- $762.6 billion
- 3.7% growth
- 2.9% 5-year compound annual growth
- $35,677 per capita
Australia’s economic freedom score is 82.6, making its economy the 3rd freest in the 2010 Index. Its overall score is unchanged from last year. Australia is ranked 3rd out of 41 countries in the Asia–Pacific region, and its score is well above the regional and world averages.
Sound macroeconomic policies and well-implemented structural reforms have allowed the Australian economy to weather the recent global financial and economic crisis better than many other advanced economies. Facilitated by robust supervision and sound regulation, Australia’s banks have coped well with the financial turmoil. Unemployment has been rising since the start of 2009 but remains well below the OECD average. With growth recovering, the government’s temporary stimulus measures are scheduled to phase out in 2010.
Overall, the Australian economy is well equipped in terms of its structural strength. Monetary stability and openness to global commerce continue to facilitate a competitive financial and investment environment based on market principles. A strong rule of law protects property rights, and corruption is perceived as minimal. Both foreign and domestically owned businesses enjoy considerable flexibility under licensing and regulatory schemes and in their employment practices. Measures to enhance public finance and maintain long-term fiscal sustainability are focused on achieving better efficiency and effectiveness.
Australia is one of the Asia–Pacific’s richest countries. Over a period of more than three decades, successive Labor and Liberal governments have deregulated financial and labor markets and reduced trade barriers. Now in its 18th year of uninterrupted economic expansion, Australia is an internationally competitive producer of services, technologies, and high-value-added manufactured goods. Its export sector remains heavily focused on mining and agriculture.
The overall freedom to start, operate, and close a business is strongly protected under Australia’s regulatory environment. Starting a business takes two days, compared to the world average of 35 days. Obtaining a business license requires less than the global average of 18 procedures. Bankruptcy procedures are straightforward and not burdensome. The government generally follows a hands-off approach to sectors dominated by small businesses.
Australia’s weighted average tariff rate was 2.5 percent in 2008. Import restrictions and bans, stringent sanitary and biotechnology measures, a quarantine regime, subsidies and other support programs for agriculture and manufacturing products, and barriers to trade in services raise the cost of trade. Exports of bulk wheat and containerized wheat have been liberalized, but bulk exports still require a license before shipment. Ten points were deducted from Australia’s trade freedom score to account for non-tariff barriers.
Australia has a high income tax rate and a moderately high corporate tax rate. The top income tax rate is 45 percent (plus a Medicare levy of 1.5 percent). The corporate tax rate is a flat 30 percent. Other taxes include a goods and services tax (GST) and a tax on the transfer of real property (applied at the state level). In the most recent year, overall tax revenue as a percentage of GDP was 30.6 percent.
Total government expenditures, including consumption and transfer payments, are moderate. In the most recent year, government spending equaled 34.2 percent of GDP. A large stimulus package of transfers to households and increased infrastructure spending shifted the fiscal balance into deficit. State corporations increased public investment spending.
Inflation has been moderate, averaging 3.8 percent between 2006 and 2008. The government can impose price controls, but competition reforms are reducing the range of goods subject to control. Retail gas and electricity prices are regulated, causing five points to be deducted from Australia’s monetary freedom score.
Foreign and domestic investors receive equal treatment, but foreign investments may be screened. The government generally must be notified about proposals to start new businesses in sensitive sectors, acquisitions of substantial interests in existing businesses, plans to establish new businesses involving a total investment of A$10 million or more, significant portfolio investments and all non-portfolio investments in the media, takeovers of offshore companies with Australian subsidiaries valued at A$200 million or more, direct investments by foreign governments or their agencies, and certain acquisitions of interests in urban land. The government may reject proposals deemed inconsistent with the “national interest.” Foreign investors may own land, subject to approval and a number of restrictions. Residents and non-residents have access to foreign exchange and may conduct international payments and capital transactions. There are no controls on capital repatriation. Private property can be expropriated for public purposes in accordance with international law, and compensation is paid.
Australia’s well-developed and highly competitive financial sector includes banking, insurance, and equity industries. All banks are privately owned. Government regulation is minimal, and foreign banks, licensed as branches or subsidiaries, offer a full range of services. As of June 2009, there were 58 licensed banks: 14 Australian-owned and 44 foreign-owned. The sector is dominated by four major Australian banks that are not allowed to merge. Relatively low leverage and a high ratio of capital adequacy, coupled with banks’ limited exposure to securitized assets, helped to avert a sharp credit contraction during the global financial crisis. Foreign insurance companies are permitted, and regulation is focused on capital adequacy, solvency, and prudential behavior.
Property rights are well protected. The rule of law is seen as fundamental, and enforcement is even-handed. The government respects the independence of the judiciary. Protection of intellectual property rights meets or exceeds world standards. Contracts are secure, and expropriation is highly unusual.
Corruption is perceived as minimal. Australia ranks 9th out of 179 countries in Transparency International’s Corruption Perceptions Index for 2008, and the government actively promotes international efforts to curb the bribing of foreign officials.
Highly flexible employment regulations enhance employment and productivity growth. The non-salary cost of employing a worker is moderate, and dismissing a redundant employee is costless.