It has been suggested that Economic history of Australia be merged into this article or section. (Discuss)

Economy of Australia
Currency	1 Australian Dollar ($AUD) = 100 cents
Fiscal year	1 July - 30 June
Trade organisations	APEC, WTO and OECD
Statistics [1]
GDP ranking	16th by volume (at PPP) (2005); 13th by per capita (at PPP) (2005)
GDP (PPP)	$611.7 billion (2004)
GDP	A$864.2 billion (2005-2006)
Real GDP growth	3% (2005-2006) [2]
GDP per capita	A$42,980 (2005-2006)
GDP by sector	agriculture (3.4%), mining (4.9%), industry (23.2%), services (68.4%) (2004/05 est.)
Inflation	2.75% (2005-2006) [3]
Pop below poverty line	N/A (2004 est.)
Labour force	10.65 million (December 2005 est.)
Labour force by occupation	agriculture (3.6%), mining (1.1%), industry (20.2%), services (75.1%) (May 2005 est.)
Unemployment rate	5.1% (October 2005) [4]
Main industries	mining, industrial and transportation equipment, food processing, chemicals, steel
Trading Partners [5]
Exports	$127.3 billion (2004/05 est.)
Main partners	Japan 19.6%, China 10.2%, South Korea 7.7%, US 7.4%, New Zealand 7.2% (2004/05 est.)
Imports	$149.5 billion (2004/05)
Main Partners	US 14.2%, China 13.2%, Japan 11.5%, Germany 5.8% (2004/05)
Public Finances
Public debt	0.75% GDP (2005-2006) [6]
External debt	A$6.48 billion (2005-2006) [7]
Revenues	A$214.5 billion (2005-2006) [8]
Expenses	A$206.1 billion (2005-2006) [9]
Budget Surplus	A$8.9 billion (2005-2006) [10]
Economic aid	ODA, $2.5 billion (2005/06 Budget) [11]
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Australia has a prosperous, Western-style market economy, with a per capita GDP slightly lower than those of the UK, France and Germany in nominal terms, but thanks to the lower cost of living, slightly higher in terms of Purchasing Power Parity. The Australian economy is dominated by its services sector (68% of GDP), yet it is the agricultural and mining sectors (8% of GDP combined) that account for 65% of its exports. Rich in natural resources, Australia is a major exporter of agricultural products, particularly grains and wool, and minerals, including various metals, coal, and natural gas. A downturn in world commodity prices can thus have a large impact on the economy.

Australia's competitive advantage in primary products is a reflection of the natural wealth of the Australian continent and its small domestic market; 20.3 million people occupy a continent the size of the contiguous United States. Service industries have expanded in recent decades at the expense of the manufacturing sector, which now accounts for just under 12 percent of GDP.

Australia's emphasis on reforms is a key factor behind the continuing strength of the economy. In the 1980s, the Australian Labor Party, led by Prime Minister Bob Hawke and Treasurer Paul Keating, commenced the modernisation of the Australlian economy by floating the Australian dollar in 1983, leading to full financial deregulation.

Current areas of concern to some economists include Australia's chronically high current account deficit and also high levels of net foreign debt.

Microeconomic Reform in the 1990's

Other key reforms include unilaterally reducing high tariffs and other protective barriers; floating the Australian dollar exchange rate; deregulating the financial services sector-- including a decision in late 1992 to allow liberal access for foreign bank branches; rationalizing and reducing the number of trade unions; efforts to restructure the highly centralized system of industrial relations and labour bargaining; better integrating the State economies into a national federal system; improving and standardizing the national infrastructure; and privatizing many government-owned services and public utilities.

Since 1996, the Coalition government, led by Prime Minister John Howard, continued to implement microeconomic reform policies. The microeconomic reforms of the Howard government have focussed on the labour market, and has attempted to reduce union power and involvement in the workplace. The Coalition government deregulated numerous other industries, including the telecommunications sector, and privatised many of the pre-existing monopolies. Since the recession of the early 1990s, the Australian economy has not suffered a recession in over 14 years. As of September 2005, unemployment had fallen to a level of 5.0 per cent, the lowest level since the late 1970s. The price of shares listed on the Australian Stock Exchange has also grown significantly since the early 1990s.

