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Australia: Country Analysis Report – In-depth PESTLE Insights Published 06/2009

© Datamonitor. This brief is a licensed product and is not to be photocopied Page 1

OVERVIEW

Catalyst

This profile analyzes the political, economic, social, technological, legal and environmental structures in Australia. Each of

the PESTLE factors is explored on four parameters: current strengths, current challenges, future prospects and future risks.

Summary

Key findings

Economic conditions bring fresh challenges, but international relations continue to improve

The global economic slowdown has not left the Australian economy unscathed. The industrial slowdown, coupled with

deteriorating terms of trade, has forced the government to introduce a stimulus package designed to encourage

economic revival. While the long-term impact of such measures is yet to be assessed, the government is increasingly

being criticized by the opposition for economic mismanagement. With fears of a recession looming large, the state will

be forced to ease liquidity in the system and increase expenditure. The present government may fail to get enough

public support in the federal elections of 2010 if the economy does not show signs of revival before then.

However, the Australian government has maintained continuity in its foreign policy towards the US, China, Japan and

Indonesia, and has entered into bilateral trade agreements to promote trade liberalization. Prime Minister Rudd is

supportive of US President Obama’s international policies. Under Rudd’s leadership, Australia withdrew troops from

Iraq, although it has pledged to maintain its forces in Afghanistan. Moreover, the country has been working on

improving its ties with countries like Japan, China, Indonesia and Vietnam in the Asian region. The positive relations

between Australia and other nations bring the country many trading benefits.

The economy has entered recession, but the government’s stimulus package promises early revival

Since 2008, there has been a slump in the economic growth of Australia similar to that seen in most other advanced

nations, albeit of a lower magnitude. The GDP attained a growth rate of 1.5% during 2008, compared to 3.9% growth

COUNTRY ANALYSIS REPORT

Australia

In-depth PESTLE Insights

Publication Date: June 2009

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Overview

Australia: Country Analysis Report – In-depth PESTLE Insights Published 06/2009

© Datamonitor. This brief is a licensed product and is not to be photocopied Page 2

in 2007. It is expected to further decline in 2009 to a negative growth rate of 0.5%. According to the RBA’s Statement

on Monetary Policy in May 2009, GDP declined by 0.5% during the quarter ending in December the previous year.

This was the first time that the country’s economy had shrunk since 2000, when the quarterly fall was more than 0.3%.

According to the report, the slowdown in the domestic economy has been evident across private-sector spending and

in the labor market. As a result of the weaker economic environment, labor market conditions have deteriorated, with

the unemployment rate increasing from a low of around 4% in early 2008 to more than 5% in April 2009.

To help the country to endure the present crisis, the government has announced large-scale spending programs on

health, education and climate change. In February 2009, the government announced a $26 billion stimulus package

aimed at nation-building and supporting up to 90,000 jobs. The initiative includes increased spending on education

and infrastructure, tax breaks for small businesses and cash handouts to eligible workers, farmers and students. Prior

to this, in December 2008, the government had pumped an additional A$10.4 billion (around $8 billion) into the

economy to boost consumer spending. The stimulus package will encourage an early recovery to the current

recession in Australia.

Increasing integration of the healthcare sector; however, aging population will remain a challenge

There has been constant improvement in the healthcare sector, with major companies taking the lead. Sterling

Commerce (a subsidiary of AT&T Inc.) and 4Solutions Enterprises (a company specializing in delivering business

process management and professional services in Australia) have improved the IT integration between wholesalers

and distributors, servicing about 5,500 retail pharmacies across the country. This has allowed the health supply

network to meet its deadlines and reduce warehouse stock, which is critical to achieving economies of scale in a

competitive market.

The population of Australia is ageing, and maintaining high per capita income growth will become harder to achieve.

The proportion of people aged below 55, where labor force participation is normally the highest, is expected to decline

significantly during the next 20 years. Australian government projections foretell a doubling of the number of people

aged over 65 to around 25% of the total population over the next 40 years, while growth in the amount of people at

traditional workforce age is expected to slow to almost nil. As a result, the aggregate labor force participation rate is

predicted to be 9% lower than the current level by the early 2040s. This would reduce the growth in real GDP per

capita to about 1.5% per year from the 2020s onwards.

The country’s budgetary support for the ICT sector will help the market to expand, but the declining number

of patents indicates a requirement for R&D growth

The telecommunications sector has been one of the fastest-growing industries in Australia, demonstrating average

annual growth of around 6.5% during 2000–07. As the government has continued its support for important

communications and IT programs, the segment is expected to grow at an even swifter rate in the coming years.

However, due to many factors, such as low productivity, high wage costs and limited participation in R&D, the country

fares poorly in terms of research patents, obtaining fewer than other developed countries The slow rate of growth in

the number of patents reflects the fact that Australia must do more to encourage R&D growth.

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Overview

Australia: Country Analysis Report – In-depth PESTLE Insights Published 06/2009

© Datamonitor. This brief is a licensed product and is not to be photocopied Page 3

Liberal business regulations make the country an attractive investment destination; however, tax reforms

have not benefited everyone

The Organisation for Economic Co-operation and Development (OECD) has rated Australia as the most open

economy among its member states. The country follows market-friendly policies and has a very liberal legal regime.

The OECD considers Australia to have the least overall regulation out of all its members. The country was also judged

to have one of the lowest levels of bureaucracy and industry-specific regulation. However, Australia’s tax reforms have

not been able to benefit everyone, and are held to have helped the rich rather than the poor. This issue is yet to be

addressed by the present government, but needs to be rectified.

The government has committed itself to the Kyoto Protocol, but is finding pollution levels difficult to manage

One of the first policy decisions taken by Prime Minister Rudd after assuming office was to sign the Kyoto Protocol. By

ratifying the treaty, Australia committed itself to meeting its Kyoto Protocol target, and has set a goal of reducing

greenhouse gas emissions by 60% from 2000 levels by 2050 and by 5% before the end of 2020. This is considered by

some to be too little, given the high level of pollution in the country. However, the Australian government is prepared to

increase this target if other countries such as China and India make similar commitments.

