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Key Economic Indicators
(Millions of Australian Dollars, Unless otherwise noted)
Although in area Australia is the size of the contiguous United States, its markets and production capability are limited by a small domestic population of 17.2 million. Based on Australian FY 1990/91 statistics, GDP is comprised of 16.7
percent manufacturing, 7.8 percent mining and 4.1 percent farming, with the services and other production accounting for the remaining 71.4 percent. Primary agricultural and mineral products account for 63.7 percent of exports. Australia leads the world in wool production, is a significant supplier of wheat, barley, dairy produce, meat, sugar, and fruit, and a leading exporter of coal, minerals and metals, particularly iron ore, gold, alumina, and aluminum.
The Australian economy remains in a recession, with real GDP declining an estimated 1.3 percent in 1991, and recovery appearing unlikely anytime before mid-1992. Unemployment continues to increase and is estimated to have reached 10.5 percent of the workforce at the end of 1991. Manufacturing output is low or stagnant in most sectors. Wage growth has -slowed significantly and with double-digit unemployment, sharply lower farm product prices and stagnant domestic demand, inflation has stabilized at around three percent. Net external debt remains high at A$130 billion.
The recession was, in part, precipitated by Government anti-inflationary policies implemented in 1988. At that time, the Government tightened monetary policy to curb consumption and imports in response to an overheating economy. policy-induced economic slowdown became apparent in the third quarter of 1989 and sharpened thereafter. At the same time, downturns in key export markets and low international commodity prices combined with the results of the policy-induced slowdown to bring on recession.
The Government is now faced with the challenge of attempting to stimulate economic growth without reigniting inflation. A successful turn-around depends not only on a measured relaxation of policy restraints, but also on a resumption of export-led growth, stable external markets and tourism. However, despite the easing of monetary policy nine times in the past 18 months and major improvements in the current account, the economic forecast remains clouded. Business and consumer confidence alike have been hit by a of significant failures and scandals in the corporate and financial sectors.
Hoping to stimulate export growth, the Government has worked to increase Australia's international competitiveness by continuing to reduce protective trade barriers and deregulate large segments of the economy. Privatization of government services at both the federal level (airlines, bank, telecommunications) and state levels (water treatment, transportation, electricity, banks) is being pursued. Notable successes include the deregulation of the aviation industry in October 1990, and finalization of criteria for the establishment of a second telecommunications carrier to compete with Telecom Australia before the end of 1991. Trade reforms begun in June 1988 resulted in an end to import quotas on all but textiles, clothing, and footwear, and in lower tariffs on most imports. The Government has announced a phase-out of bounty subsidies to a number of industries still receiving such assistance. A 20-percent preference given to Australian and New Zealand firms bidding on federal government contracts was abolished in November 1989, and eliminated for offsets in October 1991 (however, most state and territory
governments continue to apply preferences and offsets to their procurements).
After three consecutive years of budget surpluses, the Government has budgeted for a A$4.7 billion deficit for FY1991/92, resulting primarily from social payments for the unemployed. Personal tax reductions made possible by the surplus in the previous two years will not be continued in FY1991/92. Public sector borrowing, which has been close to zero for the last two fiscal years, will increase this financial year to cover the deficit. A total of A$2.1 billion in foreign currency debt was reduced in FY1990/91, but in FY1991/92 new debt issues totaling A$11 billion will have to be made to cover the budget deficit, Treasury Bond maturities of A$4.6 billion, saving bond redemptions of A$200 million, maturing foreign currency debt of A$400 million and about A$1 billion in government business enterprise retirement transactions.
The Government stimulates private investment through a variety of programs. Firms operating in Australia can qualify for some or all of the following: tax breaks and bounties for certain local manufacturing; tax incentives for research and development and export programs; energy, labor and research and development subsidies; local government investment and location incentives; and, although diminishing, some types of trade protection.
Australia has few legal restrictions on investment. Four sectors require substantial Australian ownership: media, urban real estate, certain types of transportation, and some mining. All new foreign direct investments in these sectors are subject to approval by the Foreign Investment Review Board (FIRB). In addition, the FIRB reviews new foreign direct investment in all other sectors worth more than $10 million (Australian), as well as foreign acquisitions of 15 percent or more of Australian corporations. Industry deregulation and government decisions made September 6, 1990, to privatize 100 percent of Australian Airlines and 49 percent of Qantas have led to substantial liberalization of the rules governing ownership in the aviation sector in 1991. Some U.S. investors find Australia's immigration laws more protective than many other countries', especially restrictions affecting assignments of non-Australians to positions in foreign-owned firms.
Australian dollar exchange rates are determined by international currency markets. Official policy is not to defend any particular exchange rate level. In practice, however, the Reserve Bank is active in "smoothing and testing" foreign exchange rates in order to provide a generally stable environment for government economic adjustment policies.