Many raw materials (including resources postulated to exist but yet to be discovered) remain mostly unexploited. Economists often refer to Australia as the "world's farm". The agriculture and natural resources sectors contribute significantly to GDP, both directly and indirectly, through associated services like road and rail transport networks, which in some areas exist entirely based on an industrial need, and supporting rural economies. In recent years the Australian government has been focusing on the development of the tourism, education and technology markets. The Australian government funds scientific research and development through universities, the Commonwealth Scientific and Industrial Research Organisation (CSIRO), and through joint ventures between the public and private sectors called Cooperative Research Centres.

Future Economic Progress

The ultimate goal is for Australia to become a competitive producer and exporter, not just of traditional farm and mineral commodities, but of a diversified mix of value added manufactured products, services, and technologies. While progress has been made on this economic reform agenda--such as in opening the telecommunications market to competition--much remains to be done, particularly in the domestic arena.

While the near-term outlook is for continued economic expansion, Australia's longer term prospects depend heavily on continued fundamental economic reform. There is a general consensus among the major political parties, management, and labour on the necessary features of this reform but significant divergence of views on the methods, pace, and degree of change required.

The influence of China's economic growth has also fuelled Australia's export growth in mineral and energy resources, with the recent Western Australian Liquified Natural Gas contract worth potentially $25 billion over the life of the project [12]. China's industrialisation has resulted in an export boom for resource corporations, and thus contributed to increasing the Australian Federal Government's revenue stream from increased Company Tax takings. Australia's trade with China is currently the fastest growing in the past decade, to become the third largest trading partner overall.

Recent changes by the Coalition Government on industrial reform, with particular regards to new laws for liberalising workplace contracts for small businesses under 100 employees, has resulted in some discontent among union groups and employee advocates. Critics argue that the laws will result in reduced worker entitlements in return for nominal financial compensation, which will thus impact on the social needs of individuals. Furthermore, it is argued that there is no economic evidence to support the government's claims that the changes will stimulate productivity and raise wages. Nevertheless, businesses welcome attempts to improve productivity, and believe such reforms will benefit the Australian economic output as a whole.

The privatisation of Telstra will also be a major agenda for the government, potentially worth AUD$30 billion, as it seeks to retire public debt and build upon successive federal surpluses for a future capital reserve. Telstra's privatisation is undergoing numerous consultations with various lobby groups, particularly rural areas which expect funds to be allocated for improving rural telecommunications infrastructure. Various proposals for privatisation to improve competition of Telstra's natural monopoly over fixed lines, including the separation of Telstra's wholesale communications and its retail division, have been seen as unsatisfactory by the current Telstra board for maximising the final share price.

Economic History

Before 1850

Before 1850, Australian economic development almost entirely was based on the production of wool. As more land became settled and occupied, pastoral businesses were established that became the majority of increases in economic expansion.

1850 to 1860

The discovery of gold in 1851 was a change in direction for the Australian economy. It marked a period of economic expansion, attributable to the gold, which eclipsed even wool production in terms of percentage of economic expansion. The discovery led to increased immigration, which put a burden on the gold supply. This in turn led to the resumption of wool as being the principal provider of increases in economic development by 1860. Actual estimates of populations of the time indicate that the population of 400,000 at the start of the decade increased to 1,000,000 by 1860.

The Australian government started a "development strategy" by issuing bonds to the London market, selling public land and using this to fund infrastructure.

1860 to 1875

Due to the increases in income attributable to the “Gold rush” manufacturing and construction sectors of the economy fared very well. However, when discussing economic expansion, the productivity increases provided by the pastoral industry in the production of wool remained its principal contributor.

1875 to 1880

As fertile land became less available to settlers, pastoral industries continued to increase their land holdings for the use of wool production. This caused a retraction in returns on investment by pastoral companies. Even when poorer land was utilized for the purpose of wool production there was continued investment both from private backers, and governments (in the form of transportation infrastructure).

1880 to 1890

An investment boom in Australia in this decade saw economic expansion increase despite the fact that the investments were providing less of a return per dollar spent on investment. This can be attributed to foreign funds becoming more and more available to Australia. By the end of this decade, overseas investors became more and more concerned with the difference between expected returns and actual returns on Australian investment and subsequently withdrew further funding. Consequently Australia saw the start of a severe depression starting in 1890.