Rising pollution levels are causing environmental disruption in Australia. The proportion of the country's land that is

hospitable to useful vegetation has fallen to 8%, and wetlands in the Murray-Darling basin have shrunk by 90%. The

coast and ocean life are under increasing pressure in Australia, and it has also been discovered by the forest

department that the water yields from forests for Melbourne’s supply catchments have come down by 50%. Carbon

dioxide emissions have been rising at an increased rate, growing from 381 million metric tons in 2004 to more than

417 million metric tons in 2006. Although there are a number of policies in place, the government is finding it difficult to

control the rising pollution levels. This is largely due to increased dependency on coal for electricity.

PESTLE highlights

Political landscape

• The Labor party, under Kevin Rudd, won the 2007 elections, with 32 seats in the Senate and 83 seats in the House of

Representatives. In the same year, Prime Minister Kevin Rudd ratified the Kyoto Protocol on climate change, reversing

the previous government's policy.

• The present government plans to invest more than $1 billion in e-learning and e-health to boost the digital infrastructure

in both sectors.

Economic landscape

• The nation's current account deficit is expected to widen to around 9% of GDP in 2009–10 due to the global demand for

its export commodities deteriorating without an equivalent fall in imports, as Australian consumption expenditure will

remain healthy compared to that of other advanced economies.

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Overview

Australia: Country Analysis Report – In-depth PESTLE Insights Published 06/2009

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• Having previously enjoyed a comfortable fiscal position, the Australian government is set to record a large budgetary

deficit of 4.9% in 2009–10. The financial conditions will change, with large-scale government expenditure proposed to

facilitate economic revival.

Social landscape

• Australia's population grew from about 17 million in 1990 to almost 21 million in 2008. The national population growth

rate since 2000 has been around 1%, reducing only marginally to 0.8% in 2006.

• Since 1990, healthcare spending has grown at an annualized average rate of 25%. The rate of growth for 2006 was

13%. Healthcare expenditure was more than 5.5% of GDP in 2008 and is expected to be over 6% by 2012.

Technological landscape

• The business sector is the largest provider of funding for R&D in Australia, and the government encourages corporate

research through a tax concession and subsidies.

• R&D expenditure rose from a level of around 1.5% of GDP in 2002 to around 2% of GDP in 2007. It is expected that it

will reach around $23 billion by 2012.

Legal landscape

• There are two broad levels of courts in Australia: the federal level, and the state or territorial level. The High Court of

Australia and the state supreme courts are requirements of the constitution. The others are inferior courts with limited

powers and authority.

• According to the Doing Business survey by the World Bank, the process of operating a firm in Australia has remained

stable. The 2008 indicator shows that the number of days required to start a company in Australia is just two days,

compared to the OECD average of six days.

Environmental landscape

• The Environment Protection and Biodiversity Conservation (EPBC) Act 1999 is the Australian government’s central

authority on environmental legislation.

• Australia is expected to play an important role in developing a carbon emissions trading system at the global level and to

adopt a domestic trading system by 2012.

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Overview

Australia: Country Analysis Report – In-depth PESTLE Insights Published 06/2009

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Key fundamentals

Table 1: Australia – key fundamentals

2006 2007 2008 2009 2010 2011 2012

GDP, constant prices ($ billion) 473.53 492.00 499.38 496.88 503.84 511.02 518.54

GDP growth rate (%) 2.95 3.90 1.50 -0.50 1.40 1.42 1.47

GDP, constant 2000 prices, per capita ($) 23,368 24,077 24,241 23,929 24,078 24,237 24,413

Inflation (%) 3.55 2.33 4.48 3.25 2.88 2.64 2.70

Exports, total as % of GDP 20.43 19.44 20.59 21.52 22.35 23.03 23.57

Imports, total as % of GDP 22.43 20.95 21.89 22.65 23.36 23.95 24.44

Mid-year population, (million) 20.49 20.75 21.01 21.26 21.52 21.77 22.02

Unemployment rate (%) 5.25 5.74 5.85 5.93 5.98 6.06 6.16

Doctors per 1000 people 2.44 2.43 2.41 2.40 2.38 2.37 2.36

Mobile penetration per 100 people 98 99 100 100 100 100 100

Source: Datamonitor D A T A M O N I T O R

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Table of Contents

Australia: Country Analysis Report – In-depth PESTLE Insights Published 06/2009

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TABLE OF CONTENTS

Overview 1

Catalyst 1

Summary 1

Key facts and geographic location 10

Key facts 10

Geographical location 11

PESTLE analysis 12

Summary 12

Political analysis 13

Economic analysis 16

Social analysis 20

Technology analysis 24

Legal analysis 28

Environmental analysis 31

Political landscape 34

Summary 34

Evolution 34

Structure and policies 37

Performance 41

Outlook 42

Economic landscape 44

Summary 44

Evolution 44

Structure and policies 46

Performance 50

Outlook 63

Social landscape 65

Summary 65

Evolution 65

Structure and policies 65

Performance 69

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Table of Contents

Australia: Country Analysis Report – In-depth PESTLE Insights Published 06/2009

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Outlook 72

Technological landscape 73

Summary 73

Evolution 73

Structure and policies 73

Performance 74

Outlook 78

Legal landscape 79

Summary 79

Evolution 79

Structure and policies 79

Performance 84

Outlook 85

Environmental landscape 86

Summary 86

Evolution 86

Structure and policies 86

Performance 89

Outlook 89

APPENDIX 91

Ask the analyst 91

Datamonitor consulting 91

Disclaimer 91

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Table of Contents

Australia: Country Analysis Report – In-depth PESTLE Insights Published 06/2009

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TABLE OF FIGURES

Figure 1: Map of Australia 11

Figure 2: Australia – political events timeline 35

Figure 3: Australia – key political figures 37

Figure 4: Evolution of GDP growth in Australia, 1970–2008 46

Figure 5: Market capitalization of Australian securities exchange, 2001–08 49

Figure 6: GDP and growth rate in Australia, 2002–12 (constant prices) 51

Figure 7: Sector composition of GDP in Australia, 2008 52

Figure 8: Australia’s agricultural output, 2001–08 53

Figure 9: Australia’s industrial output, 2001–08 54

Figure 10: Australia’s services output, 2001–08 55

Figure 11: Australia’s external trade (merchandise), 2004–08 58

Figure 12: Australia – total foreign direct investment inflows, 2001–08 59

Figure 13: Australian dollar to US dollar exchange rate (A$ per $), 2004–08 61

Figure 14: Consumer price index and CPI-based inflation in Australia, 2002–08 62

Figure 15: Major religions in Australia 67

Figure 16: Expenditure on healthcare in Australia, 2002–08 70

Figure 17: Expenditure on education in Australia, 2002–08 71

Figure 17: Telecommunications market growth in Australia, 2002–12 75

Figure 18: Number of internet users in Australia, 2002–12 76

Figure 19: R&D expenditure in Australia, 2000–12 78

Figure 20: Australia – judicial structure 80

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Table of Contents

Australia: Country Analysis Report – In-depth PESTLE Insights Published 06/2009

© Datamonitor. This brief is a licensed product and is not to be photocopied Page 9

