells us that’s precisely his intention. We’ll see what his prime minister will allow. Memories have faded, but the Hawke-Keating reforms were wrenching and deeply unpopular at the time. They dared to overturn Australian complacency and mediocrity.

Can Albanese-Chalmers do the same? It’s more than growth at stake; democracy itself is on probation with a generation feeling betrayed. The consolation of Australia’s current economic circumstance is that unemployment remains low by historical standards at 4.1 per cent. But that, too, is vulnerable as AI begins to stalk the ranks of professional and service industries.

This week’s evidence of a third exhausted system arrived in Australia in the tidy form of Mark Carney. It was only the second bilateral visit of a Canadian prime minister in 20 years. And he was here solely because of what he has diagnosed as the “rupture” of the world order.

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Canada was thought to have one of the most secure positions on the planet as it sheltered under the wing of its mighty southern neighbour. That reversed at the speed of a Truth Social post.

When Donald Trump laid claim to Canada as a new US state, Canada suddenly was trapped between two global predators – Russia to its north and an imperial US to its south. Carney, in an urgent quest for new sources of national strength, is scouring the globe.

His address to the Australian parliament pitched “variable geometry”, awkward jargon for new coalitions of countries to achieve particular aims.

It’s unlikely that history will record that the era of Pax Americana was followed by the age of “variable geometry”.

“Great powers can compel,” said Carney, but “middle powers can convene.” This is his core prescription, but it reveals the feebleness of middle powers in a world dominated by the three great predators of the US, China and Russia. These great powers can compel while the middle powers can hold meetings. Even as he seeks a new system, Canada remains beholden to the US for its nuclear shield and for its North American Aerospace Defence Command airborne protection. Canada’s defence spending is smaller than Australia’s and one-20th that of the US.

“To remain free,” France’s Emmanuel Macron said this week, “one must be feared, and to be feared, one must be powerful.” Who’s afraid of Canada? Or Australia? Exhausted systems fail. It takes creative, energetic leadership to develop new ones. Best to start yesterday. Failing that, today.

Peter Hartcher is political and international editor.

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