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Economy of Australia

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Economy of Australia
CurrencyAustralian Dollar (A$ or AUD)
1 July - 30 June
Trade organisations
APEC, WTO and OECD
Statistics
GDP$1.23 trillion (2011 est.)[1]
GDP growth
2.7% (2010 est.)
GDP per capita
$54,868(nominal)[2]
List of countries by GDP (PPP)[3] (2010)
GDP by sector
agriculture: 4%; industry: 24.8%; services: 71.2% (2010 est.)
2.8% (Q-3-2010) [4]
0.331 (2009)[5]
Labour force
11.62 million (2010 est.)
Labour force by occupation
agriculture: 3.6%; industry: 21.1%; services: 75% (2009 est.)
Unemployment4.9% (March 2011)
Main industries
mining, industrial, education and transport equipment, food processing, chemicals, steel
External
Exports$212.9 billion (19th, 2010)
Export goods
coal, iron ore, education, gold, 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.)
$1.169 trillion (31 December 2010 est.)
Public finances
22.4% of GDP (2010 est.)
RevenuesA$350.0 billion (2011-12)[6]
ExpensesA$365.8 billion (2011-12)[6]
Economic aiddonor: ODA, $2.5 billion (2005/06 Budget)[7]
US$41.212 billion (March 2011)[8]
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, modern market economy with a GDP of approximately US$1.23 trillion.[9] In 2011, it was the 13th largest national economy by nominal GDP[10] 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.

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.[11] 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.[12]

The Australian economy is dominated by its service sector, representing 68% of Australian GDP. The agricultural and mining sectors (10% of GDP combined)[13] account for 57% of the nation's exports.[14] 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.[15]

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 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. [citation needed]Australia's sovereign credit rating is "AAA", higher than the United States of America and the country has four of the World's nine "AAA" rated banks. Australia has highest ratio of assets to population than any country in the World. The country's government debt to GDP is the lowest among OECD countries. The Australian government aims to run surpluses from 2012/13.

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.[16] Australia has grown at an average annual rate of 3.6% for over 15 years, well above the OECD average of 2.5%.[16] 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%.[17] 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 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.[19]

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.[13]

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

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.

History

Main article: Economic history of Australia

Mergers & 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.[20] 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.[21]

Taxation

Main article: Taxation in Australia
See also: Income tax in Australia and Goods and Services Tax (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.

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

Further information: Fiscal imbalance in Australia

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.[22]

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 16 consecutive years.[23] According to the Reserve Bank of Australia, Australian per capita GDP growth is higher than that of New Zealand, US, Canada and The Netherlands.[24] 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[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].

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.[25] In 2009, offers were made by state-owned Chinese companies to invest 22 billion dollars in Australia's resource extraction industry.[25]

Trade Agreements

FTA (Free Trade Agreement) effective[26] FTA (Free Trade Agreement) negotiation

Australia's balance of payments

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.[16] 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.[27]

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.[28]

See also

Major sectors:

By state:

Notes

  1. ^ "Australia". IMF website. Washington, D.C.: International Monetary Fund. Retrieved 6 October 2010.
  2. ^ "World Economic Outlook Database-October 2010". International Monetary Fund. Retrieved 8 April 2010.
  3. ^ "World Economic Outlook Database-October 2010". International Monetary Fund. Retrieved 8 April 2010.
  4. ^ "Australian Bureau of Statistics 6401.0 Consumer Price Index, Australia, September 2010. (released 27 October 2010)". Abs.gov.au. Retrieved 11 September 2011.
  5. ^ Australian Bureau of Statistics 6523.0 Household Income and Income Distribution, Australia, 2007-08, (released 2009-08-20, page 16) http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/6523.02007-08
  6. ^ a b "Australian Government budget aggregates". Budget.gov.au. 10 May 2011. Retrieved 11 September 2011.
  7. ^ http://www.ausaid.gov.au/publications/pdf/summary_2005_2006.pdf
  8. ^ "International Reserves and Foreign Currency Liquidity - AUSTRALIA". International Monetary Fund. 6 May 2011. Retrieved 31 May 2011.
  9. ^ https://www.cia.gov/library/publications/the-world-factbook/fields/2195.html
  10. ^ Field listing - GDP (official exchange rate), CIA World Factbook
  11. ^ "International agreements on trade and investment". Austrade. Retrieved 11 September 2011.
  12. ^ "Australia New Zealand Closer Economic Agreement (ANZCERTA)". Austrade.gov.au. 1 January 2007. Retrieved 11 September 2011.
  13. ^ 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=
  14. ^ [1][dead link]
  15. ^ "Oil import dependency Australia". Crude Oil Peak. 2010. Retrieved 11 June 2011. {{cite web}}: Unknown parameter |month= ignored (help)
  16. ^ a b c "The Australian economy: Downwonder The "lucky country" may not be so for too much longer". The Economist. 29 March 2007. Retrieved 11 June 2011.
  17. ^ Australian Bureau of Statistics, Labour Force, Australia, Nov 2009 http://www.abs.gov.au/AUSSTATS/abs@.nsf/mf/6202.0
  18. ^ Department of Foreign Affairs and Trade (2003). Advancing the National Interest, Appendix 1
  19. ^ Australian Government, DFAT, Composition of Trade Australia 2008-09 http://www.dfat.gov.au/publications/stats-pubs/cot_fy_2008_09.pdf
  20. ^ "Statistics on Mergers & Acquisitions (M&A) - M&A Courses | Company Valuation Courses | Mergers & Acquisitions Courses". Imaa-institute.org. Retrieved 11 September 2011.
  21. ^ Carson, Vanda. "Wesfarmers buys Coles". The Age. Retrieved 12 June 2011.
  22. ^ Blackie, Tony (10 July 2008). "Battle of the Brfukuands". Business Review Weekly. Vol. 30, no. 27. pp. 32–35.
  23. ^ "Downwonder: The “lucky country” may not be so for too much longer" @ The Economist - 29 Mar 2007
  24. ^ "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
  25. ^ a b "Australia Feels Chill as China’s Shadow Grows" article by Michael Wines in The New York Times 2 June 2009
  26. ^ "Australia's Trade Agreements | Australian Government Department of Foreign Affairs and Trade". Dfat.gov.au. Retrieved 11 September 2011.
  27. ^ Leading Edge, R: "Australia in the Global Economy", Tim Dixon and John O'Mahomy, page 133 .
  28. ^ Tim Dixon & James O'Mahoney, Australia in the Global Economy 2010, Leading Edge Education, Pearson Australia

References

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