TABLES

Table 1: Australia – key fundamentals 5

Table 2: Australia - key facts 10

Table 3: Analysis of Australia’s political landscape 13

Table 4: Analysis of Australia’s economy 16

Table 5: Analysis of Australia’s social system 20

Table 6: Analysis of Australia’s technology landscape 24

Table 7: Average annual salaries for researchers across countries 26

Table 8: Patents received by USPTO, 2001–07 27

Table 9: Analysis of Australia’s legal landscape 28

Table 10: Analysis of Australia’s environmental landscape 31

Table 11: Mid-year population by age (millions) in 2006 66

Table 12: International environmental treaties signed and ratified by Australia 88

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Key facts and geographical location

Australia: Country Analysis Report – In-depth PESTLE Insights Published 06/2009

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KEY FACTS AND GEOGRAPHIC LOCATION

Key facts

Table 2: Australia - key facts

Country and capital

Full name Commonwealth of Australia

Capital city Canberra

Government

Government type Federal Parliamentary Democracy

Head of state Queen of Australia, Elizabeth II (since 1952)

Head of government Prime Minister Kevin Rudd

Population 20.43 million

Currency Australian dollar (AUD)

GDP per capita (PPP) $38,100

Internet domain .au

Demographic details

Life expectancy 81.6 years (total population)

79.2 years (men)

84 years (women)

Ethnic composition White 92%, Asian 7%

Aboriginal and others 1%

Major religions Catholic 26.4%, Anglican 20.5%, other Christians 20.5%

Muslims 1.5%, others 15.8% and none 15.3%

Country area 7,686,850 sq km

Major exports Coal, gold, meat, wool, alumina, iron ore, wheat and machinery.

Major imports Computers and office commodities, crude oil and petroleum products

Source: CIA D A T A M O N I T O R

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Key facts and geographical location

Australia: Country Analysis Report – In-depth PESTLE Insights Published 06/2009

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Geographical location

Australia is located in Oceania, between the Indian Ocean and the South Pacific Ocean.

Figure 1: Map of Australia

Source: CIA -the World Factbook D A T A M O N I T O R

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PESTLE Analysis

Australia: Country Analysis Report – In-depth PESTLE Insights Published 06/2009

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PESTLE ANALYSIS

Summary

Australia is an independent nation in the Commonwealth of Nations with Queen Elizabeth II as its head of state,

represented by Governor General Quentin Bryce. Kevin Rudd, the Labor Party leader, has been the prime minister since

December 2007. For several years, the country has tried to break away from its colonial ties with the UK, but the 1999

referendum seeking to replace Queen Elizabeth as head of state failed. However, with the rising influence of republicans in

Australia, the independent mindset of country looks set to increase. The economy was growing steadily until the global

crisis began in 2008. Although the country is better placed than other advanced nations in terms of economic growth, it

faces challenges such as adverse terms of trade and rising external debt. Moreover, the large-scale government

expenditure programs will also adversely affect the financial health of the state, with a widening budget deficit.

The progressive aging of the population is leading to higher expenditures on health and social security measures. The

welfare system is based on egalitarian principles, but is overly complex and needs further improvement. Technological

advancements are applied in both modern and traditional fields. Businesses and the government work together for the

development of research, wherein the funding is provided by the industry with government collaboration.

The government lays down legal polices in the broad areas of competition, trade practices, infrastructure and energy. The

country was identified as a business-friendly economy by the OECD in 2007. Australia has moved from utilizing a state-

based policy towards taking a more coordinated, market-based approach to solving its environmental problems. It is a

signatory of the Kyoto Protocol and has committed to meet the associated targets by 2010. Australia is also expected to

play an important role in developing a carbon emissions trading system at the global level and to adopt a domestic trading

system by 2012.

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PESTLE Analysis

Australia: Country Analysis Report – In-depth PESTLE Insights Published 06/2009

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Political analysis

Overview

Australia is a federal parliamentary democracy. The head of state is the Queen of Australia (Elizabeth II, since 1952) and

the head of the government is the prime minister, presently Kevin Rudd, who was elected in November 2007. The country

has strong democratic roots, with a government chosen by the people. Political and governmental power is highly

decentralized in Australia, with authority being distinctly divided between the states. The desire to be a republic is slowly

growing in the nation, as the Australian Republican Movement slowly gains national importance. Though historically the

political landscape of Australia was dominated by only two parties, minority parties are now gaining importance, with

coalition support required from them.

With the economic slowdown, financial policies have come to occupy the center stage, as the government continues to be

blamed for mismanagement. This may become an important issue in the next elections scheduled for 2010; the ruling party

may find its position hard to defend if the economic conditions do not improve soon. Nevertheless, a number of decisions,

such as the ratification of Kyoto Protocol, changes in asylum policy and the re-introduction of collective bargaining have

proved immensely popular among the population.

Table 3: Analysis of Australia’s political landscape

Current strengths Current challenges

▪ Representative government

▪ Compulsory voting system

▪ Economic downturn

▪ Australian pressure groups

Future prospects Future risks

▪ Growing importance of Australian Republican Movement

▪ Improving international relationships

▪ Increasing number of asylum seekers

Source: Datamonitor D A T A M O N I T O R

Current strengths

Representative government

The Australian political system is one of representative government, in that people elect members of parliament to

represent them. Furthermore, acceptance of a democratic government was exceptionally fast in the country, and the

system is uniform at all levels. The country’s political system is referred to as a ‘responsible government’, as the executive

government—the cabinet—is drawn from, and accountable to, the legislative branch. The streamlined government system

in Australia makes policy implementation process faster and more efficient.

