ECONOMY
Australia's advanced market economy is dominated by its services sector (72% of GDP), yet it is the agricultural and mining sectors (8% of GDP combined) that account for the bulk (52%) of Australia's exports. Australia's comparative advantage in the export of primary products is a reflection of the natural wealth of the Australian continent and its small domestic market; 21 million people occupy a continent the size of the contiguous United States. The relative size of the manufacturing sector has been declining for several decades, but has now steadied at around 10% of GDP. Australia currently enjoys a record-high terms-of-trade (TOT) that is 30% above its long-run average, reflecting the rise in global commodity prices created by booming demand in China and the drop in prices for imports for manufactured goods, mainly from China
Since the 1980s, Australia has undertaken significant structural reform of its economy and has transformed itself from an inward-looking, highly protected and regulated marketplace to an open, internationally competitive, export-oriented economy. Key economic reforms included unilaterally reducing high tariffs and other protective barriers to free trade, floating the Australian dollar, deregulating the financial services sector, including liberalizing access for foreign banks, increasing flexibility in the labor market, reducing duplication and increasing efficiency between the federal and state branches of government, privatizing many government-owned monopolies, and reforming the taxation system, including introducing a broad-based Goods and Services Tax (GST) and large reductions in income tax rates.
Australia is now in its 17th year of uninterrupted economic expansion and enjoys a higher standard of living than any G7 country other than the United States. Australia's economic standing in the world is a result of a commitment to best-practice macroeconomic policy settings including the delegation of the conduct of monetary policy to the independent Reserve Bank of Australia, and a broad acceptance of prudent fiscal policy where the government aims for fiscal balance over the economic cycle. The Australian Government has zero net debt and, through the "Future Fund," is building a net asset position to deal with future liabilities resulting from an aging population. The Australian economy is expected to grow at around 3.5% in 2007.
Two issues, national infrastructure and climate change, currently dominate
thinking about economic policy in Australia. The Australian economy is booming
and is operating at close to capacity with unemployment near a 32-year low of
4.3%. Both the federal and state governments have recognized the need to invest
heavily in water, transport, ports, telecommunications, and education
infrastructure to expand Australia's supply capacity. Australia may be coming
out of the severe drought conditions it has experienced over the last 5 years,
and received above-average rainfall in many areas during the last half 2007.
This should somewhat reduce the intense economic and political pressure on
governments to build dams, water-recycling facilities, and desalination plants
in drought-affected cities such as Brisbane, Canberra, and Perth.
The second significant issue is climate change. A report commissioned by
then-Prime Minister John Howard recommended a domestic carbon emissions trading
scheme. It also recommended that Australia take an active role in developing a
future global carbon emissions trading system. Under new Prime Minister Kevin
Rudd, Australia is committed to adopting a domestic carbon trading system by
2010.
The Australia-U.S. Free Trade Agreement (AUSFTA) entered into force on January 1, 2005. The AUSFTA marks the first FTA the U.S. has concluded with a developed economy since the U.S.-Canada FTA in 1988. Australia has also completed FTAs with Singapore and Thailand and is pursuing other FTAs, including with China and Japan. A burgeoning trade relationship marked by ongoing, multi-billion dollar resource export contracts and rising manufactured imports has driven FTA negotiations with China. Parallel efforts are underway with Malaysia and the Association of Southeast Asian Nations (ASEAN). The new Rudd government has restated its commitment to achieving high-quality FTAs with economies in the Asia-Pacific.
Economy
GDP (year to March 2007): $714.1 billion.
Inflation rate (year to September 2007): 3.2% per annum.
Reserve Bank official interest rate: 6.50%.
Trade: Exports ($114 billion, 2005-2006)--coal, iron ore, non-monetary gold, crude petroleum, and bovine meat. Major markets--China, Japan, South Korea, U.S. ($7.3 billion), and New Zealand. Imports ($125 billion, 2005-2006)--passenger motor vehicles, crude petroleum, computers, medicaments, and telecommunications equipment. Major suppliers--China, U.S. ($17.1 billion), Japan, Singapore, and Germany.
