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Economy of Commonwealth of Australia
Currency Australian Dollar ($A or A$, AU$ or $AU, AUD)
Fiscal year 1 July - 30 June
Trade organisations APEC, WTO and OECD
Statistics
GDP US$1055.9 billion - nominal - (2009)[1]
GDP growth 0.2% - Q3/Q2 2009 and 0.5% Q3 2008/09[2]
GDP per capita US$47,498 (2008) (11th)
GDP by sector agriculture: 3.8% industry: 26.2% services: 70% (2005 est.)
Inflation (CPI) 1.5% (June 2009)[3]
Gini index 0.305 (2006)[1]
Labour force 10.844 million (Nov 2009)[4]
Labour force
by occupation
agriculture (3.6%), mining (1.1%), industry (20.2%), services (75.1%) (May 2005 est.)
Unemployment 5.5% (Dec 2009)[5]
Main industries mining, industrial and transportation equipment, food processing, chemicals, steel
External
Exports A$284.7 billion (2008/09)[6]
Export goods coal, iron ore, gold, education, tourism, natural gas, petroleum, alumina, aluminium, and beef (2008/09)[6]
Main export partners Japan 19.3%, China 15.6%, South Korea 7.4%, India 6.6%, US 6.1% (2008/09)[6]
Imports A$279.0 billion (2008/09)[6]
Import goods tourism, crude petroleum, refined petroleum, motor vehicles, gold, freight transport, medicine, telecom, passenger transport and computers (2008/09)[6]
Main import partners China 13.8%, USA 12.8%, Japan 7.3%, Singapore 6.4%, UK 5.1% (2008/09)[6]
Public finances
Public debt federal public net debt = 0 (2007-8)
Revenues A$319.46 billion (2008-2009)
Expenses A$292.47 billion (2008-2009)
Economic aid donor: ODA, $2.5 billion (2005/06 Budget) [7]
Main data source: CIA World Fact Book
All values, unless otherwise stated, are in US dollars
Throughout this article, the unqualified term "dollar" and the $ symbol refer to the Australian dollar.

The economy of Australia is a developed, market economy with a GDP of approximately $1 trillion USD[8]. In 2009, it was the 13th largest national economy by nominal GDP[9] and the 18th largest measured by PPP adjusted GDP[10], representing about 1.7% of the World economy. Australia was also ranked the 21st largest importer[11] and 23rd largest exporter[12].

Australia is a member of the APEC, G20, OECD and WTO organisations. Australia has also entered into free trade agreements with ASEAN, Chile, New Zealand, Singapore, Thailand, and the United States[13]. The ANZCERTA agreement with New Zealand has greatly increased integration with the New Zealand economy.[14]

The Australian economy is dominated by its service sector, representing 68% of Australian GDP. The agricultural and mining sectors (10% of GDP combined)[15] account for 57% of the nation's exports.[16]

The Australian dollar is the currency of the Commonwealth of Australia and its territories, including Christmas Island, Cocos (Keeling) Islands, and Norfolk Island. It is also the official currency of the independent Pacific Island nations of Kiribati, Nauru and Tuvalu.

The Australian Securities Exchange is the largest stock exchange in Australia.

Contents

Overview

Australia is one of the most laissez-faire capitalist economies according to indices of economic freedom. Australia's per-capita GDP is slightly higher than that of the UK, Germany, and France in terms of purchasing power parity. The country was ranked second in the United Nations 2009 Human Development Index and sixth in The Economist worldwide quality-of-life index 2005.

The emphasis on exporting commodities rather than manufactures has underpinned a significant increase in Australia's terms of trade during the rise in commodity prices since 2000. Australia's current account is more than 7% of GDP negative: Australia has had persistently large current account deficits for more than 50 years.[17] Australia has grown at an average annual rate of 3.6% for over 15 years, well above the OECD average of 2.5%.[17] Australia's average GDP growth rate for the period 1901-2000 is at 3.4% annually.

As of December 2009, there were approximately 10,844,000 people employed, with an unemployment rate of 5.5%.[4] Over the past decade, inflation has typically been 2–3% and the base interest rate 5–6%. The service sector of the economy, including tourism, education and financial services, constitutes 69% of GDP.[18]

Rich in natural resources, Australia is a major exporter of agricultural products, particularly wheat and wool, minerals such as iron-ore and gold, and energy in the forms of liqufied natural gas and coal. Although Agriculture and natural resources constitute only 3% and 5% of GDP, respectively, they contribute substantially to export performance. Australia's largest export markets are Japan, China, South Korea, India and the USA.[6]

In the past decade, one of the most significant sectoral trends experienced by the economy has been the growth (in relative terms) of the mining sector (including petroleum). In terms of contribution to GDP, this sector grew from around 4.5% in 1993-94, to almost 8% in 2006-07.