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PESTLE Analysis

Australia: Country Analysis Report – In-depth PESTLE Insights Published 06/2009

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Compulsory voting system

Compulsory voting has been a feature of Australia’s national elections since 1924. The country is one of only 20 in the

world that have this system. The compulsory voting system increases turnout and is held by some to add legitimacy to the

government. Indeed, Australia consistently maintains one of the highest voter turnouts worldwide; there has been an

average turnout of 95% in the 24 elections since 1946. Another contributing factor to this political system's strength is the

familiarity of the voting system among Australians. There is also a high degree of public compliance with the system and its

use creates no administrative problems for the government.

Current challenges

Economic downturn

The global economic slowdown has not left the Australian economy unscathed. The industrial downturn, coupled with the

deteriorating terms of trade, forced the government to come out with stimulus packages for economic revival. While the

long-term impact of such measures is yet to be assessed, the present government is increasingly being criticized by the

opposition for economic mismanagement. With fears of recession looming large, the state will be forced to boost liquidity in

the system and raise expenditure. The government may face mounting opposition in the federal elections of 2010 if the

economy does not show signs of revival.

Australian pressure groups

Pressure groups lobby to influence the policies of the government. In Australia, pressure groups are broadly divided into

two sets: environmental and general groups, and trade unions. The influence of trade unions is very high in the political

arena. Moreover, in the previous government, led by John Howard, almost 70% of the ministers had been trade union

leaders at some point of time in their political careers. Thus, the powerful trade union groups outside of the political frame

get support from those ministers who were formerly a part of these unions. With this internal political support, the trade

unions have taken their protests to the streets on various issues. This has been an unattended problem in Australian

politics.

Future prospects

Growing importance of Australian Republican Movement

There is a section of society in Australia that remains determined that the country should be a republic. This group includes

the Australian Republican Movement (ARM), which is growing in importance and stature in Australia. The main concern of

the ARM is that no Australian can become head of state. In this respect, the Rudd government took a small step in instilling

a sense of sovereignty in the public by implementing a change in the pledge that ministers read out in the swearing-in

ceremony; the text now contains the words ''this land and its people'', rather than ''Queen Elizabeth II, her heirs and

successors''. This can be taken as an indication that it is probable that Australia will become a republic at some point in the

future. This is made especially likely by the ARM slowly increasing awareness among the people.

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PESTLE Analysis

Australia: Country Analysis Report – In-depth PESTLE Insights Published 06/2009

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Improving international relationships

Australia has been developing its international ties in recent times, emphasizing continuity in foreign policy towards the US

and Asian nations like China, Japan and Indonesia. The country has entered into bilateral trade agreements to promote

trade liberalization. The Australian government is historically known to provide strong support to the US policies due to the

two countries' major trade relations. Prime Minister Rudd is supportive of the US President Obama’s international policies.

Under Rudd’s leadership, Australia withdrew troops from Iraq, although it has pledged to maintain its forces in Afghanistan.

Moreover, after signing the Kyoto Protocol, Australia set a target of reducing its carbon emissions by 60% from 2000 levels

by 2050. This is similar to the US target of reducing emissions by 80% over the same period.

Furthermore, the political and economic relations between Australia and South Africa have been improving in recent years.

In April 2008, the countries agreed to enter into multilateral arrangements in areas such as UN reform, human rights, the

WTO Doha Development Round, climate change and global security. A close relationship with South Africa will provide

Australia not only with a lucrative destination for industrial investments, but also a window to other countries in the African

continent, which generally have abundant natural resources.

Australia favors good relations with China, but is apprehensive of its growing influence in the Asian region. Australia's

relationship with Japan, meanwhile, has been improving, and the nations have signed a joint pledge towards free trade.

Free trade agreements (FTAs) were also signed with Singapore in 2003 and Thailand in 2004, apart from the existing ones

with New Zealand and the US. In the South East Asian region besides Indonesia, Australia is also working on improving its

relations with Vietnam.

Future risks

Increasing number of asylum seekers

Prime Minister Kevin Rudd’s decision to ease policies with respect to asylum seekers may turn into a larger crisis in the

future. The government has done away with the policy of sending people to camps in Pacific island nations until their

asylum status is ascertained, and now grants approved refugees restrictive, three-year visas. Since these changes took

effect, the number of people entering the country are said to have increased. A large number of asylum seekers from

Indonesia enter Australia by boat. While the government promised more humane treatment of illegal migrants in the

election campaign, it may prove to be difficult for the government to continue with a soft policy, as it could lead to an

unmanageable social crisis.

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PESTLE Analysis

Australia: Country Analysis Report – In-depth PESTLE Insights Published 06/2009

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Economic analysis

Overview

Australia recorded a healthy annual average GDP growth rate of around 3.3% during 2002–07. The economy has been

experiencing a downturn since 2008, however, with a lower GDP growth rate of 1.5%. Nevertheless, its performance is

better than most of the other advanced economies, mainly because its government’s finances are in a better state and its

exports are dominated by commodities. According to Datamonitor estimates, the downturn will be more severe in 2009,

with GDP predicted to record a negative growth of 0.5%. In such a scenario, the government's economic stimulus programs

will be of utmost importance. Nevertheless, these programs will affect the government’s financial health, as revenue income

is set to decline. The country also faces a risk of delayed recovery and an increased tax burden for future tax payers if

these packages fail to stimulate the economy. The government is expected to continue with its policy of monetary easing

along with fiscal stimulus.

Table 4: Analysis of Australia’s economy

Current strengths Current challenges

▪ Policies towards a digital economy

▪ Robust tourism and mining sectors

▪ Strong infrastructure industry

▪ Deteriorating economic conditions

▪ An adverse terms of trade and rising external debt

Future prospects Future risks

▪ Economic stimulus package

▪ Improving economic ties with New Zealand

▪ Free trade agreements

▪ Growing budgetary deficit

Source: Datamonitor D A T A M O N I T O R

Current strengths

Policies towards a digital economy

The Australian government has undertaken various initiatives to make sure there is all-round development in the country,

which could transform the economy. The state has funded various projects supporting telecommunication and IT

infrastructure, broadband services for local and rural areas, the development of green telecommunications, and carbon

trading. The government has also been successful in setting up tele-education in remote areas with the aid of broadband

services. In an effort to lower costs and provide training and education to a wider audience, corporations and universities

are adopting e-learning solutions. The state has installed e-health applications at several hospitals to disseminate

information on various aspects of health, and extended e-government services so that citizens can have easier access to a

range of government agencies. These favorable policies have provided Australia with a firm foundation on which it can

transform itself into a digital economy, enhancing growth in all sectors of the economy.