Australia does not have major foreign exchange controls beyond requiring Reserve Bank approval if more than A$5,000 in cash is to be taken out of Australia at one time, or A$50,000 in any form in one year. The purpose is to control tax evasion and money laundering. If the Reserve Bank is
satisfied that there are no liens against the money, authorization to take large sums out of the country is automatic. The regulation does not affect U.S. trade.
Pursuing a goal of a globally competitive economy, the Australian government is continuing a program of economic reform begun in 1988 that includes an accelerated timetable for the reduction of protection and microeconomic reforms. The Government's program is focusing on industry-by-industry, micro-economic changes designed to compel businesses to become more competitive.
A program to phase down tariffs an average of about 70 percent was begun July 1, 1988, to be completed on June 30, 1996. Except for textiles, clothing, footwear (TCF) and some vehicles, all tariffs will be reduced to percent. On March 12, 1991, the government announced that over-quota duty rates on TCF will be reduced by 50 percent on March 1, 1992. Effective March 12, 1991, import duties on certain mineral processing equipment and goods for shipbuilding and repair were removed. Along with these measures, some of the few manufactured products still receiving bounties will have those benefits reduced each year until the bounties expire. U.S. exports should benefit from these reductions.
Legislation abolishing the 20-percent sales tax on imported, legal-tender gold coins became law on July 14, 1990. In late 1990, sales taxes averaging about 20 percent were eliminated on products used by subcontractors for packing and labeling, quality control, waste disposal, in-house movement and storage of goods, and for aids to manufacturing that operate, apply, clean or sterilize. A sales tax exception was granted in 1991 to computers used in production processes.
Australia's gross foreign debt at the end of Australia's fiscal year (AFY) 1991 (June 30, 1991), totaled A$166 billion, or approximately 45 percent of 1991 GDP. of this amount, public sector obligations (including the foreign debt of state-owned enterprises) were A$69.7 billion, down from A$70.8 billion at the end of AFY89. Interest payments on public foreign debt totaled A$6.9 billion in AFY91. Although public foreign debt levels and interest payments remained essentially stable in AFY 91, Standard and Poors continues to maintain Australia's general credit rating at only AA, reflecting concerns about the absolute level of the debt and Australia's balance of payments deficit.
Tariffs: On a trade-weighted basis, Australian duties on manufactured goods average slightly less than eight percent. This is higher than average tariff levels for other industrialized countries (less than five percent for the
United States and the European Community).
Australia's tariff profile is characterized by significant "peaks” protecting sensitive domestic industries. In addition, only a relatively small percentage of Australia's tariff rates are GATT-bound, approximately 25 percent, compared to 99 percent for the United States.
Licensing: Import licenses are now required only for certain vehicles, textiles, clothing, and footwear.
Services: Prior to January 1, 1992, the Australian Broadcasting Tribunal (ABT), which controls broadcast licensing, required that no more than 20 percent of the production work on any given advertisement shown on Australian television could be done by non-Australian or New Zealand labor. The ABT's new regulations permit up to 20 percent of the overall broadcast time for paid-advertisements be non-Australian produced. However, the new regulations also include more stringent criteria for determining what qualifies as Australian-produced.
On January 1, 1990, the ABT adopted a requirement that local-content regulations also be applied to commercial television programming. Beginning with 35 percent for 1990, and increasing 5 percent a year (45 percent for 1992), the ABT has ruled that after January 1, 1993, 50 percent of a commercial television station's weekly prime-time broadcasting must be "Australian." Programs are evaluated on a complex point system based on relevancy to Australia (setting, accent, etc., ranging from no Australian content to a 100 percent Australian production). The ABT content requirements have been vigorously opposed by the U.S. and Australia's commercial television stations, but the ABT has resisted efforts to abolish the requirements.
State governments restrict establishment of private hospitals. States' motives are to limit health expenditures and to balance public/private services to prevent saturation and overuse. This is also based on government fiscal concerns, given that most medical expenses for private hospital care are paid through government health programs. Some aspects of these restrictions are expected to change in 1992 as some State governments consider privatizing their hospital systems.
Standards: The Government announced on January 16, 1992 that it will sign the GATT Standards Code. The Government's ability to sign the Code was made possible after New Zealand and each Australian state and territory with standards-making authority signed the Domestic Agreement on Standards, Accreditation and Quality (ASAQ), which commits them to authorize the sale in the signatory state of any product meeting the standards of any other signatory state. The sale of foreign-made products meeting the standards of any one ASAQ-signatory must also be permitted by all. As a result, state standards are being reviewed to harmonize with federal standards by the end of 1992.
Labeling: Federal law requires that country of origin be clearly indicated on the front label of some imports sold in