On the surface, Australia's economy is performing well.

Gross domestic product grew by a healthy 2.4 per cent last year, adding to the 25-plus unbroken years of economic growth.

But digging a bit deeper shows not all is well.

A substantial portion of Australia's overall growth stems from population growth. This means per capita growth, which is more relevant to people's lives, hasn't been doing so well. Since the end of the global financial crisis in 2008, per capita incomes grew by just 1.3 per cent on average per year. This is less than half the average growth seen between 1992 and 2017.

Slow income growth has been underpinned by slow wages growth. According to the Australian Bureau of Statistics, average annual wages growth has been on the decline since mid-2014, and is now as low as 1.9 per cent. To put that in context, annual wages have grown by an average of 3.2 per cent over the past 20 years.

Making things worse, the price of key household essentials has risen dramatically. Over the past 20 years, for example, the cost of housing has increased by 330 per cent, child care by 310 per cent, electricity by 215 per cent, and education by 174 per cent.

Is the free market to blame?

Many have blamed free market capitalism (or what is often pejoratively referred to as "neoliberalism") for our economic malaise.

"Neoliberalism" has been blamed for everything from rising prices, to creating loneliness, to making us physically sick.

However, the root cause of Australia's economic problems is better understood as the absence of free market capitalism, not its prevalence.

In a free market system, government intervention would be limited to protecting property, administering justice, and providing a targeted safety net, national defence and domestic law enforcement.

Taxes would be low and flat, and regulation would be mostly limited to the common law. People would be free to start a business, and sell their products, services, or labour to anyone, anytime, under whatever conditions they voluntarily agree to.

The Australian economy, by contrast, is beset with government interference in every corner.

Company tax rate deterring investment

If you want to know why wage growth is sluggish, look no further than the corporate tax rate.

Australia's top marginal corporate rate of 30 per cent is well above key competitor nations such as the US (21 per cent), the UK (17 per cent by 2020), and Singapore (17 per cent).

Further, a recent World Economic Forum report showed that, out of 138 nations, Australia ranked 94th for the negative effect taxation has on the incentive to invest.

This is why business investment in Australia is sitting at just 12 per cent of GDP, which is lower than during the Whitlam era. And low business investment means less capital, lower productivity, and lower wages.

Workers could win from a tax cut

Cutting Australia's high corporate tax rate would help turn this around. The Treasury — hardly a bastion of free-market thought — estimated that reducing the business tax rate to 25 per cent will increase GDP by 1 per cent, or $17 billion each year.

This windfall would be shared among customers (through lower prices), shareholders (through higher returns) and employees and households (through higher wages).

Economists differ on the exact breakdown. But Treasury estimated about two-thirds would go to households, mostly through higher wages.

Even Former Treasury Secretary Ken Henry stated, "if the company income tax were to be cut, the principal beneficiaries will be workers …"

Red tape also to blame

But it isn't just taxes where the heavy hand of government can be felt. Regulation and red tape are as big, if not bigger, drains on Australia's economic prospects. Modelling by the IPA shows red tape reduces economic output in Australia by $176 billion each year, or around 11 per cent of GDP. This cost captures forgone human potential: all of the businesses which are never started, the jobs never created, or the technologies never developed because red tape got in the way.

The consequences of red tape and regulation can be seen across the economy.

An iron ore mine located in the Pilbara in Western Australia required some 4,697 licences, approvals, and conditions for the pre-construction phase alone.

While in NSW it could take filling out 48 separate forms just to open a restaurant.

An iron ore mine in the Pilbara required almost 5000 conditions to be met before work even began. ( ABC News: Susan Lannin )

The key to jobs and wage growth

Cutting this regulatory burden, reducing Australia's high business tax rate and liberalising the economy will give Australians more freedom to start their own business. It will also encourage more businesses to invest in Australia instead of overseas.

This isn't "trickle-down economics". It's an immutable reality.

If you want more jobs and higher wages, then you need more of what creates jobs and pays wages: businesses.

Imposing high taxes and a stifling regulatory burden will only drive businesses away. And the biggest losers won't be corporate CEOs. They will just find work in other countries. It will be Australian workers and families.

Daniel Wild is a research fellow at the Institute of Public Affairs.