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PESTLE Analysis

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Robust tourism and mining sectors

The tourism sector provides employment opportunities to more than 480,000 people in the country, contributing more than

$78.7 billion to the economy and accounting for more than 3.5% of GDP at the end of fiscal year 2007–08. This was a 7.8%

increase from 2006–07, and was also the highest since 1999–2000. Within the industry, air and water transport, eateries

and retail trade are the most important sectors. Increased spending by Australians in their own country drove domestic

tourism to $58 billion in 2007–08, an increase of 6.8% over the previous year. In the same year, international tourists

visiting Australia injected around $20.7 billion into the economy, an increase of 9% over 2006–07. Although the economic

downturn has negatively impacted the industry to some extent, its contribution to GDP remains significant.

The minerals industry in Australia is of considerable economic and social importance, helping its nationals both directly and

indirectly. Indeed, the industry has directly contributed over $400 billion to Australia’s wealth during the past two decades.

During 2006–07, the industry accounted for nearly 8% of the nation’s GDP. Australia ranks among the top five producers of

most of the world’s primary minerals commodities, such as lead, bauxite and alumina, uranium, zinc, nickel and iron ore,

among others. It is expected that the strength in the country's mining sector will provide some respite from the economic

slowdown.

Strong infrastructure industry

The infrastructure industry is one of the major drivers of the Australian economy. It includes the construction of various

residential and non-residential buildings, as well as many other engineering construction projects. It also covers

architectural and engineering services and construction trades such as bricklaying, plumbing and electrician work.

Construction in Australia is primarily focused on the domestic market and is extremely fragmented, with around 200,000

businesses, representing 20% of the total number of companies in Australia. With the government supporting various

infrastructural projects and funding various rural expansion programs, the industry will further expand its activities and

boost its contributions to the economy at large.

Current challenges

Deteriorating economic conditions

Since 2008, there has been a slump in the economic growth of Australia similar to that seen in most other advanced

nations, albeit of a lower magnitude. The country recorded a GDP growth rate of 1.5% during 2008, compared to 3.9%

growth in 2007. It is expected to further decline in 2009 to a negative growth of 0.5%. According to the RBA’s Statement on

Monetary Policy in May 2009, GDP declined by 0.5% during the quarter ending in December the previous year. This report

said that the slowing in the domestic economy had been evident across private-sector spending and in the labor market.

Household consumption has been quite weak since the start of 2008, after having grown strongly over previous years, and

household investment declined in the second half of 2008, with a further decline expected in the first half of 2009. The pace

of growth of business investment slowed in the second half of 2008 from the high rates seen in previous years, and

indicators suggest that it will contract through 2009. Export volumes have been broadly flat recently. As a result of the

weaker economic environment, labor market conditions have deteriorated, with the unemployment rate increasing from a

low of around 4% in early 2008 to more than 5% in April 2009. The economic recovery of the country may be delayed if the

stimulus package fails to encourage private-sector investment.

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PESTLE Analysis

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An adverse terms of trade and rising external debt

Australia’s export performance was relatively healthy in the recent years, assisted by the strong global economy. However,

import growth was even more robust, resulting in a widening current account deficit of close to 6% of the GDP in 2005–06.

In the last quarter of 2007–08, the current account deficit grew by $2.8 billion to reach $18.28 billion. This was a record

high, with the current account deficit standing at around 7% of the GDP. The deficit is expected to widen further in 2009–10

to around 9% of GDP due to the global demand for the country's export commodities deteriorating without an equivalent fall

in imports, as Australian consumption expenditure will remain healthy compared to that of the other advanced economies.

Furthermore, accumulation of current account deficits coupled with Australian equity investment abroad, which was partly

funded by increased borrowings, has led to growing external debt. In 2008, external debt was at 95% of GDP. Rising debt

poses a challenge for the Australian economy, as this may further delay economic recovery, and debt financing will leave

the country with less funds for other expenditure programs.

Future prospects

Economic stimulus package

The economic downslide has brought economic policies to the forefront. The government has taken a number of bold policy

decisions in the form of fiscal stimulus packages and guarantees of deposits and wholesale borrowing for many financial

institutions to protect the economy from entering a recession. The Australian economy has performed better than that of

other advanced nations in facing the crisis.

In February 2009, the government announced a $26 billion stimulus package aimed at nation-building and supporting up to

90,000 jobs. It includes increased spending on education and infrastructure, tax breaks for small businesses and cash

handouts to eligible workers, farmers and students. Prior to this, in December 2008, the government had pumped an

additional A$10.4 billion (around $8 billion) in the economy to boost consumer spending.

Besides these fiscal stimulus measures, the government continued with its policy of aggressive interest-rate cuts, the latest

being a percentage point cut to reach a 45-year low of 3%. Since September 2008, there has been significant easing of 425

basis points (BPs). Such monetary measures, along with the fiscal stimulus, are expected to ease the effects of the

economic crisis.

Improving economic ties with New Zealand

New Zealand and Australia share a unique economic relationship through their involvement in one of the world's most

successful FTAs: the Australia New Zealand Closer Economic Relations deal (CER). Two-way trade in goods and services

expanded by an average of 9% per year during 2006–08, reaching around $24 billion in the year ending March 2008, the

CER's 25th anniversary year. The countries met to further enhance their relationship in March 2008. Australia and New

Zealand are making efforts to focus on the Single Economic Market program, which complements the CER by seeking

greater harmonization of economic regulation and addressing various other impediments to trade. The countries also

agreed to bring the development and economic integration benefits to all their Pacific island neighbors through ‘PACER

Plus’, the next stage of the Pacific agreement on closer economic relations.

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Free trade agreements

The idea of having an FTA between Australia and China was first proposed in 2005, and negotiations in April 2008 seem to

have been fruitful. Under the current FTA, the Australian government is expecting China to come up with revised tariff

offers on all goods, including agricultural commodities. In their latest round of free-trade talks, the governments discussed

agricultural products affected by tariff-rate quotas (cotton, wheat, rice, sugar, wool and corn). Furthermore, the Australian

government has also emphasized that its producers will not be a threat to China's farmers. The FTA is expected to boost

the GDP of Australia and China by $23.2 billion and $77.2 billion, respectively, during 2006–15.