Growth in the services sector has also grown considerably, with property and business services in particular growing from 10% to 14.5% of GDP over the same period, making it the largest single component of GDP (in sectoral terms). This growth has largely been at the expense of the manufacturing sector, which in 2006-07 accounted for around 12% of GDP. A decade earlier, it was the largest sector in the economy, accounting for just over 15% of GDP.[15]

Economic liberalisation

From the early 1980s onwards, the Australian economy has undergone a continuing economic liberalisation. In 1983, under Prime Minister Bob Hawke, but mainly driven by Treasurer Paul Keating, the Australian dollar was floated and financial deregulation was undertaken.

In 2000, the introduction of a goods and services tax (GST) sought to encourage the level of saving amongst lower income earners. To combat the consequential reduction in consumption for low income earners, income taxes were lowered as a trade-off for the introduction of the GST. The overall level of taxation in Australia has since been consistently reduced to encourage private consumption and investment, as opposed to higher government expenditure.

Current areas of concern

Current areas of concern to some economists include Australia's large current account deficit, Australia’s current account deficit for the 2007- 2008 financial year was up 4% to $19.49 billion (according to the Australian Bureau of Statistics), the absence of a successful export-oriented manufacturing industry, an Australian property bubble, and high levels of net foreign debt owed by the private sector. Professor Steve Keen has written extensively about consumer/household indebtedness and the level of home prices relative to income. While there is some talk about increasing levels of government debt as a result of increased federal government deficit caused by falling tax revenues and stimulus during 2008 and proposed to continue through 2010, Australia has one of the lowest levels of government debt as a proportion of GDP among developed countries, largely as a result of the debt repayment program pursued by then Treasurer Peter Costello and the then Howard government. The coal, electricity generation and agricultural industries have concerns about the impact of requirements to reduce carbon emissions under the proposed Carbon Pollution Reduction Scheme. The price of housing in terms of median incomes has been highlighted by a recent Demographia survey with Australian capital city residential housing being among the most expensive in the world. A long drought and its impacts on retail food costs and export volumes of crops and meat and the possible impacts of climate change on agriculture has also been of concern.

History

Taxation

Taxation in Australia is levied at the federal, state and local government levels. Taxes vary from state to state due to their different needs, populations, economics and budgetary positions.

The Commonwealth raises revenue from personal income taxes and business taxes. Other taxes include the goods and services tax (GST), excise and customs duties. The Commonwealth is the main source of income for state governments. As a result of state dependence on federal taxation revenue to meet decentralised expenditure responsibilities, Australia is said to suffer from a vertical fiscal imbalance.

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State taxation

Besides receipts of funds from the Commonwealth, states and territories also have their own taxes to enable them to fund the services they provide. The types and tax rates vary from state/territory to state/territory. State taxes commonly include payroll tax levied on businesses, a poker machine tax levied on businesses who offer gambling services, land tax levied on people and businesses who own land and most significantly, stamp duty levied on sales of land (in every state) and other items (chattels in some states, unlisted shares in others, and even sales of contracts in some states).

Federal-state financial arrangements

The states effectively lost the ability to raise income tax during the Second World War. In 1942, the Commonwealth invoked its Constitutional taxation power (s.51 (ii)) and enacted the Income Tax Act and three other statutes to levy a uniform income tax across the Commonwealth. These Acts sought to raise the funds necessary to meet burgeoning wartime expenses and reduce the unequal tax burden between the states by replacing state income taxes with a centralised tax system. The legislation could not expressly prohibit state income taxes (s.51(ii) does not curtail the power of states to levy taxes) but the Commonwealth's proposal made localised income tax both practically impossible and politically poisonous. The Commonwealth offered instead compensatory grants authorised by s.96 of the Constitution for the loss of state income (State Grants (Income Tax Reimbursement) Act 1942)).

The states rejected the Commonwealth's regime and challenged the legislation's validity in the First Uniform Tax Case (South Australia v Commonwealth) of 1942. The High Court of Australia held that each of the statutes establishing Commonwealth income tax was a valid use of the s.51(ii) power, with Latham CJ noting that the system did not undermine essential state functions and imposed only economic and political pressure upon them.

The Second Uniform Tax Case (Victoria v Commonwealth (1957)) reaffirmed the Court's earlier decision and confirmed the power of the Commonwealth to make s.96 grants conditionally (in this case, a grant made on the condition that the recipient state does not levy income tax).

Since the Second Uniform Tax Case, a number of other political and legal decisions have centralised fiscal power with the Commonwealth. In Ha vs. New South Wales (1997), the High Court found that the Business Franchise Licences (Tobacco) Act 1987 (NSW) was invalid because it levied a customs duty, a power exercisable only by the Commonwealth (s.90). This decision effectively invalidated state taxes on cigarettes, alcohol and petrol. Similarly, the imposition of a Commonwealth goods and services tax (GST) in 2000 transferred another revenue base to the Commonwealth.

Consequently, Australia has one of the most pronounced vertical fiscal imbalances in the world, with states collecting just 18% of all governmental revenues but responsible for almost 50% of the spending and policy areas. Furthermore, the centralisation of revenue collection has allowed the Commonwealth to force state policy in areas well beyond the scope of its Constitutional powers by using the grants power (s.96) to mandate the terms on which the states spend money in areas over which the Commonwealth has no power (such as spending on education, health and policing).

