Economy of Australia

Economy of Australia
Rank	13th (nominal) / 17th (PPP)
Currency	Australian Dollar (A$ or AUD)
Fiscal year	1 July - 30 June
Trade organisations	APEC, WTO and OECD
Statistics
GDP	$1.57 trillion (2012 est.)
GDP per capita	$69,007(nominal)
GDP by sector	agriculture: 4%; industry: 24.8%; services: 71.2% (2010 est.)
Inflation (CPI)	3.4% 2011 est.
Gini coefficient	0.331 (2009)
Labour force	12.1 million (2011 est.)
Labour force by occupation	agriculture: 3.6%; industry: 21.1%; services: 75% (2009 est.)
Unemployment	5.2% seasonally adjusted - Feb 2012 (Australian Bureau of Statistics); 9.7% unofficial; not seasonally adjusted - Feb 2012 (Roy Morgan Research)
Main industries	mining, industrial, education and transport equipment, food processing, chemicals, natural gas, steel, agriculture, fishing, brewing, wine and tourism
Ease of Doing Business Rank	15th
External
Exports	$212.9 billion (19th, 2010)
Export goods	coal, iron ore, education, wine, diamonds, gold, natural gas, meat, wool, alumina, wheat, machinery and transport equipment
Main export partners	China (25.1%), Japan (18.9%), South Korea (8.9%), India (7.1%), United States (4.0%)(2010)
Imports	$194.7 billion (19th, 2010)
Import goods	machinery and transport equipment, computers and office machines, telecommunication equipment and parts; crude oil and petroleum products
Main import partners	China (18.7%), United States (11.1%), Japan (8.7%), Thailand (5.2%), Singapore (5.1%), Germany (5.0%), Malaysia (4.3%) (2010)
FDI stock	$329.1 billion (31 December 2010 est.)
Gross external debt	$1.169 trillion (31 December 2010 est.)
Public finances
Public debt	30.3% of GDP (2011 est.)
Budget deficit	A$20.3 billion (2011-12)
Revenues	A$350.0 billion (2011-12)
Expenses	A$365.8 billion (2011-12)
Economic aid	donor: ODA, $2.5 billion (2005/06 Budget)
Credit rating	Standard & Poor's: AAA (Domestic) AAA (Foreign) AAA (T&C Assessment) Outlook: Stable Moody's: Aaa Outlook: Stable Fitch: AAA Outlook: Stable
Foreign reserves	US$41.212 billion (March 2011)
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 unless as noted.

The economy of Australia is one of the most developed, modern market economies in the world, with a GDP of approximately US$1.6 trillion. In 2011, it was the 13th largest national economy by nominal GDP and the 17th largest measured by PPP adjusted GDP, representing about 1.7% of the World economy. Australia was also ranked the 19th largest importer and 19th largest exporter. In 2011 the Australian economy was the fastest growing advanced economy in the world. Australia has 8 times more adults earning over $100 000 than the worldwide average. In 2011 the average middle aged adult had a net worth of over $350 000, making Australians per capita some of the wealthiest people in the world. Australia's total wealth is 6.4 trillion dollars and the IMF in April 2012 predicted that Australia would be the best performing economy in the world over the next two years.

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. The ANZCERTA agreement with New Zealand has greatly increased integration with the New Zealand economy and there are now plans to form an Australasian Single Economic Market by 2015.

The Australian economy is dominated by its service sector, representing 68% of GDP. The mining sector represents 10% of GDP; the "mining-related economy" represents 9% of GDP - the total mining sector represents 19% of GDP. Economic growth is largely dependent on the mining sector. The Australian economy is dependent on imported crude oil and petroleum products, the economy’s petroleum import dependency is around 80% - crude oil + petroleum products.

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. Australia is home to some of the largest companies in the world including, BHP Billiton and Rio Tinto Group.

Overview

Australia's per-capita GDP is higher than that of the UK, Germany, and France in terms of purchasing power parity. Per Capita GDP (PPP) Australia is ranked fifth in the world (IMF 2011). The country was ranked second in the United Nations 2011 Human Development Index and sixth in The Economist worldwide quality-of-life index 2005. [1] [2] Australia's sovereign credit rating is "AAA", higher than the United States of America and Australia's four 'Big Banks' are among the 'World's 50 Safest Banks' as of April 2012. The four largest banks in Australia are also known as: The "Big Four". Australia has the highest ratio of assets to population of any country in the World. The country's ratio of government debt to GDP is the lowest among OECD countries.

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 approx. 2.6% of GDP negative: Australia has had persistently large current account deficits for more than 50 years. Australia economy grew at an average annual rate of 3.6% for over 15 years, well above the OECD average of 2.5%. Australia's average GDP growth rate for the period 1901-2000 was 3.4% annually. The World Bank expected Australia's GDP growth rate to be 3.2% in 2011 and 3.8% in 2012. The growth rate was reported to be 0.8% in the third quarter of 2011 and 0.4% in the December quarter of 2011.

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.

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 liquified 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.

In the past decade, one of the most significant sectoral trends in 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.

Employment

In February 2012, there were approximately 11,444,000 people employed (8,063,600 full time; 3,380,400 part-time); seasonally adjusted unemployment rate was 5.2%, according to the Australian Bureau of Statistics. In February 2012, the unemployment rate was 9.7% (unofficial,not seasonally adjusted) according to Roy Morgan Research.