The Australian government also entered into a pact with South Korea in April 2008 for a long-term free-trade agreement, to

be effective until 2020. According to the Australian government, the Australia-Korea FTA may boost Australia's GDP by up

to $22.7 billion and South Korea's by up to $29.6 billion over the period 2007–20. With these mutually beneficial

agreements, Australia is set to boost its external trade with both countries.

Future risks

Growing budgetary deficit

After maintaining a comfortable fiscal position, the Australian government is set to record a large budgetary deficit of 4.9%

in 2009–10. The government’s responsible fiscal policies enabled it to enjoy a solid fiscal position for nearly 15 years.

However, the financial condition will change with the large-scale state expenditure proposed to facilitate economic revival.

According to the budget unveiled in May 2009, owing to large-scale infrastructure spending the budget deficit will almost

double during 2009–10. According to the 2009–10 budget forecasts, the economy will contract by 0.5% in 2009–10 before

returning back to 2.25% growth in 2010–11. While this is held to be overly optimistic, the economy may suffer if the external

conditions worsen and domestic consumption fails to take off. In such a scenario, future budgets will have to increase

public expenditure. If government borrowing goes up, the state’s fiscal health will deteriorate in the coming years.

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Social analysis

Overview

Australia has an impressive healthcare network, and the government has also taken up tele-education to disseminate

information among the healthcare units. The country has also entered into several healthcare partnerships in Asia Pacific.

Australia has far greater social mobility than countries such as the US. While it has a good healthcare network, the country

is challenged with a weak social security system and professional work pressure leading to high stress levels. Another

problem that is now becoming a worry is the aging population and the corresponding reduction in the labor force. The

country’s booming education industry may also take a hit because of increasing instances of attacks on Indian students,

who constituted a significant 18.7% of total international students in 2008.

Table 5: Analysis of Australia’s social system

Current strengths Current challenges

▪ Social mobility

▪ Increased operational efficiency in healthcare sector

▪ Tele-education in health services

▪ Social security system

▪ Comparatively poor educational expenditure

Future prospects Future risks

▪ Incentives to increase employment opportunities

▪ Health partnerships in the Asia Pacific

▪ Aging population

▪ Lower number of Indian students to opt for Australia

Source: Datamonitor D A T A M O N I T O R

Current strengths

Social mobility

Australia offers good opportunities for social mobility, with chances to rise up the income ladder more frequent than in other

countries, such as the US. In a survey carried out by the Australian National University, the income growth of a sample of

5,000 people born during 1910–80 in Australia was compared directly to that of people born in the US during the same

period. The results showed that people in Australia enjoyed higher income growth than the equivalent group in the US. This

kind of higher social mobility is attracting many foreign nationals to migrate to Australia. Improving avenues for social

mobility bode well for the country.

Increased operational efficiency in the healthcare sector

There has been constant improvement in the healthcare sector, with important companies taking the lead. Sterling

Commerce (a subsidiary of AT&T Inc.) and 4Solutions Enterprises (a company specializing in delivering business process

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management and professional services in Australia) have together improved the IT integration between wholesalers and

distributors, servicing about 5,500 retail pharmacies across Australia. As a result, health supplies have become more

streamlined and better integrated across the nation. The healthcare network handles up to 50,000 transactions each

month, with a large cash inflow. Furthermore, 95% of the stock transacted is common to three main distributors: Australian

Pharmaceutical Industries Limited, Sigma Company Limited and Symbion Pharmacy Services. Due to this IT integration,

the health supply network has met its deadlines and reduced the amount of stock residing in warehouses, which is critical

to achieving economies of scale in a competitive market.

Tele-education in healthcare services

Tele-education is becoming increasingly important to train healthcare professionals in remote areas of Australia. In an effort

to lower costs and provide training and education to a wider audience, corporations and universities are adopting e-learning

solutions. In 2008, the Australian government invested $1 billion in e-learning and e-health, which will further expand the

resources throughout the country. Some of the advantages experienced by the country due to the implementation of tele-

education are:

• Patient and doctor travel is minimized.

• Local medical staff can consult with specialists anywhere in the world.

• Hospital and related travel costs are reduced.

• Students can watch an operation being performed irrespective of distance.

Current challenges

Social security system

The social security system was originally intended to act as a safety net during short spells of unemployment. It worked well

during the 1950s and 1960s, but the increase in unemployment since the 1970s has made the costs of the system more

apparent. Apart from the fiscal expenses, the indirect costs in terms of providing funds to people searching for jobs and the

families that are unemployed for generations are becoming more costly. Long-term unemployment and the growing

phenomenon of jobless families (where two or three generations of a single family may be out of work) are indicative of the

kind of problems faced by the system. The most problematic features of the Australian welfare system are its complexity

and the marginal tax rates applied to people who move out of the welfare bracket and work.

Comparatively poor educational expenditure

Government expenditure on education as a percentage of GDP was nearly 4.5% in 2005, but increased to 5% in 2008.

Despite the increase, Australia’s performance does not compare favorably with other OECD nations. In an OECD report on

education comparing it with other advanced economies, the country’s track record was assessed as "must improve". The

report ranked Australia second-to-last in terms of government funding of public education, as Australia is one of the few

countries where the state pays for less than half of the costs of tertiary education. The report revealed that, by the

standards of developed economies, the most highly paid Australian teachers earned comparatively little. Furthermore,

working hours were longer for teachers in Australia compared to those of its peers, and classes were larger. These

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limitations place the country at a disadvantage compared to other developed nations.

Future prospects

Incentives to increase employment opportunities

To help raise participation rates, the government has undertaken policy initiatives in the form of the Australians Working

Together (AWT) package. The country has also introduced welfare-to-work initiatives, which have proved popular in all

quarters. Under these reforms, the employment prospects for people aged 55 and over are no longer to be taken into

consideration when determining eligibility for the disability support pension. Australia is also taking steps to encourage older

workers to continue working after they become eligible for an old-age pension. This move is to reduce the incentives to

retire early under the superannuation guarantee scheme by aligning the eligibility age of superannuation (currently 55, but

to be increased to 60 by 2025) with the pension age (65) over time. The increased age limit for superannuation will keep

people employed for a longer period of time by acting as a disincentive against retiring early.

