Lexi Webster
Australia's government has played a significant role in shaping the country's economy, which is one of the strongest performing in the world. The country's economic growth has been heavily influenced by its mining sector, which has attracted foreign investment and contributed to high profits and increased tax revenue. The government has also supported the economy through stimulus packages, infrastructure development, and a well-regulated business environment. Australia's government has also maintained a low inflation rate and supported economic growth for over 20 consecutive years. The COVID-19 pandemic posed a challenge to the country's economy, but the government's response helped mitigate the impact.
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What You'll Learn
Australia's mining industry
Australia has a strong and ever-growing mining industry, which is the country's largest export industry. In 2018-19, the sector accounted for 8.5% of Australia's GDP, and minerals and fuels accounted for 50.9% of its goods and services exports. The mining industry has contributed $2.4 trillion in resources export revenue over the past decade.
The industry's growth has been supported by the Australian government's willingness to welcome foreign investment. This has helped to finance new industries and enhance existing ones. The government has also been able to increase its revenue through higher tax and royalty receipts from mining companies. For example, in 2012, mining investment increased fivefold from its level in 2004, from around $20 billion to $130 billion, peaking at 9% of GDP. This resulted in an increase in demand for workers and higher wages, which supported household incomes and consumption.
The mining industry in Australia is spread unevenly across the country, with Western Australia and Queensland having the highest concentration of known reserves. Queensland is a major mining state, with many of Australia's coal mines located in the Bowen Basin. It is also the world's largest supplier of silver and is poised to become an important player in strategic and critical minerals, including those used in new technologies such as electric vehicles. The state's mining sector provides more than 50,000 jobs and contributed nearly $75 billion to the state economy in 2018-19.
Victoria is also a significant mining region, known for producing gold, antimony, and brown coal. The industry contributes more than $13 billion to the state's economy and creates 121,000 jobs. New South Wales is rich in minerals such as coal, gold, copper, silver, lead, and zinc, with major coal deposits found in the Sydney-Gunnedah Basin.
The Northern Territory is rich in world-class minerals, including zinc, copper, lead, tungsten, lithium, vanadium, phosphate, potash, gold, and uranium. The territory's mining and manufacturing industry is valued at more than $4 billion, and it has a geographical advantage for mineral exports due to its proximity to Asia.
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The role of tourism
Australia's government influences its economy through various means, and tourism plays a significant role in this. Tourism Australia, the national marketing organisation, is responsible for promoting the country as a desirable destination for both leisure and business travel. The organisation works to influence international visitors and Australian residents to explore the country.
The Australian government recognises the importance of tourism, which is one of the country's largest export industries, employing over 666,000 people. The government, through Tourism Australia, actively undertakes research and marketing initiatives to attract visitors and support the sustainable growth of the industry. This includes gathering insights and data to inform policy decisions and working with state and territory tourism organisations to increase awareness and develop tourism destinations and experiences within their jurisdictions.
The government also manages the China Approved Destination Status (ADS) scheme, which facilitates Chinese tourists' travel to Australia in guided groups. Additionally, the government supports First Nations businesses in tourism, global trade, and investment.
To enhance the visitor economy, the government targets an increase in visitor spending. The THRIVE 2030 strategy, an industry-led and government-enabled plan, aims for $230 billion in visitor spending by 2030. This strategy includes administering export and tourism grants to boost the industry and support businesses, including those in associated sectors such as tourism services, events, accommodation, hospitality, and transport.
Tourism Research Australia (TRA) plays a crucial role in providing data and insights. The National Tourism Satellite Account (NTSA) is an annual data product that examines tourism performance through an economic lens, including its contribution to GDP, international trade, and employment. This data helps the government and industry make informed decisions to maximise opportunities and support sustainable growth in the visitor economy.
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Governmental response to COVID-19
Australia's response to the COVID-19 pandemic has had a significant impact on its economy and society. The Australian government has implemented a range of measures to mitigate the spread of the virus and support businesses and individuals financially affected by the pandemic.
The Australian Federal Government's response to COVID-19 has been swift and comprehensive. Since March 12, 2020, the government has released three rounds of economic measures to support businesses, households, and individuals facing financial difficulties due to the pandemic. The initial commitment was AUD299 billion in stimulus to support the economy and people, with the 2020-21 Federal Budget bringing the overall support to AUD507 billion, including AUD257 billion in direct economic aid.
The JobKeeper Payment program was one of the key economic measures, providing a wage subsidy to eligible employers impacted by COVID-19. The government provided AUD 1,000 per fortnight per employee, with previous amounts of AUD 1,500 and AUD 1,200 during different periods. The government also implemented permanent insolvency reforms as part of the JobMaker Plan to aid small businesses in surviving the pandemic's economic fallout.
The Australian government mandated that the Foreign Investment Review Board scrutinize every purchase application, regardless of value, to address concerns about distressed Australian assets during the pandemic. Australian banks deferred loan repayments for 98% of affected businesses, allowing those with loans of up to AUD10 million to defer payments for up to six months.