1890 to 1900

Continued reluctance from overseas investors saw a sustained period of negligible economic expansion. It was however, not negative economic growth due, in part, to gold discoveries in Western Australia. This decade however, saw the beginning of the integration of new technologies such as refrigeration, which saw land being used in different ways; to produce meat and dairy products could now be produced and then exported overseas.

1900 to 1939

While wool-growing remained at the centre of economic activity, a variety of new goods such as wheat, dairy and other agriculturally based produce became a part of the Australian export repertoire. It was in this period that in fact the latter became more of a factor in economic productivity increases than wool production. Part of this emergence in other sources of economic expansion came from technological progress, such as disease-resistant wheat and refrigerated shipping. It was also the development of this technology that renewed foreign large-scale investment, both publicly and privately funded which underpinned economic growth.

As seen before in Australia’s brief economic history, this injection of foreign investment led to increases in construction, particularly in the private residential sector. The fact that this injection of foreign cash was the main contributor to economic expansion was again troublesome for Australia’s economy. Returns on investments, as before, were immensely different from expected returns. By the 1920s agricultural producers were experiencing profitability troubles and governments, who invested heavily on transportation infrastructure, were not getting the returns they expected. Cutbacks in borrowing, government and private expenditure in the late 1920s led to a recession. The recession itself became worse as internationally nations fell into depressions which not only cut back on foreign investments to Australia, but also led to a lower demand for Australian exports. This culminated into the biggest recession in Australia’s history which peaked in 1931-1932.

However, the recession was not felt as badly in Australia compared to their international counterparts, the cause of which was almost primarily from the increases in productivity from the manufacturing sector. (In William Sinclair[13]'s terms[14], this is where we moved from the old model to the new model.) Trade protection, particularly from tariffs implemented by governments at the time were instrumental in the prosperity of the manufacturing sector.

1939 to 1974

In the beginning of the Second World War through to the 1970s, Australia was locked in a period of high maintained economic expansion which is now known as the “long boom”. This period is marked by large increases in the Australian population (by 80%), and little if any economic fluctuations. Despite the huge increases in the Australian population, economic growth, defined by increase in GDP per head, was still growing. It is statistically significant that in this period, the standard of living as represented by increases in GDP per capita, literally doubled. As mentioned earlier, the 1920s started an increase in manufacturing as an increasingly important factor in Australian economic expansion. The Second World War gave a significant boost to this sector.

The highest growth in the manufacturing sector was however, found in the period after the end of the Second World War. Import restrictions implemented by the government of the time led to increased profits to the manufacturing industry, which encompassed a wide range of industries including motor vehicles, metal processing, textiles, clothing, footwear and chemicals. The impetus for the most part, was U.S. investment in Australia. The manufacturing industry however, was bolstered only to serve the domestic market, led by a strategy implemented by economic policy makers which could be dubbed “import replacement” strategies. This was afforded by both continuing increases in productivity and economic protection.

In the 1950s and 1960s, Australian manufacturers which were nurtured by government policy failed to increase productivity. This is highlighted by the increases in the productivity of overseas manufacturing who did not have the same level of protection as Australian producers. Foreign investors noticed this difference, or lack of competitiveness and consequently, investment declined in the manufacturing sector.

Economic growth however was not hampered by this, as the development of mining initiatives to exploit Australia’s natural advantage in resource production attracted foreign investment which in turn under-pinned economic expansion. This establishment of a mining industry continued the high level of economic growth in the post-war period and beyond by more than which would have been possible by manufacturing sectors alone.

1974 was the year which is described as the end of the ‘long boom’. It is also interesting to note that while these years were denoted as being the “golden years” in Australian economic development, they primarily had an artificial basis through the use of tariffs and other protectionism implementations, the growth itself, because of this, led to an unsustainable level of economic growth.

1974 to present

Taxation

As a Federation, the political power between Commonwealth and State Governments is evenly spread out. This is why both the Commonwealth and the States have their own taxes. Obviously, taxes vary from State to State due to their different needs, populations, economics and budgetary position. However the majority of income for state governments remains the Federal Government, for which the largest sources of revenue is income tax and business tax.