Health partnerships in the Asia Pacific

The Australian government is establishing stronger alliances with a range of domestic, regional and international partners

to improve the quality and effectiveness of the healthcare sector in the Asia Pacific region. As part of this program, the

government is investing $24m over four years to establish knowledge hubs in the healthcare sector with various universities

of Australia. This funding is focused on improving the quality and effectiveness of health development assistance, partly

through increased investments in research. These hubs are being built to improve the effectiveness of the Australian

government's development assistance program in health.

Future risks

Aging population

As the large Australian baby boomer generation progressively moves into older age brackets, maintaining high per capita

income growth will become harder to achieve. The proportion of people aged below 55 , where labor force participation is

normally highest, is expected to decline significantly during the next 20 years. Australian government projections foretell a

doubling of the number of people aged over 65 to around 25% of the total population over the next 40 years, while growth

in the population of traditional workforce age is expected to slow to almost nil. Excluding an unprecedented rise in fertility

rates, the age structure of the population is likely to stabilize thereafter with a far higher proportion of older people than

before.

As a result, the aggregate labor force participation rate is predicted to be 9% lower than the current level by the early

2040s. This would reduce the growth in real GDP per capita to about 1.5% per year from the 2020s onwards, under the

assumption of labor productivity growth of 1.75% (the average of the last 30 years). Additionally, increasing age-related

public expenditures would raise budget pressures. Moreover, the government will also face the burden of rising health and

insurance costs.

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Lower number of Indian students to opt for Australia

Australia has emerged as an attractive destination for international students. International education is the third largest

source of overseas earnings, generating around $12 billion in 2008 and supporting more than 125,000 jobs in Australia.

China and India are the largest source of enrolments in Australia with a share of 24.1% and 18.7%, respectively. However,

this booming industry will take a hit in view of the increasing attacks on Indian students. A number of people planning to

study in Australia may reconsider their options and choose the UK or Canada, where the cost of studying in these countries

is also lower than Australia. The lower cost is because the UK and Canada have one-year master’s degrees whereas the

Australian equivalent is of two years' duration.

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Technology analysis

Overview

Historically, the Australian government has supported technological development. This is reflected in the budgetary support

it lent in 2008 to the communications industry, the most important base on which the services sector operates in Australia.

With government investments in the broadband network, the e-commerce market is set to grow further. Additionally, on the

R&D front, the country has entered into scientific pacts with many countries, including India, China and the US. While the

country has a proven record in R&D, however, low levels of productivity and high wage costs have dampened its activity in

this regard. Also, the number of patents being awarded is on a declining trend.

Table 6: Analysis of Australia’s technology landscape

Current strengths Current challenges

▪ Budgetary support for ICT

▪ High usage of e-commerce

▪ Low levels of productivity

▪ Rural Australians missing out on broadband

Future prospects Future risks

▪ International co-operation on science

▪ New broadband network

▪ High wage cost

▪ Declining patents

Source: Datamonitor D A T A M O N I T O R

Current strengths

Budgetary support for ICT

The telecommunications sector has been one of the fastest-growing industries in Australia. The sector demonstrated

average annual growth of around 6.5% during 2000–07. The government has continued its tradition of support for important

communications and IT programs, particularly through the establishment of a framework for digital radio, and has made far-

reaching reforms to strengthen the Australian film and television industry. The government has approved a $10.5m grant to

two of the biggest broadcasting networks, the Australian Broadcasting Corporation and Special Broadcasting Services, to

enhance and extend their services to the world. Other budget announcements within the communication portfolio included

a $360m grant to the Australian Communications and Media Authority until 2012, which includes a package of $13.6m over

four years to help protect Australians from sophisticated online attacks targeting home and small business computers. With

continuous patronage from the government, the communications market is expected to grow at a much faster rate in the

coming years.

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High usage of e-commerce

In Australia, business driven by online shopping and e-commerce is at a high, with more than five million households

having access to internet at their homes. Among the business segments, 60% of small and medium enterprises (SMEs)

use the internet for their transactions and more than 50% of these SMEs use the internet to sell their products and services.

The business segment is estimated to have spent more than $2 billion on online advertising in 2008–09. It is also estimated

that by 2015, e-commerce will contribute more than $20 billion to the economy. With the expansion of broadband

throughout the country, the e-commerce market is set to expand its base and reach many more customers.

Current challenges

Low levels of productivity

Australia’s productivity levels in R&D are still considerably below those of countries like the US, the UK and several other

OECD countries. The government has prioritized policies aimed at maintaining Australia’s recent advances in productivity,

announcing a package of measures in 2001 aimed at encouraging the adoption of new technology to this end. Moreover,

the state has restored tax incentives for R&D expenditure and increased its spending on public research and relevant

university education. However, all of these measures have been ineffective in raising the R&D levels in the country.

Concerns have been raised over the levels of R&D expenditure in recent years. Following the reduction in the favorable tax

treatment of R&D expenditure in 1996, research-related spending fell sharply. During 2000–07, R&D expenditure did not

show any signs of improvement, with the rate hovering around 1.5% of GDP. Low expenditure and an inadequate focus on

R&D are two causes of the low level of productivity.

Rural Australians missing out on broadband

The digital divide between the urban and rural areas in Australia has increased in recent times, with less than a quarter of

rural communities having access to high-speed internet services. According to a study carried out by the Bureau of Rural

Sciences, only 24% of rural communities have access to broadband, compared to 46% of homes in major cities. although

some initiatives have been taken up by the private sector to cover far-flung areas, rural access to broadband is yet to be

addressed by the government. This inequitable access to broadband exists in spite of the Australian Broadband Guarantee.

Future prospects

International co-operation on science

As a part of their international science collaboration, Australia and India set up a joint working group (JWG) to create a

roadmap for strengthening bilateral co-operation in science and technology in April 2008. Prior to this special agreement,

21 projects were already functioning under the India-Australia Strategic Research Fund for advanced scientific

development. The JWG was set up to strengthen bilateral scientific co-operation focusing on industrial research and

development, and high technology areas such as nano-composites, bio-energy, health and agricultural biotechnology,

climate change and renewable energy, particularly photo-voltaic technology. Furthermore, Australia and China work

together via the China-Australia Special Fund for advanced science and technology development. The country has also

entered into scientific bilateral collaborations with the US, Canada, South Korea and Japan. With growing international

science and technology pacts, the country is set to augment its R&D capabilities.

