Australia

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OVERALL SCORE81.0
WORLD RANK5
RULE OF LAW
Property Rights81.7
Government Integrity74.8
Judicial Effectiveness92.9
GOVERNMENT SIZE
Government Spending59.0
Tax Burden63.2
Fiscal Health84.6
REGULATORY EFFICIENCY
Business Freedom89.3
Labor Freedom84.1
Monetary Freedom86.4
OPEN MARKETS
Trade Freedom86.2
Investment Freedom80.0
Financial Freedom90.0
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QUICK FACTS

Population:
o 23.9 million
GDP (PPP):
o $1.1 trillion
o 2.5% growth
o 2.7% 5-year compound annual growth
o $47,389 per capita
Unemployment:
o 6.3%
Inflation (CPI):
o 1.5%
FDI Inflow:
o $22.3 billion

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Australia, a vibrant free-market democracy, has recorded

impressive economic progress unmarred by recession for more
than 25 years. In addition to abundant natural resources, the
 economy has benefited from an effective system of government, a
well-functioning legal system, and an independent bureaucracy,
all of which have facilitated robust entrepreneurial development.

With almost all industries open to foreign competition and a skilled

workforce readily available, Australia continues to be an attractive
and dynamic destination for investment. The government has
withdrawn from most areas of the market, and competition in such
sectors as financial services has increased. Although government
debt has been rising since the global financial crisis, it remains
substantially lower than in most other advanced economies.

BACKGROUND

Australia is one of the wealthiest AsiaPacific nations and has

enjoyed more than two decades of economic expansion. It
emerged from the 2009 global recession relatively unscathed, but
stimulus spending by the previous Labor government generated a
fiscal deficit that has continued under subsequent Liberal
governments. Australia is internationally competitive in services,
technologies, and high-value-added manufactured goods. Mining
and agriculture are important sources of exports. Malcolm
Turnbull, a former businessman and communications minister,
replaced Tony Abbott as head of the ruling LiberalNational
coalition and as prime minister in September 2015.
RULE OF LAWVIEW METHODOLOGY

Property Rights81.7Create a Graph using this measurement

Government Integrity74.8Create a Graph using this measurement

Judicial Effectiveness92.9Create a Graph using this measurement

Strong rule of law protects property rights and helps to minimize corruption.
Expropriation is highly unusual, and enforcement of contracts is reliable. Australias
stable political environment supports transparent and well-established political
processes, a strong legal system, competent governance, and an independent
 bureaucracy. The judicial system operates independently and impartially. Anti-
corruption measures are generally effective.
GOVERNMENT SIZEVIEW METHODOLOGY

Government Spending59.0Create a Graph using this measurement

Tax Burden63.2Create a Graph using this measurement

Fiscal Health84.6Create a Graph using this measurement

The top income tax rate is 45 percent, and the flat corporate tax rate is 30 percent.
Other taxes include a value-added tax and a capital gains tax. The overall tax burden
equals 27.5 percent of total domestic income. Government spending has amounted to
37 percent of total output (GDP) over the past three years, and budget deficits have
averaged 2.8 percent of GDP. Public debt is equivalent to 36.8 percent of GDP.
REGULATORY EFFICIENCYVIEW METHODOLOGY

Business Freedom89.3Create a Graph using this measurement

Labor Freedom84.1Create a Graph using this measurement

Monetary Freedom86.4Create a Graph using this measurement

Australias regulatory environment is one of the worlds most transparent and efficient
and is highly conducive to entrepreneurship. It takes only three procedures to launch a
business. The labor market is well supported by the modern and flexible employment
code. The Reserve Bank of Australia has reacted prudently to the slowdown in growth
among the countrys trading partners, and inflation remains below target levels.
OPEN MARKETSVIEW METHODOLOGY

Trade Freedom86.2Create a Graph using this measurement

Investment Freedom80.0Create a Graph using this measurement

Financial Freedom90.0Create a Graph using this measurement

Trade is moderately important to Australias economy; the value of exports and imports
taken together equals 41 percent of GDP. The average applied tariff rate is 1.9 percent.
Some regulations impede agricultural trade. Most state-owned enterprises have been
privatized. Foreign firms compete on equal terms with domestic banks and other
financial institutions in Australias highly developed and competitive financial system.
Population growth masking
Australia's economic
weakness: CBA report
By business reporter Michael Janda

Updated 12 Jul 2017, 10:13am

PHOTO: CBA's Gareth Aird says measures of traffic

congestion have increased in most Australian cities. (Flickr: Nam Nguyen)

RELATED STORY: High immigration masks Australian economic decline

RELATED STORY: Why are Millennials worried about the future?

