Lexi Webster
Australia's economy is one of the strongest in the world, with the country being ranked as the second wealthiest country in the world behind Switzerland in terms of average wealth per adult. The country's economic growth has been attributed to its mining and resource-based industries, its strong labour market, and its business-friendly environment. Australia's economy is also strongly intertwined with the countries of East and Southeast Asia, with China being its main export and import partner. The country has a relatively open, trade-exposed economy, with its service sector dominating and comprising 62.7% of its GDP in 2017. Australia's economic resilience is further demonstrated by its stable and predictable corporate tax laws, which have contributed to its overall economic strength and attractiveness for investors.
| Characteristics | Values |
|---|---|
| Dominant Sector | Service sector (62.7% of GDP and 78.8% of the labour force in 2017) |
| Average GDP Growth Rate (1901-2000) | 3.4% |
| Main Export and Import Partner | China |
| Percentage of Exports to ASEAN Plus Three Countries (2016) | 64% |
| Average Wealth per Adult | $403,000 (2nd highest in the world in 2013) |
| Median Wealth | $222,000 (highest in the world) |
| Poverty Rate (2013) | 11.8% |
| Millionaires Moved to Australia (2016) | 11,000 |
| Tax Revenue as % of GDP | 29% |
| Corporate Tax Benefits | R&D tax incentives, stable and predictable tax laws, tax agreements with other countries |
| Forecasted Economic Growth (2019-2024) | 11.1% |
| Natural Resources | Iron Ore (2nd largest accessible reserves), Coal (5th largest reserves), Gas |
| Mining Sector Impact | Increased labour demand, downward pressure on unemployment rate, upward pressure on wages, higher inflation |
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What You'll Learn
Strong service sector
Australia's economy is dominated by its service sector, which in 2017 comprised 62.7% of the GDP and employed 78.8% of the labour force. The service sector includes tourism, education, and business services exports, all of which have been increasing in recent years. The country's strong service sector is supported by a resilient Australian dollar, property ownership levels, and a robust labour market. Australia's tax system also plays a role in attracting businesses to the country. The country's corporate tax rates are typically lower than those of other OECD countries due to various deductions, credits, and incentives. For example, research and development (R&D) tax incentives significantly reduce rates for innovative companies. Australia's corporate tax laws are stable and predictable, reducing costs for businesses.
The Australian economy is also characterised as a "'two-speed economy," with Western Australia and the Northern Territory heavily dependent on mining and other resource-based industries. During periods of economic growth in these industries, there is an increased demand for workers and higher wages, which supports household incomes and consumption. This spillover effect from the mining sector to the service sector was evident during the terms of trade boom from 2005 to 2011, when large increases in the prices of some of Australia's commodity exports drove the boom. The increase in mining revenues and investment also led to increased labour demand and higher inflationary pressures, impacting the service sector.
Australia's service sector benefits from the country's strong economic ties with East and Southeast Asian countries, particularly China, which is Australia's main export and import partner. The country's membership in economic blocs such as APEC, G20, OECD, and WTO, as well as its free trade agreements with multiple countries, further enhance its economic position.
In summary, Australia's strong service sector is supported by a combination of factors, including a favourable tax environment, a resilient currency, a robust labour market, and strong international economic ties. The country's service sector has shown resilience and growth, contributing significantly to the overall strength of the Australian economy.
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Stable and predictable corporate tax laws
Australia's economy is characterised by a strong service sector, which in 2017 comprised 62.7% of its GDP and employed 78.8% of its labour force. The country also has a relatively open and trade-exposed economy, with a strong labour market and a resilient Australian dollar. Australia's economic growth has been attributed to its mining and resource-based industries, which have experienced large-scale investment and higher incomes, leading to increased overall demand, labour demand, and upward pressure on wages.
One significant factor contributing to Australia's strong economy is its stable and predictable corporate tax laws. Australia's corporate tax rates are typically lower than those of other countries due to various deductions, credits, and incentives. These favourable tax conditions encourage investment and business growth, making Australia an attractive destination for companies looking to expand or establish their operations.
The country's research and development (R&D) tax incentives are particularly noteworthy. These incentives significantly reduce tax rates for innovative companies, providing substantial cost savings. For example, a small company investing $100,000 in R&D may receive a cash refund of over $40,000. Such incentives not only encourage innovation but also help Australia attract and retain businesses, fostering a dynamic and competitive business environment.
Additionally, Australia's tax agreements with other countries help reduce costs by preventing tax duplication. This aspect of Australia's corporate tax regime further enhances its attractiveness for international businesses looking to expand into new markets without facing complex and burdensome tax structures.
The stability and predictability of Australia's corporate tax laws are crucial factors in maintaining a healthy business environment. They provide certainty for businesses, enabling them to make informed decisions about their operations, investments, and long-term strategies. This stability also contributes to Australia's reputation as a business-friendly nation, fostering confidence among investors and entrepreneurs alike.
In summary, Australia's stable and predictable corporate tax laws are a key pillar of its strong economy. These laws encourage innovation, investment, and business growth, while also attracting international companies and entrepreneurs seeking a favourable tax environment. By maintaining a competitive and predictable corporate tax regime, Australia continues to position itself as an appealing destination for businesses, contributing to its overall economic strength and resilience.
