Australian Economy
Overview
Australia boasts one of the most powerful economies on our planet being the 12th for the nominal GDP (over 1.5 trillion USD) and the 16th for the GDP (at PPP) per capita (over 48k USD). The country is the planet’s 19th largest exporter (mainly mining and agricultural products) and importer. Being one of the richest nations of Asia-Pacific, Australia has been expanding its economic influence in the region for several decades. Australia is one of a few countries that endured the global downturn without almost any losses due to the stability of the national currency (Australian dollar) and robust mining sector. Services, manufacturing, technologies, and agriculture are other fortes of the Australian economy.
Numbers, Indices, Forecasts of Australian’s Economy
- Economy by sectors: 58% of services, 9% of construction, 7% of mining, 7% of manufacturing, and 5% of retail trade
- Economic growth is 2.5%
- Inflation is 1.5%
- Population of 23.7 million (annual growth is 1.4%)
- 1AUD = 0.7306 USD
- Unemployment rate is 5.8%
- AVG weekly salary is 1,137 AUD
- AVG price of a house is 612k AUD
- Australia’s GDP per capita (as for the purchasing power parity), which is higher than 48k USD, excels those of Canada, Germany, or the United Kingdom.
- Country’s credit rating – AAA – is better than that of the United States (jumped down from AAA to AA+ in 2011).
- The adult Aussies have the 2nd highest average wealth on the planet according to the Credit Suisse Research Institute (2013).
- The growth of the GDP in Australia is faster than that of Canada, the U.S., New Zealand, or Norway according to the forecast of the Reserve Bank of Australia.
In the end of 2015, Australia’s economy was discussed by global investors in a “bearish” tone. Goldman Sachs forecasts a slower economic growth for Australia in 2016 (2.0%). It also forecasts a slight growth of inflation (2%) and unemployment (6.2%) rates, but a soon recovery in 2017-18 is anticipated.
Australia is ranked 4th (among Asia-Pacific countries) in the Index of Economic Freedom (2015): its remarkable monetary and labour freedoms were, however, found overshadowed by worse performance in government spending control, corruption, and investment freedom. With the score of 81.4, Australia falls short of the index of Free Economies which is 84.6. Nevertheless, Australia has been faithful to economic freedom for centuries building up open-market, trade-oriented, sustainable, and dynamic economic policies.
Characteristics of Australian Economy
Legal Climate
Australia enjoys a calm political climate with professional, transparent, and strong legal regulations fulfilled through an independent and impartial judiciary system. The country practices advanced mechanisms in fighting corruption among officials and efficient business and property regulations with a strong enforcement of laws.
Profitable Sectors
The Australian economy is service-oriented; its education, tourism, finance, and other services contribute over 69% of the GDP. However, the country owes its stability to the mining sector which started developing after the WWII thanks to capital infusions from the United Kingdom and intensive government’s expenditures on communications, transport, and infrastructure. The booming mining, as well as gold and iron-ore output, quickly attracted inrush of immigrants which resulted in mega-urbanisation of Perth and constant growth of the economy.
The vivid mining sector is named among reasons of Australia’s resistance to the global financial crisis and skipping the inevitable recession. The country excelled the expected GDP growth rates striking the world with the overwhelming growth of 4.3%. Nevertheless, a recession still has touched some of its non-mining states. Actually, only mining states (on the west and north) and those resource-oriented are growing economically; for other states, such as Capital Territory, Tasmania, New South Wales and so on, recessions are a common thing.
Being endowed with colossal nature resources, Australia is an active exporter of coal, gas, mining products, gold and agricultural products such as wool and wheat. Australia’s main product markets are the US, China, Japan, India, and South Korea. Such territories as Victoria, Queensland, and New South Wales are the biggest producers of coal, 54% of which is exported to Asia. The country gets 85% of electric energy from its own coal. Australia is also famous for its rare red and pink diamonds which are produced in the Argyle mine.
Australia gets almost 3% of its GDP from agricultural (mostly farm) products 60% of which are being exported. As a country, loved by tourists, in 2011, Australia’s economy got over 90 million AUD a day thanks to tourism making over 2.5% of GDP.