States	Unemployment rate (Australian Bureau of Statistics)
Australian Capital Territory	3.6% (Q1 2012)
New South Wales	5.3% (Q1 2012)
Northern Territory	4.2% (Q1 2012)
Queensland	5.5% (Q1 2012)
South Australia	5.2% (Q1 2012)
Tasmania	7.0% (Q1 2012)
Victoria	5.4% (Q1 2012)
Western Australia	4.1% (Q1 2012)

Sectors

• Agriculture in Australia
• Australian wine
• Coal companies of Australia
• Energy in Australia
• List of companies of Australia
• Manufacturing in Australia
• Media of Australia
• Mining in Australia
• Telecommunications in Australia
• Tertiary education in Australia Tertiary education exports
• Tourism in Australia
• Transport in Australia

Mergers and acquisitions

Between 1991 and 2010, 31,131 mergers & acquisitions with a total known value of US$1,811 billion with the involvement of Australian firms have been announced. In the year 2010, 2,326 transactions valued at US$183 billion had been announced which was a slight increase in terms of numbers (+3.8%) and value (+13.6) compared to 2009. The largest takeover or merger transaction involving Australian companies was the 2007 takeover of the Coles Group by Wesfarmers, totaling A$22 billion.

Infrastructure

Main articles: Energy in Australia and Transportation in Australia

History

Main article: Economic history of Australia

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^{citation needed}. 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^{citation needed} to encourage private consumption and investment^{citation needed}, as opposed to higher government expenditure^{citation needed}.

Trade and economic performance

Treemap of Australian Exports (2009)

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.

In the late 19th century, Australia's economic strength relative to the rest of the world was reflected in its GDP. In 1870, Australia had the highest GDP per capita in the world due to economic growth fuelled by its natural resources. However, as Australia's population grew rapidly over the 20th century, its GDP per capita dropped relative to countries such as the United States and Norway. However, the Australian economy has been performing nominally better than other economies of the OECD and has supported economic growth for over 20 consecutive years. According to the Reserve Bank of Australia, Australian per capita GDP growth is higher than that of New Zealand, US, Canada and The Netherlands. The past performance of the Australian economy has been heavily influenced by US, Japanese and Chinese economic growth.

Australia was affected by the global financial crisis; but not to the same extent as other countries, due to certain factors, such as: high demand from China, stimulus measures by the then Rudd Government, and a buffer of surplus created during the previous Howard Government.

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

Current areas of concern

Further information: Australian national debt

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. Increasing levels of government debt triggered by Federal government spending are an emerging public policy issue.

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.

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 the largest 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.

Trade agreements

FTA (Free Trade Agreement) effective FTA with New Zealand (effective January 1983) FTA with Singapore (effective July 2003) FTA with United States (effective January 2005) FTA with Thailand (effective January 2005) FTA with Chile (effective March 2009) FTArea with AANZFTA (ASEAN, New Zealand) (effective January 2010)

FTA (Free Trade Agreement) negotiation FTA with China (negotiation since 2005) FTA with Malaysia (negotiation since 2005) FTA with GCC (Cooperation Council for the Arab States of the Gulf) (negotiation since 2007) FTA with Japan (negotiation since 2007) FTA with South Korea (negotiation since 2009) FTA with PACER Plus (Pacific Agreement on Closer Economic Relations) (negotiation since 2009) FTA with Indonesia (negotiation since 2010) FTA with TPP (Trans-Pacific Strategic Economic Partnership) (negotiation since 2010) FTA with India (negotiation since 2011)

Australia's balance of payments

Australia's current account (in $Millions) since 1959.

Main article: Australia's balance of payments

In trade terms, the Australian economy has had persistently large current account deficits for more than 50 years. 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.

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.^{citation needed}

However, as Australia's current account deficit (CAD) are almost entirely generated by the private sector as outlined in Professor John Pitchford's 'Consenting Adults Thesis' in the early 1990s, there is an argument that the CAD is not a significant issue. Historically, Australia has relied on overseas capital to fill the gap between domestic savings and investment, and many of these investment opportunities could not have been pursued if Australia did not have access to foreign savings. This would suggest that Australia's apparently low savings level and CAD are not necessarily a great problem. So long as the investment that is being funded by overseas capital inflow generates sufficient returns to pay for the servicing costs in the future, the increase in foreign liabilities can be viewed as sustainable in the longer term.

Taxation

Main article: Taxation in Australia

See also: Income tax in Australia and Goods and Services Tax (Australia)

Further information: Fiscal imbalance in Australia

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.

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).

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).

Local governments (called councils in Australia) have their own taxes (called rates) to enable them to provide rubbish collection, local road repairs, local planning and building management, park maintenance services, libraries and museums, etc. Councils also rely on State and Federal funding to provide infrastructure and services such as roads, bridges, sporting facilities and buildings, aged care, maternal and child health, and childcare.

See also

• Austrade
• Australian federal budget
• Home ownership in Australia
• List of Australian states and territories by gross state product
• Median household income in Australia and New Zealand

By state:

• Economy of New South Wales
• Economy of Queensland
• Economy of Tasmania
• Economy of Western Australia

References

• Macfarlane, I. J. (1998). "Australian Monetary Policy in the Last Quarter of the Twentieth Century". Reserve Bank of Australia Bulletin, October 1998
• OECD Factbook 2006 (Gini coeffcients) OECD Factbook 2006 pdf
• Parham, Dean. (2002). "Microeconomic reforms and the revival in Australia’s growth in productivity and living standards". Assistant Commissioner - Productivity Commission, Canberra Conference of Economists Adelaide, 1 October 2002 (Adobe Acrobat *.PDF document)
• Some statistics on this page have been drawn from publications of the Australian Bureau of Statistics.

External links

• Australia Economy
• Australia page at Organisation for Economic Co-Operation & Development (OECD)
• Economic Survey of Australia at OECD
• Monthly Economic and Social Indicators (Australian Parliamentary Library)
• Quick Reference Tables for the World Bank's 2005 data
• Harcourt, Tim. (2005). "Introducing the twenty five billion dollar man: how the LNG deal was won" Austrade March 2003