Municipal taxation

Local governments (called councils in Australia) have their own taxes (called rates) to enable them to provide rubbish collection, park maintenance services, libraries and museums, etc.

Trade and economic performance

Australian exports in 2006

In the second half of the twentieth century, Australian trade shifted away from Europe and North America to Japan and other East Asian markets. Regional franchising businesses, now a $128 billion sector, have been operating co-branded sites overseas for years with new investors coming from Western Australia and Queensland.[19]

The Australian economy has been performing nominally better than other economies of the OECD and has supported economic growth for 16 consecutive years.[20] According to the Reserve Bank of Australia, Australian per capita GDP growth is higher than that of New Zealand, US, Canada and The Netherlands.[21] The past performance of the Australian economy has been heavily influenced by US, Japanese and Chinese economic growth.

Despite high global demand for Australian mineral commodities, export growth has remained flat in comparison to strong import growth. Even though Australia enjoys high commodity prices, economists have warned that structural change is needed in order to increase the size of manufacturing sector.

Chinese investment

There is substantial export to China of iron ore, wool, and other raw materials and over 120,000 Chinese students study in Australian schools and universities. China is a major purchaser of Australian debt. In 2009, offers were made by state-owned Chinese companies to invest 22 billion dollars in Australia's resource extraction industry.[22]

Australia's balance of payments

In trade terms, the Australian economy has had persistently large current account deficits for more than 50 years.[17] One single factor that undermines balance of payments is Australia's narrow export base.

Dependent upon commodities, the Australian government has endeavoured to redevelop the Australian manufacturing sector. This initiative, also known as microeconomic reform, has helped Australian manufacturing to grow from 10.1% in 1983-1984 to 17.8% in 2003-2004.[23]

There are other factors that have contributed to the extremely high current account deficit that Australia has today. Lack of international competitiveness and heavy reliance on capital goods from overseas might increase Australia's current account deficit in the future.

See also

Federal entities:

Major sectors:

By state:

Notes

  1. ^ a b CIA World Factbook Australia https://www.cia.gov/library/publications/the-world-factbook/geos/as.html
  2. ^ Australian Bureau of Statistics, Australian National Accounts: National Income, Expenditure and Product, Sep 2009 http://www.abs.gov.au/ausstats/abs@.nsf/mf/5206.0
  3. ^ Australian Bureau of Statistics, Consumer Price Index, Australia, Sep 2009 http://www.abs.gov.au/AUSSTATS/abs@.nsf/mf/6401.0?opendocument?utm_id=LN
  4. ^ a b Australian Bureau of Statistics, Labour Force, Australia, Nov 2009 http://www.abs.gov.au/AUSSTATS/abs@.nsf/mf/6202.0
  5. ^ http://abs.gov.au/AUSSTATS/abs@.nsf/Latestproducts/6202.0Main%20Features1Dec%202009?opendocument&tabname=Summary&prodno=6202.0&issue=Dec%202009&num=&view=
  6. ^ a b c d e f g Australian Government, DFAT, Composition of Trade Australia 2008-09 http://www.dfat.gov.au/publications/stats-pubs/cot_fy_2008_09.pdf
  7. ^ http://www.ausaid.gov.au/publications/pdf/summary_2005_2006.pdf
  8. ^ https://www.cia.gov/library/publications/the-world-factbook/fields/2195.html
  9. ^ Field listing - GDP (official exchange rate), CIA World Factbook
  10. ^ http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)
  11. ^ http://en.wikipedia.org/wiki/List_of_countries_by_imports
  12. ^ http://en.wikipedia.org/wiki/List_of_countries_by_exports
  13. ^ Austrade, International agreements on trade and investment http://www.austrade.gov.au/Free-Trade-Agreements/default.aspx
  14. ^ Austrade, Australia New Zealand Closer Economic Agreement (ANZCERTA) http://www.austrade.gov.au/ANZCERTA/default.aspx
  15. ^ a b http://www.abs.gov.au/AUSSTATS/abs@.nsf/Latestproducts/5204.0Main%20Features502006-07?opendocument&tabname=Summary&prodno=5204.0&issue=2006-07&num=&view=
  16. ^ http://www.rba.gov.au/Statistics/Bulletin/H03hist.xls
  17. ^ a b c Downwonder Economist.com, March 29, 2007
  18. ^ Department of Foreign Affairs and Trade (2003). Advancing the National Interest, Appendix 1
  19. ^ Blackie, Tony (2008-07-10). "Battle of the Brands". Business Review Weekly 30 (27): pp. 32–35. 
  20. ^ "Downwonder: The “lucky country” may not be so for too much longer" @ The Economist - Mar 29th 2007
  21. ^ "Australia in the Global Economy" by Malcolm Edey the Assistant Governor (Economic) - Address to the Australia & Japan Economic Outlook Conference 2007 - Sydney - 16 March 2007
  22. ^ "Australia Feels Chill as China’s Shadow Grows" article by Michael Wines in The New York Times June 2, 2009
  23. ^ Leading Edge, R: "Australia in the Global Economy", Tim Dixon and John O'Mahomy, page 133 .

References

External links


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