Only a few years ago, the Argentinian economy was in tatters. GDP was falling by 2 per cent per year, real wages were falling by even more, inflation was an eye-watering 13 per cent per month (!!), poverty was at 42 per cent, rents were unaffordable, the budget had a massive deficit, and interest rates were through the roof.
Then, in late 2023, the Argentines elected a libertarian President who introduced radical free-market reforms – slashing government spending by 30 per cent, shrinking the bureaucracy, cutting taxes, and regulations, and stopping the central bank from printing money. The mainstream pundits predicted economic ruin, but the outcome has been an economic miracle:
- Inflation has dropped from 13 per cent/month down to 2 per cent/month and falling.
- Real private wages were falling sharply before Milei, but are now roughly 10 per cent higher and growing.
- GDP growth has gone from -2 per cent up to +4 per cent per year.
- Poverty has dropped from 42 per cent down to 32 per cent, and absolute poverty has fallen from 12 per cent to under 7 per cent.
- Rental supply has increased by 300 per cent and real rental prices have dropped by 50 per cent.
- Exports have increased from $67 billion to $80 billion per year.
Private investment has increased from $122 billion to $131 billion per year. - The budget balance has gone from $30 billion deficit into a small surplus.
- The country risk premium has dropped from 20 per cent down to 5 per cent, pushing real interest rates down by 15 per cent.
- The results have proven politically popular, with Milei’s party achieving a landslide victory in the 2025 mid-term elections.
Given this remarkable outcome in a relatively short period of time, you would think that the rest of the world would be keen to learn the lessons from Argentina, yet our media and political leaders have been strangely uninterested. That’s probably because the policy lessons are not the ones they want to hear.
Not all of the policies from Argentina are relevant for Australia, but there are at least two big ideas that we should copy to get our economy back on track.
Bureaucracy is a handbrake on economic growth
The Milei government immediately shut down roughly 200 government agencies, froze the budgets for the remaining agencies, cut back government jobs by 20 per cent, and reduced the real wage for the remaining bureaucrats.
The usual critics warned that lower government spending would shrink the economy and lead to higher poverty, but the exact opposite occurred. Not only did the spending cuts help to balance the budget, but shrinking the bureaucracy actually led to a larger economy with higher private-sector wages and less poverty.
Our media and political elite are captured by a simplistic notion that more government spending creates a bigger economy. They are bamboozled by a single economic formula that says ‘Y=C+I+G+NX’ and they think that increasing government spending (G) will translate into a larger economy (Y).
Those misguided elites are looking at the wrong formula. The above formula shows how money is spent, but not how it is earned … and when it comes to creating wealth the important feature is private investment, not government spending. The example from Argentina is a stark reminder of this lesson, and the Australian government should follow their lead and slash the bureaucracy.
Milei’s solution to our energy problem
The core of our energy problem in Australia comes down to political risk. Given our stockpile of abundant coal, gas, and uranium, Australia should have some of the cheapest energy in the world … and yet (as critics love to point out), nobody is willing to invest in building new coal, gas, or nuclear base load power in Australia. This is largely because investors (correctly) fear that their investments are likely to be undermined by future governments that sacrifice cheap power on the alter of ‘Net Zero’ climate madness.
Political risk is an insidious problem that creates large but mostly hidden costs in the economy. The Argentinians have learnt this the hard way over the years, but Milei has introduced an ingenious solution with his ‘Incentive Regime for Large Investments’ (RIGI).
Under Milei’s scheme, large investments in crucial sectors (including energy) receive a 30-year stability guarantee that ensures their investment cannot be undermined by future tax or regulatory changes. These guarantees are established through contracts that allow for international arbitration to ensure future Argentinian governments cannot back out of the deal. As a consequence of the lower political risk, real interest rates have decreased by 15 per cent and tens of billions of new investments have flooded into Argentina.
Australia should copy this idea to kick start base load energy investment and drive down our energy prices.
