The economy is a system of markets (e.g. goods, money, labour markets) which can be affected by market controls (eg, taxes and interest rates). These together generate production, stimulate consumption, and balance economic activities, so that Australia's population has access to income and wealth (in the form of assets) and the opportunity to consume goods and services. The more productive, or efficient the economy is, the more income, wealth and consumption possibilities are available. Higher production may also assist the economy to be resilient in the face of international economic shocks.

The productive capacity of the economy is often measured by Gross Domestic Product (GDP), which indicates the extent of production and consumption in the economy. GDP can also be taken as a measure of the competitiveness of the Australian economy. However, GDP is not directly related to wellbeing, rather it is a measure that measures the growth of the economy per se.

Theoretically, a productive economy means that more economic resources are available to all people. However, the wellbeing of society is more directly indicated by looking at the standard of living of individuals and families.

Having high income or reserves of wealth extends the range, quantity and quality of goods and services that can be consumed, and can indicate life success. Perhaps more importantly, people with limited resources can experience hardship in meeting the basic costs of living and may become dependent on others to have such needs met.

The effective distribution of income and wealth is therefore crucial in understanding whether all members of society have sufficient economic resources for basic needs such as housing, clothing and food. Productivity growth, achieved, for instance, by increasing production from workers or capital investment, is intended to support this distribution by improving living standards, resulting in more income available to be distributed.

In this commentary, economic progress equates to enhancing Australia's national income (broadly Australians' real per capita levels of consumption) while at least maintaining (or possibly enhancing) the national wealth that will support future consumption.

The headline dimensions that help Australians to assess whether our economy has improved include:

• National income
• National wealth
• Household economic wellbeing
• Housing
• Productivity
• Inflation
• Competitiveness and openness

While not given headline status, 'Inflation' and 'Competitiveness and openness' have also been included supplementary dimensions because of their relevance to whether life in Australia is getting better.

National income

National income reflects Australians' capacity to purchase goods and services, and is a key determinant of material living standards. A rise in real income means not only a rise in the capacity for current consumption, but also increased ability to accumulate wealth (e.g. houses, machinery, financial assets), which may be used to generate future income and support future consumption.

National wealth

Along with the skills of the work force, a nation's wealth (in the form of economic assets) effects its capacity to generate income, and provides it with resilience to withstand economic shocks that affect income. For example, economic assets generate income when used in manufacturing (such as machinery and equipment), when extracted or harvested (such as minerals or crops), or when they return income flows to Australia (e.g. financial assets). Other assets, such as owner-occupied dwellings, provide consumption services direct to their owners.

Household economic wellbeing

The household economic wellbeing dimension reflects the principle that people should have access to some minimum material standard of living . This is largely determined by a household's command over its economic resources and its capacity for consumption of goods and services. Households with low income may be less likely to be able to support an acceptable standard of household economic wellbeing.

A rise in household income indicates there is more disposable income to spend on needs, wants and accumulate wealth. A drop in household income puts more pressure on household budgets, and may lead to the consumption of accumulated wealth.

Housing

Housing provides people with shelter, security and privacy, and having an adequate and appropriate place to live is fundamental to people's wellbeing. People who live in higher income households may have a wide range of housing choices, including having the choice to purchase a home. For people living in low income households, a primary concern may simply be access to shelter, so, for these people, housing affordability becomes a more fundamental wellbeing issue. The number of people experiencing housing difficulties can also represent flow on costs to the wider society in the form of lost community cohesion and increased costs of community services.

Productivity

Productivity is an important measure of economic progress. Improvements in productivity mean the economy is using resources, such as capital, labour, energy or materials, more efficiently. While education and training improve the quality of the labour force over time, and are a key input into productivity, lack of innovation, research, development, or investment in assets can reduce productivity and thus Australia's ability to compete in the international market.