MAP: Australia

Australians continue to go backwards on many measures of

income and wellbeing as high immigration rates see the nation's
weak economic growth split between more people.
A report by Commonwealth Bank senior economist Gareth Aird has
found that Australia's high immigration intake is papering over
economic weakness in headline figures, but when you break down
those numbers per person a bleaker picture is revealed.
"Per capita measures of the economy suggest that growth in living
standards has stagnated and for some sections of the resident
population, in particular younger people, it has gone backwards," he
wrote.
This weakness is reflected in many aspects of living standards: from
stubbornly high underemployment and weak wages growth to surging
home prices and debt, as well as an increase in urban congestion.
Mr Aird pointed out that Australia has one of the highest population
growth rates among developed economies, more than half of which is
due to net immigration.

PHOTO: Australian population growth v other OECD

nations. (Supplied: CBA)

However, while this makes Australia's headline economic growth rate

look reasonable, on a per capita basis GDP growth has been trending
downward since the recovery from Australia's last recession in the
early 1990s.
This in turn has seen the Bureau of Statistics' key measure of
household living standards - real net national income per capita -
essentially flatline since the global financial crisis.
While there has been a recent modest uptick, it has been driven
mainly by the rebound in commodity prices, much of which Mr Aird
expects to reverse.
It has also gone almost exclusively to corporations through higher
profits, while the share of national income going to workers has fallen
to record lows.

PHOTO: Per capita income growth has stalled while the wages/profits split has broken towards business
owners. (Supplied: CBA)

Growing reserve army of labour

Mr Aird said this is largely due to near-record rates of
underemployment that, when combined with stubbornly high
unemployment, left a large pool of people competing for available
jobs.
"If the economy is not generating enough jobs to cover the lift in the
population then labour market slack will increase which keeps a lid on
wages growth regardless of the rate of productivity growth," he noted.
Economy's immigration boost

Immigration has been the foundation of Australia's economic growth, so what would happen if we "close the door"?
questions Ian Verrender.

"This has been the case in Australia since the mining boom ended."
So much so that Australian workers are in the worst bargaining
position they have been in since the last recession, according to Mr
Aird.
"Since mid-2010, wages growth has eased and is currently running at
its lowest annual rate since the 1990s recession."
The Bureau of Statistics wage price index (WPI) was growing at an
annual pace of just 1.9 per cent at the end of March and average
weekly earnings (AWE) had risen just 1.6 per cent.
"Growth in AWEs has declined by more than growth in the WPI
because of the shift in jobs away from higher paying mining-related
jobs towards lower paid services sector jobs," Mr Aird explained.

Workers' wages going backwards, worse

for youth
But on either measure, Mr Aird said the typical Australian worker is
now seeing their pay packet go backwards when adjusted for the
rising cost of living.
"Adjusting both the WPI and AWE for inflation shows that real wages
growth is now negative," he observed.
"This adds to the financial pressures that households face.
"The negative real wages story is unlikely to change over the near
term and may even further worsen when a sharp lift in electricity
prices finds its way into the headline CPI."
Things are even worse for young people, because the ABS consumer
price index (CPI) does not include home purchase prices.

PHOTO: The proportion of income required for a

typical housing deposit has surged. (Supplied: CBA)

So, while rising home prices have been a boon for the wealth of
existing owners, they have massively increased the cost of housing for
prospective buyers.
"Younger people, who are less likely to have purchased a dwelling but
have been saving to do so, have faced a greater deterioration in real
wages than is implied by deflating nominal wages by the CPI," Mr Aird
argued.
"This is because the single biggest purchase they are yet to make is
not included in the CPI. And it has, of course, been rising much, much
quicker than the CPI itself."
What's the answer?
According to Mr Aird, the solution to the deterioration in average
household living standards is multi-faceted and requires government
intervention.
"To put it bluntly, the demand for labour must exceed growth in its
supply. This should be tackled from a policy perspective from both the
supply and demand side."
In other words, governments need to pursue policies that help
generate more jobs.

PHOTO: Higher immigration has been the main

driver of faster Australian population growth. (Supplied: CBA)

However, Mr Aird is also arguing the need to reduce the inward flow of
immigration so that those jobs actually soak up some of the existing
pool of unemployed and underemployed.
If the Federal Government chooses to maintain a relatively high
immigration intake, then Mr Aird is arguing it also needs to work with
state governments to ensure sufficient new public services and
transport infrastructure to cope.
"The policy decision to run a relatively high immigration intake should
be accompanied by commensurate growth in public investment," he
noted.
"If not, in addition to the capital stock ageing, the existing stock of
public infrastructure gets diluted which ultimately lowers living
standards."