Federal Taxes

Income Tax

This will be the amount of tax that people will have to pay on their income from July 1 2006. Source: click here

Tax Threshold (A$)	Tax Rate (%)
0-6000	0
6,001-21,600	15
21,601-70,000	30
70,001-125,000	42
125,000 +	47

GST (Goods and Services Tax)

The Goods and Services Tax, which the Australian equivalent of the VAT, is a 10% consumption imposed on goods which was introduced by the Howard Government in 2001. There are however, products which are GST-free, such as fresh foods.

The purpose of the GST is to provide the States with enough funds so that they can abolish and/or reduce some of their State taxes and expand the size of their services to the public. In the contract signed between the Commonwealth and the States and Territories in 1999, the distribution of GST revenue is decided by the Federal Government. This has resulted in disputes between the Commonwealth and NSW and Victoria who feel as though they are being ripped off because they are getting less GST revenue than what their States generate and that other States are being overflooded with their money. Also, the GST rate cannot be increased of decreased with the unanimous approval of Commonwealth and State Governments.

Corporate/Company Tax

All businesses pay a company/corporate tax of 30%.

Social Security Levies (this part needs to be expanded)

All people must pay Social Security levies so as to fund healthcare, retirement programs.

Medicare Levy: 1.5%

Capital Gains Tax (CGT)

The Federal Government collects Capital Gains Tax on shares sold on the stockmarket.

Fuel excise

In total, the Federal fuel excise is equal to 48c per $ of petrol sold.

State Taxes

States also have their own taxes so that they can fund the services they offer. For obvious reasons, tax rates vary from State/Territory to State/Territory. Certain States and Territories may not even levy certain taxes that are mentioned below.

Payroll Tax: tax levied on businesses.
Pokies Tax: tax levied on businesses who offer gambling services.
Land Tax: tax levied on people and businesses who own land.
Capital Gains Tax (CGT): tax levied on people/businesses who sell the following assets: cars, properties (there are more)
Vendor's Tax: tax which is levied on people/businesses who sell property. It has been labelled as the world's dumbest tax by some economist, since people alreay pay CGT when selling a property.
Fuel excise: all States impose a fuel excise of 4c per $ of petrol sold.

Local Government Taxes

Local Governments, or as they are known in Australia, councils, have their own taxes so that they can provide garbage collection, park maintenance services, libraries and museums, etc.

Foreign trade

Weak foreign demand and strong import demand pushed Australia's trade deficit up from US$8 billion in 2002, to US$18 billion in 2003, US$13 billion in 2004, and US$16 billion in 2005. The government is pushing for increased exports of manufactured goods, but competition in international markets continues to be severe.

Other Economic Indicators

Industrial Production Growth Rate: 2.6% (September 2005)

Agriculture - Products: wheat, barley, sugarcane, fruits; cattle, sheep, poultry

Exports - Commodities: coal, gold, meat, wool, aluminum, uranium, iron ore, wheat, machinery and transport equipment, liquified natural gas

Imports - Commodities: machinery and transport equipment, computers and office machines, telecommunication equipment and parts; crude oil and petroleum products

Exchange rates:
Australian dollars per US dollar: 1.5419 (2003), 1.8406 (2002), 1.9334 (2001), 1.7248 (2000), 1.55 (1999), 1.5888 (1998), 1.3439 (1997), 1.2773 (1996), 1.3486 (1995)

Electricity:

Production: 198,200 GWh (2001)
Consumption: 184,400 GWh (2001)
Exports: 0 kWh (2001)
Imports: 0 kWh (2001)

Electricity - Production by source:

Fossil Fuel: 89.85%
Hydro: 8.35%
Nuclear: 0%
Other: 1.8% (1998)

References

Harcourt, T. (2005). How the LNG deal was won. Australian Trade Commission Website
Macfarlane, I. J. (1998). Australian Monetary Policy in the Last Quarter of the Twentieth Century. Reserve Bank of Australia Bulletin, October 1998
Parham, D. (2002). Microeconomic reforms and the revival in Australia’s growth in productivity and living standards. Conference of Economists Adelaide, 1 October 2002
Some statistics on this page have been drawn from publications of the Australian Bureau of Statistics.
This article contains material from the CIA World Factbook (2005 edition) which, as a US government publication, is in the public domain.

Economy of Australia

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