Employment
The country is among the world’s top employment destinations. The unemployment rate (as a percentage of people who have been unemployed for more than a year) is much lower here (1%) than the average of the Organisation of Economic Cooperation and Development (2.8%). The official unemployment rate is 5.8%. Roy Morgan Research’s survey revealed that unemployment/underemployment was 20% in 2015. Such discrepancies can be explained by differences in methods of calculation.
In average, the Aussies earn 50.1k USD a year; however, there is an enormous difference between how much top 20% employees and bottom 20% ones earn: 64k USD and 28k USD accordingly. The household spending per capita reaches 31.5k USD a year.
Australia is one of the leaders of employment in the Asia-Pacific area. Its progressive mining and agricultural sectors attract hordes of foreigners. To wring the maximum out of such interest, the Australian government introduced the SkillSelect system that allows foreigners to claim for Australian jobs within the official list of skills. The government developed a wide range of work visas both temporary and permanent and gave each scheme of relocation its own number, for example, visa 457, 189, or 190. A foreigner who already has an offer from an Australian employer can avoid going through the SkillSelect system using the work visa 457.
Does Australia need foreign skills? Definitely, yes, when it comes to such sectors as engineering, construction, gas, mining, oil, renewable energy, and infrastructure. Queensland and Western Australia are areas where foreigners have the highest chance to land prestigious and well-paid jobs, of course, if they have the demanded skills. The only drawback of such employment is that most of these jobs require spending lots of time in remote areas.
Tax System in Australia
Taxation in Australia is conducted on 2 levels: the federal government collects taxes from personal and business incomes, as well as Goods and Services Tax, Medicare levy, withholding taxes, customs duties, and excise, and then local state or territory governments (councils) impose taxes related to property, land, vehicles, sales of shares and real estate (Stamp Duty), big salaries (the Payroll Tax), and so on. Taxes contribute up to 27% of revenue to the Australian economy.
The federal taxation is conducted on the principle of residence: non-residents pay taxes only from income earned inside Australia while residents get taxed for any kind of income regardless of its source. There are certain rules how such residence is determined for individuals and companies.
Capital gains (revenues derived from the sale of assets) and dividends are also taxed in Australia being treated as a part of income. Taxation of individual income for residents starts from 18.2k AUD (at 19%), and then the rate grows gradually reaching the maximum of 45% with an additional fixed tax of 54.547k AUD for incomes higher than 180k AUD. The minimum tax rate for the income of non-residents is 32.5%, and taxation starts from 0 AUD. Companies in Australia pay the fixed corporate tax of 30% irrespective of the amount of income.
Goods and services that are being sold in Australia or imported to the country are subject to the GST (Goods and Services Tax) which is 10%. The tax was set up in 2000. Exemptions of this tax are salaries, unprocessed food, education, health products and services, and export. The tax is imposed on new property both residential and non-residential.
All Australian citizens and residents who rely on the national healthcare scheme called Medicare must pay 1% from their taxable income. The government approaches every household individually making people with low income (earn less than 20.896k AUD per annum) exempts from the levy and surcharging top earners (more than 90k AUD for singles and 180k AUD for families) with additional 1%.
Except local taxes, councils get support (receipts of funds) from the federal government for such purposes as road building and repair, sports facilities, and caring for aged people, mothers, and children.
International Trade
Australia’s outstanding economic performance is fueled up by the growth of its strategic partners: the U.S., Japan, and China. Being a member of G20, OECD, APEC, and WTO, Australia is faithful to agreements of free trade with the United States, Singapore, Japan, New Zealand, Canada, ASEAN, China, Malaysia, India, and other countries. China is the biggest importer of Australian raw materials (such as iron ore or wool) and one of the biggest investors in the industries of resource extraction.The attractive part of Australian’s Economy
Being one of the 20 strongest economies in the world, Australia naturally interests lots of investors and entrepreneurs with great business ideas. The main reason why Australia is considered as a business destination is its political and economic stability. Other reasons are:
- English-speaking, well-educated, and multicultural manpower that comes from all corners of the world;
- advanced governmental support;
- high quality of life;
- advantageous trade agreements with many countries of the world;
- dominance of small businesses (96%) which means you won’t be squeezed from the market by some giant company.
The government welcomes new start-ups and meets them halfway with more flexible licensing and easier business regulations. Starting a company here requires only one short procedure, and no huge paid-up capital is required.
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