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Throughout this article, the unqualified term "dollar" and the $ symbol refer to the Australian dollar. However, figures in the sidebar are in US dollars.

The Economy of Australia is a prosperous, Western-style market economy dominated by its services sector (68% of GDP), though the agricultural and mining sectors (8% of GDP combined) 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.

Australia's competitive advantage in primary products is a reflection of the natural wealth of the Australian continent and its small domestic market; 21 million people (July 2007) 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 per cent of GDP.

Australia's emphasis on reforms is often cited as 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 Australian economy by floating the Australian dollar in 1983, leading to full financial deregulation.

Current areas of concern to some economists include Australia's large current account deficit, the absence of a successful export-oriented manufacturing industry, a real estate bubble, and high levels of net foreign debt owed by the private sector.

History

Microeconomic reform

Key microeconomic reforms have included 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; rationalising and reducing the number of trade unions; efforts to restructure the highly centralised system of industrial relations and labour bargaining; better integrating the individual state economies into a national federal system; improving and standardising the national infrastructure; and privatising much of the government-owned services and public utilities.

Prime Minister John Howard continued to implement microeconomic reform policies, focusing on the taxation system and the labour market with attempts 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.

Many raw materials, including resources postulated to exist but so far undiscovered, remain mostly unexploited. 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.

The influence of China's economic growth has also fuelled Australia's export growth in mineral and energy resources, with the two recent Western Australian Liquified Natural Gas contracts, Gorgon and Northwest Shelf, worth potentially $55 billion over the life of the projects. 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, expected to become the third largest trading partner overall.

Recent changes by the Coalition Government on industrial reform, with particular regards to new laws changing the regulation of workplace contracts for small businesses under 100 employees, has resulted in major 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 $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.

Taxation

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As a Federation, political power is spread between the Commonwealth and State Governments. As a result, both the Commonwealth and the States have their own taxes. Taxes vary from State to State due to their different needs, populations, economics and budgetary position. The Commonwealth is the main source of income for State Governments, however. The Commonwealth's largest sources of revenue are income tax and business tax. 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.

Federal taxation

Income tax

The Australian taxation year ends on June 30. The amount of tax that individuals pay on their income from 1 July 2007 is shown in the table.

The Medicare levy applies to certain thresholds.

Goods and Services Tax

The Goods and Services Tax (or GST), the Australian equivalent of VAT, is a 10% consumption tax imposed on goods which was introduced by the Howard Government in 2000. There are, however, products which are GST-free, such as fresh foods. GST replace the previous wholesale sales tax, which many found confusing, with no clear idea of which products were and weren't taxed.

The purpose of the GST is to provide the states with enough funds so that they could 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 are aggrieved because they are receiving less GST revenue than the respective states generate; the excess revenue is then transferred to other states such as Queensland. The GST rate cannot be increased or decreased without the unanimous approval of both Commonwealth and State Governments.

Corporate/Company tax, Social Security levies, and Excise duties

All businesses pay a company/corporate tax of 30%. All Australians must pay Social Security levies to fund healthcare and retirement programs. The Medicare Levy is 1.5% of income. There is an excise tax of 38.143 cents per litre on petrol and diesel, and 12.5 cents per litre on Autogas (LPG) and ethanol. The Government also has dedicated alcohol and tobacco taxes.

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State taxation

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.
• Poker Machine 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 assets that have appreciated in value.
• Vendor's Tax: tax which is levied on people/businesses who sell property.

Municipal taxation

Local Governments, or, as they are called in Australia, councils, have their own taxes so that they can provide rubbish collection, park maintenance services, libraries and museums, etc. This taxation is commonly referred to as "council rates".

Trade and Economic Performance

In the second half of the 20th century, Australian trade shifted decisively away from Europe and North America to Japan and other East Asian markets.

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

Economic indicators

Fiscal Year: 1 July - 30 June Industrial Production Growth Rate: -3.5% (2006 est.) Agriculture - Products: wheat, barley, sugarcane, fruits; cattle, sheep, poultry Exports - Commodities: coal, gold, meat, wool, aluminium, uranium, iron ore, wheat, machinery and transport equipment, liquefied natural gas Imports - Commodities: crude oil and petroleum products Imports - Products: machinery and transport equipment, computers and office machines, telecommunication equipment and parts; Exchange rates:
Australian dollars per US dollar: 1.3285 (2006), 1.3095 (2005), 1.3598 (2004), 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: 237 TWh (2004)
• consumption: 221 TWh (2004)
• exports: 0 kWh (2003)
• imports: 0 kWh (2003)

Electricity - production by source:

• fossil fuel: 90.8%
• hydro: 8.3%
• nuclear: 0%
• other: 0.9% (2001)

See also

• Australia
• Reserve Bank of Australia
• Australia's Balance of Payments
• Economy of Oceania
• The New South Wales Economy

External links

• Australia page @ Organisation for Economic Co-Operation & Development (OECD)
• Economic Survey of Australia @ OECD
• Monthly Economic and Social Indicators (Australian Parliamentary Library)

References

• The World Bank-2005 data
  • Quick Reference Tables
• Harcourt, Tim. (2005). "Introducing the twenty five billion dollar man: how the LNG deal was won". Chief Economist - Australian Trade Commission - Sydney - 26 March 2003
• Macfarlane, I. J. (1998). "Australian Monetary Policy in the Last Quarter of the Twentieth Century". Reserve Bank of Australia Bulletin, October 1998 (Adobe Acrobat *.PDF document)
• 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.
• Template:CIA WFB 2005
• - "Australian Country Information" @ the Australian Department of Foreign Affairs & Trade

1. "Billion dollar gas deal gets the 'sign-off'" ABC National Rural News - 24/10/2003
2. "First gas shipment on way to China" The Sydney Morning Herald - May 17, 2006
3. "Howard hails potential gas export deal with China" Australian Broadcasting Corporation - 24 October 2003
4. Individual income tax rates @ Australian Taxation Office
5. "Downwonder: The “lucky country” may not be so for too much longer" @ The Economist - Mar 29th 2007
6. "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
7. "Booming Australian Economy"

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