The COVID-19 pandemic had a significant impact on the Australian economy, particularly the tourism industry, which is one of Australia's largest export industries. The pandemic caused a sharp fall in the All Ordinaries Index in March 2020, with fintech stocks experiencing sharper declines in February and March. However, Australia's strong performance compared to its major trading partners can be attributed to significant government support and the ongoing demand for mining exports.
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Trade and the global economy
Australia has a relatively open, trade-exposed economy. This means that changes in other countries' demand for Australian goods and services can have a significant impact on the country's economy. For instance, an increase in global demand for Australian exports, if not matched by a corresponding increase in supply, will result in an increase in the price of those exports. This ratio of export prices to import prices is known as the terms of trade.
The terms of trade boom from 2005 to 2011 was driven by substantial increases in the prices of some of Australia's commodity exports. During this period, mining investment increased fivefold from its 2004 level of around $20 billion to $130 billion in 2012, peaking at 9% of GDP. This increase in mining revenues and investment spilled over to other sectors of the Australian economy, leading to higher demand for workers and higher wages.
Australia has plentiful natural resources, including the second-largest accessible reserves of iron ore in the world, the fifth-largest reserves of coal, and significant gas resources. Commodities have long constituted a sizeable share of the country's exports. From the mid-2000s, the prices of commodities used to produce steel and energy, such as iron ore, coal, and natural gas, rose sharply due to increased global demand, particularly from China and other emerging economies experiencing rapid urbanisation and industrialisation.
In recent years, Australia has faced economic challenges due to various external factors, including the COVID-19 pandemic, tensions in US-China relations, and the Chinese Communist Party's (CCP) preference for total control over economic growth. The McKinsey Global Institute has observed a trend of trade shifting towards geopolitically closer partners, which could impact Australia as China was the destination for nearly one-third of its exports last year.
To enhance its economic standing globally, Australia has pursued trade liberalisation and negotiated free trade agreements (FTAs) with countries like the United Kingdom and India. A network of 18 free trade agreements gives Australian companies preferential access to fast-growing markets in Northeast and Southeast Asia, where the middle class is expanding. Asia is projected to account for 45% of global GDP by 2026, up from 21% in 1981, presenting opportunities for increased demand for Australia's top exports.
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The housing market
One significant factor influencing housing prices in Australia is interest rates. During the mining investment boom, population growth in Western Australia surged, leading to an increased demand for housing. The rate of home building struggled to keep up with this rapid population growth, causing a housing shortage. The Reserve Bank of Australia's (RBA) management of interest rates has played a crucial role in mitigating the impact of this shortage on housing prices. For example, during the COVID-19 pandemic, the RBA reduced the official cash rate to nearly zero, preventing a more significant fall in house prices. Subsequently, sustained low-interest rates contributed to rising house prices until the RBA increased the cash rate to 4.35%.
The activities of the Australian Prudential Regulatory Authority (APRA) have also influenced the housing market. In 2017, APRA's crackdown on bank lending to investors prompted an 8-9% decline in house prices. Additionally, changes in government policies, such as the capital gains tax under the Howard government, have impacted investor behaviour. The liberalisation of credit regulations by the Hawke-Keating governments in the 1980s made it easier for people to borrow, contributing to increased borrowing and higher house prices.
The Australian government has recognised the need to address the housing affordability crisis. In 2008, the Rudd Government introduced the National Rental Affordability Scheme (NRAS) to boost affordable housing. This scheme attracted $13 billion in private investment and delivered 37,000 affordable rental dwellings. However, the scheme was closed to new investors under the Abbott Government in 2014. More recently, modelling has suggested that government investment in affordable housing can have significant social and economic benefits, generating up to $40 billion in GDP and creating an average of 46,000 new jobs annually.
Overall, the Australian government's influence on the housing market through policies, regulations, and interventions has had varying impacts on housing affordability, availability, and the broader economy.
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Frequently asked questions
The Australian government has influenced the economy in several ways, including:
- Through significant government support, the Australian government was able to withstand the impact of the COVID-19 pandemic on its economy.
- The government has also contributed to economic growth through large outlays for transport, communication, and urban infrastructure.
- The Australian government has also contributed to economic growth by providing a stimulus package of $11.8 billion, which helped prevent a recession.
Mining has been a significant contributor to Australia's economic growth, from the gold rush in the 1840s to the present day. In 2018-19, the mining sector accounted for 8.5% of Australia's GDP, and minerals and fuels accounted for 50.9% of its goods and services exports. The increase in mining revenues and investment has also spilled over into other parts of the economy, increasing demand for workers and raising wages.
Australia's economy is heavily influenced by the economic growth of other countries, particularly the US, Japan, and China. As an open, trade-exposed economy, changes in global demand for Australian goods and services can significantly impact its economy. Additionally, Australia's economy is influenced by its population growth, immigration, and the growth of its service industries.
