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Australia Now

A Global Economy

Australia has one of the strongest economies in the world, with almost two consecutive decades of growth and the unemployment rate falling to generational lows. As a result of nearly three decades of structural and policy reforms the economy is flexible, resilient and increasingly integrated with global markets.

The strength of Australia’s economy has been highlighted in recent years by its ability to withstand a number of internal and external events, including a major drought, a housing boom and the Asian financial and economic crises.

Since 1991, Australia’s real economy has grown by an average of 3.3 per cent a year. Australia’s gross domestic product (GDP) in 2007 (in value terms) was around $1 trillion. Unemployment has also fallen, from a peak of almost 11 per cent 15 years ago to below 5 per cent in 2008—the lowest level since the 1970s.

As a result of sustained budget surpluses, Australia is now in a strong fiscal position. Between 2002–03 and 2006–07, Australia’s budget surplus averaged between 1 per cent and 1.6 per cent of GDP. These surpluses have been used primarily to retire government debt. After peaking at 18.5 per cent of GDP ($95.8 billion) in 1995–96, net government debt was eliminated in 2005–06, with Australia now a net creditor equivalent to an estimated 2.7 per cent of GDP ($28.1 billion).

In its 2007 Economic Survey of Australia, the Organisation for Economic Co-operation and Development (OECD) described Australia’s macroeconomic performance as impressive, with GDP growth since 2000 averaging above 3 per cent a year and growth in real gross domestic income averaging more than 4 per cent (including the terms of trade gains). The OECD forecasts that Australia’s economic growth in 2008 will be 3.3 per cent, well above the average OECD forecast growth rate of 2.7 per cent.

According to the OECD, Australia’s standard of living has also risen significantly and now surpasses the standards of all Group of Eight countries except the United States.

Stable economic structure

As a result of the continuous structural and policy reforms implemented since the 1970s, Australia today has a sound, stable and modern institutional and regulatory structure that provides certainty to business and offers a welcoming destination for investment.

As part of its ambitious reform agenda, Australia has progressively dismantled or cut many of its former protectionist tariffs, introduced domestic competition laws, deregulated its financial market, floated its exchange rate, decentralised its labour market and credibly ‘anchored’ its macroeconomic policies.

Australia has lowered barriers to trade and investment and there is substantial competition across the economy, including in key areas such as the financial, air transport and telecommunications sectors.

Since 1970, effective rates of assistance to the manufacturing sector in Australia have fallen from 35 per cent to less than 5 per cent today. This competitive and innovative culture has resulted in more people around the world using Australian technology, expertise and manufactured products in their daily lives.

Today, Australia’s infrastructure is extensive and world class, providing individuals and businesses with efficient and reliable domestic and international transport services; communications and information technology; utilities and power distribution systems; and financial services.

Changes to, and simplification of, the tax system have also led to significant reductions in business costs, especially for exporters. The goods and services tax (GST) is levied at 10 per cent and applies to almost all goods and services. There is no stamp duty on share transactions and the corporate tax rate is 30 per cent. The government also provides tax incentives of up to 175 per cent to encourage businesses to invest in research and development.

Australia continues to build on the twin foundations of domestic structural reform and increased international market access, won through a competitive and innovative export base and a strong commitment to world trade liberalisation.

Trading with the world

Australia’s two-way trade in goods and services was valued at $443.6 billion in 2006–07, or about 1 per cent of total world trade. Japan is Australia’s largest trading partner, followed by China, the United States, the United Kingdom and Singapore.

Australia’s exports of goods and services rose 16 per cent to reach their highest value on record of $215.8 billion in 2006–07—about 21 per cent of Australia’s GDP. Australia’s businesses are competitive across a wide range of sectors. Australia has long been a major exporter of agricultural, minerals and energy commodities. More recently Australia has diversified into new services and sophisticated manufacturing export markets.

Australia’s e-readiness

Information and communications technology is a key driver of Australia’s strong economic growth and innovation. According to a survey by the Economist Intelligence Unit, Australia ranked ninth out of 69 countries in terms of e-readiness in 2007. It ranked first in the Asia–Pacific region and equal second in the world for both its ‘e-literate’ social and cultural environment and its legal environment.Department of

According to a survey by the Australian Bureau of Statistics, 60 per cent of Australian households had home Internet access in 2005–06 and 70 per cent had access to home computers.

There has been a significant transformation in the telecommunications sector in the past 10 years, following the Australian Government’s introduction of open competition in the market in 1997.

Sophisticated financial services sector

Australia is a major regional financial centre, with a sophisticated financial system and transparent markets. According to the most recent Global Stock Market Review by Standard and Poor’s, Australia’s stock market is the ninth largest in the world in total market capitalisation terms and the second largest in the Asia–Pacific region, after Japan’s.

More than 2000 companies, with a total market capitalisation of $1.6 trillion, were listed on the Australian Stock Exchange in 2007. Australia has one of the highest rates of share ownership in the world; more than 50 per cent of the adult population owns shares in publicly listed companies. Australia’s trading day spans the close of business in the United States and the opening in Europe.

The depth, liquidity and sophistication of Australia’s markets underpin Australia’s attractiveness as a global financial services centre. The 2007–08 World Economic Forum Global Competitiveness Report ranked Australia’s financial markets as the seventh most sophisticated in the world.

The Australian foreign exchange market is ranked seventh in the world by turnover and the Australian dollar is the sixth most actively traded currency in the world, after the US dollar, the euro, the Japanese yen, the UK pound and the Swiss franc.

Australia’s status as the Asia–Pacific centre for funds management has attracted global financial institutions since the mid-1990s.

As a result of a universal, compulsory employer-funded pension scheme, Australia’s investment funds asset pool of around $US864 billion continues to be the largest in the Asia–Pacific region and the fourth largest in the world. The pool’s size and rapid growth offer substantial business opportunities for international financial groups. Overseas companies manage around half of Australia’s total investment funds, either directly or through joint ventures with local companies.

In 2006–07, the finance and insurance sectors comprised 7.3 per cent of the Australian economy (compared to 7 per cent for mining, including services to mining). Financial services have had an average annual real growth rate of 4.7 per cent over the past 20 years.

Foreign investment

Australia welcomes foreign investment. It recognises the important role of foreign investment in boosting economic growth, developing competitive industries, creating jobs and increasing exports. The stock of foreign investment in Australia (portfolio, direct, financial derivatives and other investment) in June 2007 totalled $1.6 trillion.

Portfolio investment makes up about 63 per cent of total foreign investment. In 2006–07, foreign direct investment totalled $331 billion.

In the decade to 2007, Australia was the fifth largest net recipient of foreign direct investment in the OECD.

Australia as a regional base

Australia is also an attractive location for international companies wanting to establish a regional base to take advantage of the growing business opportunities in the Asia–Pacific region and to enter Australia’s highly developed domestic market.

Companies are attracted by Australia’s competitive operating costs compared to rival regional hubs and high local skill levels. Other factors in Australia’s favour include:

Australia also has a business-friendly regulatory environment. According to the World Bank, Australia is the fastest place in the world in which to start a business, with regulatory procedures taking just two days.

The OECD has also identified Australia as having the fewest restrictions on product markets of all of its 30 member countries, the lowest level of public ownership of business and the least restrictive impact of business regulation on economic behaviour.

key facts

Further information

This fact sheet is also available to download ( PDF)

Note: Unless otherwise stated, all dollar amounts are in Australian dollars. The term ‘billion’ means ‘a thousand millions’ (one billion therefore equals 1,000,000,000); the term ‘trillion’ means ‘a million millions’ (one trillion therefore equals 1,000,000,000,000).

last updated April 2008