Besides remote location and full employment, two things contribute to this situation:
(1) The market will bear it. Australians are so accustomed to high prices that they've stopped questioning it. If enough people simply stopped buying things or signing long term leases, the prices would drop. Doing this would take incredible coordination and probably isn't practical.
(2) Government protectionism. Import tariffs, stringent customs regulations, and tax policies restrict the supply of what's available in AUS. Australians must like this because they keep electing the politicians who make these laws. And in the short-term, these laws do "protect Australian jobs" (maybe). But the situation isn't sustainable - it causes a price-rising spiral, which we're all seeing. Eventually prices will get so high that businesses can't afford to pay their workers, production will stop, which will further restrict supply and drive prices even higher. Then there will be lots of lay-offs, rising unemployment, extremely low interest rates, and a rapidly devaluing Aussie dollar - a severe recession.
The answer is free-market economics. Drop the protections, open the borders, allow importing both goods and labor. This will hurt in the short term, but it will force Australia to get more competitive, spurring the creation of new technologies, improving efficiencies and quality, and improving education.
When I've said these things to my Australian friends, they've usually look at me in horror. I haven't talked to many, if any, Australians that really believe in government taking a hands-off, free-market approach. What do you guys think? Would Australians welcome face-to-face price competition with Mexico and Taiwan?