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High average wealth per adult
Australia's economy is underpinned by a number of factors, one of which is its high average wealth per adult. In a 2013 report by Credit Suisse, Australia retained its 2012 position as the country with the second-highest average wealth per adult in the world, at US$403,000. This figure is nearly four times that of US adults. The report also found that the proportion of people with wealth above US$100,000 was eight times the world average.
This high average wealth is attributed to a few key factors. Firstly, Australia has a resilient national currency, the Australian dollar, which has been positively impacted by the mining boom of the late 2000s and early 2010s. The increase in mining revenues and investment led to a spillover effect, with higher demand for workers and increased wages, supporting household incomes and consumption.
Another contributing factor is property ownership levels. Australia has a high rate of homeownership, and property is often considered a stable and profitable investment. Additionally, the country has a strong labour market, with a low unemployment rate. This is partly due to the demand for workers in the mining and related sectors, such as construction, engineering, and finance.
The Australian economy is also characterised by its trade relationships, particularly with East and Southeast Asian countries, which account for a significant proportion of its exports. China is Australia's main export and import partner. This integration with the global economy has allowed Australia to benefit from increased demand for its goods and services, contributing to the overall wealth of its citizens.
Furthermore, Australia's tax system plays a role in its high average wealth per adult. The country has a relatively low tax burden compared to other OECD countries, with tax revenue equalling 29% of GDP, compared to the OECD average of 34%. Australia's corporate tax laws are also stable and predictable, offering various deductions, credits, and incentives, particularly for innovative companies. This attracts investment and encourages economic growth, contributing to the overall wealth of the country and its citizens.
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Strong social security system
Australia has a robust and efficient social security system, which is a critical factor in its strong economy. The system, which comprises roughly 25% of GDP, is designed to provide a safety net for eligible citizens, permanent residents, and some international visitors. It includes payments to retirees, job seekers, parents, people with disabilities, guardians of orphans, students, and those unable to support themselves.
The Australian social security system is means-tested, with benefits provided to those who meet qualifying conditions. These conditions must be reasonable, proportionate, and transparent, ensuring sustainability for present and future generations. The system aims to reduce poverty, prevent social exclusion, and promote social inclusion. It is administered by Centrelink, a program of Services Australia, which provides a crucial support structure for those in need.
Australia's social security system is underpinned by the country's commitment to human rights. The right to social security is enshrined in the International Covenant on Economic, Social and Cultural Rights (ICESCR), of which Australia is a signatory. This commitment ensures that the government works towards providing a minimum essential level of benefits to all individuals and families, guaranteeing access to essential healthcare, housing, water, sanitation, food, and basic education.
The social security system in Australia has evolved over time, adapting to the changing needs of its citizens. For example, in 2014, a review targeted benefit recipients of the Newstart Allowance and the Disability Support Pension, resulting in stricter eligibility criteria for the latter. This review highlighted the dynamic nature of Australia's social security system, which seeks to balance support for vulnerable groups with efficient allocation of resources.
Australia's strong social security system contributes to its economic resilience and stability. By providing a safety net for its citizens, the country fosters a sense of security and reduces economic inequality. This, in turn, can lead to increased consumer confidence, economic participation, and overall economic growth. Additionally, the system's focus on reasonable qualifying conditions helps to ensure that government spending remains sustainable, avoiding chronic budget deficits that could hinder long-term economic dynamism.
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Large-scale investment in the mining sector
Australia has plentiful supplies of 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 made up a sizeable share of the country's exports. The large-scale investment in the mining sector, therefore, had a significant impact on the Australian economy.
During the height of the mining boom in 2009-10, the total value-added of the mining industry was 8.4% of GDP. The increase in mining revenues and investment spilled over to other parts of the economy. There was an increased demand for workers and higher wages in the mining sector and other related sectors, including construction, engineering, finance and insurance, legal, and transport. This resulted in more people being employed and higher wages being paid, which supported household incomes and consumption.
The increase in the number of workers employed and the wages they were paid had a positive knock-on effect on the economy. More people had more money to spend on goods and services, and the increase in the quantities of commodities extracted and higher prices resulted in higher profits for mining companies. This, in turn, led to increased tax and royalty receipts by federal, state, and territory governments.
The increase in investment in the mining sector also led to increased overall demand in the Australian economy, which put downward pressure on the unemployment rate and upward pressure on wages, resulting in higher inflationary pressures. The increase in the terms of trade led to an appreciation of the Australian dollar. At the same time, the Reserve Bank increased the target for the cash rate in response to higher demand and inflationary pressures.
Despite the recent decline in the mining sector, the Australian economy has remained resilient and stable. The reduction in the cash rate target between 2011 and 2016 assisted in rebalancing activity towards the non-mining economy. The depreciation of the Australian dollar between 2013 and 2015 also supported activity in the non-mining tradable sector, which includes agriculture, manufacturing, and some services.
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Frequently asked questions
The Australian currency is the Australian dollar, which is also used in several Pacific nation states.
Australia was ranked as the second-wealthiest country in the world based on average wealth per adult, with a median wealth of US$222,000.
The Australian economy is dominated by its service sector, which in 2017 comprised 62.7% of the GDP and employed 78.8% of the labour force.
Australia's average GDP growth rate for the period 1901-2000 was 3.4% annually. From 2019 to 2024, the economy is forecast to have grown by 11.1%, outpacing other advanced economies.
Australia's economy is strongly intertwined with East and Southeast Asian countries, accounting for about 64% of exports in 2016. China is Australia's main trading partner.