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New broadband network

The Australian government approved a high-speed broadband network in April 2008. This venture was accelerated after

the state cancelled an $890m funding deal for a rural network that overlapped with planned national policy on broadband.

The government also approved a national fiber-optic network and sanctioned around $4 billion as corpus fund for this

purpose. It is expected that 98% of Australian homes will have high-speed internet access in the next four years, compared

with just 64% in 2007. With the boost in investment in broadband, all related ancillary industries will also be on a growth

path.

Future risks

High wage costs

The wage costs in Australia are very high compared to many other countries. The average annual salary paid to a

researcher in Australia is $80,572, compared to $3,956 in China and $11,526 in India. On a comparable basis, the EU and

US also pay lower salaries. This is slowly becoming a growing concern and adding to the already existing low level of

productivity. The high wage costs in Australia are also making the country an unattractive destination for offshore R&D,

especially with countries like China and India providing similar expertise at lower salaries. Furthermore, there is also tough

competition in terms of R&D output.

Table 7: Average annual salaries for researchers across countries

Country Average annual salary ($, 2006) Average annual salary ($, 2006: PPP adjusted)

India 11,526 56,780

US 75,556 78,868

Japan 86,503 77,861

China 3,956 17,276

EU (average of 25 countries) 47,663 50,398

Australia 80,572 78,302

Source: Datamonitor D A T A M O N I T O R

Declining patents

Due to many factors, like low productivity, high wage costs and reduced participation in R&D, Australia fares poorly in terms

of research patents in comparison to other developed countries. Even though the country is considered a developed nation,

Australia received only 1,546 patents compared to 93,691 in the US and 35,942 recorded by Japan in 2007. The number of

patents received increased by only 61 between 2004 and 2005, demonstrating a very low growth rate. The slow rate of

growth in terms of number of patents reflects that Australia must do more to encourage R&D growth.

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Table 8: Patents received by USPTO, 2001–07

Year Canada France Germany Japan US Australia

2001 4,063 4,456 11,894 34,890 98,655 1032

2002 3,857 4,421 11,957 36,339 97,125 992

2003 3,894 4,126 12,140 37,248 98,590 1049

2004 3,781 3,686 11,367 37,032 94,129 1093

2005 3,177 3,106 9,575 31,834 82,586 1032

2006 4,094 3,856 10,889 39,411 102,267 1538

2007 3,970 3,720 10,012 35,942 93,691 1,546

Source: Datamonitor D A T A M O N I T O R

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Legal analysis

Overview

The Australian judicial system includes a supreme court for each state, the High Court for the whole country and many

district level courts within a state. The nation has specific anti-terrorism laws and supports many countries to fight terrorists.

Although there are distinctive operating bodies in the judicial order, the government needs to ease the rules and regulations

with regard to lawyers migrating between various jurisdictions within the country. Australia is also listed as one of the most

open economies in the world by the OECD.

Table 9: Analysis of Australia’s legal landscape

Current strengths Current challenges

▪ Liberal business regulations

▪ Tough laws against terrorism

▪ Investment restrictions in select sectors

▪ Tax reforms help the rich instead of the poor

Future prospects Future risks

▪ Restructure of competition law ▪ Rigid legal action on corporate sector

Source: Datamonitor D A T A M O N I T O R

Current strengths

Liberal business regulations

The OECD has listed Australia as the most open economy among its member countries. The country follows market-

friendly policies and has a very liberal legal regime. In its annual review of reforms in 30 member countries, Going for

Growth 2008, the OECD stated that Australia has the lowest overall level of regulation out of all its members. However,

Australia ranked in the bottom half on three tests, specifically restrictions on foreign investment, regulation of telecoms, and

legal barriers to market entry. On most tests regarding the level of regulation, Australia was in the top six. It had the second

lowest levels of red tape in terms of business procedures, the third most liberal laws with regard to retail distribution, and

the fourth smallest framework of specific industry regulations. This ranking indicates the scope for further enhancement and

expansion of economic activity in the country.

Tough laws against terrorism

The July 2005 terrorist attacks in London prompted the Australian parliament to implement the Australian Anti-Terrorism

Act 2005, which was revised and passed by the Commonwealth parliament on December 6, 2005. Under this law,

individuals can be held under preventive detention without evidence of criminal activity and can be interrogated by the

Australian Security Intelligence Organization (ASIO). The controversial “shoot to kill” clause allows the police to treat people

wanted for detention in the same manner as the current law treats wanted suspects.

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Furthermore, the Australian government has introduced comprehensive measures to fight the threat of terrorism. Between

9/11 and 2007, the government committed up to $2.3 billion for over 100 new security measures. Finally, the 2004–05

Budget provided additional resources to the attorney general’s office to let it implement a range of new measures.

Current challenges

Investment restrictions in select sectors

Despite a number of liberalization measures, a few restrictions with respect to investment in particular sectors still exist in

Australia. Investment in media, transport and communication has not been fully liberalized. For instance, cross-media

ownership is only allowed subject to conditions that no less than five independent voices remain in metropolitan markets

and four in regional markets. Similarly, foreign investment in airlines is subjected to more stringent requirements than the

standard limit of 49% of the equity in an Australian international airline. Furthermore, foreign investment proposals for

acquisitions of Australian airports are subject to examination in accordance with the standard notification requirements and

prior approval is required for foreign entry into the telecommunications sector. The existence of such pre-conditions

impedes foreign investment in important areas.

Tax reforms help the rich instead of the poor

The previous government, led by John Howard, adopted reforms in which several tax cuts were provided. According to an

OECD study on taxation reforms in different countries, Australia’s tax reforms resulted in helping the rich instead of the

poor. The tax cuts undertaken in the country during 2003–07 helped only those with families, including single parents;

unmarried workers without children did not fare well. Only those earning at least 50% more than the average wage, or

about $78,599, profited from these tax reforms; the people below that range did not see any benefit. This issue needs to be

rectified, but is yet to be addressed by the new government.

Future prospects

Restructure of competition law

The Australian government has revealed that it will take a series of measures targeted at promoting competition and

cracking down on anticompetitive practices by powerful businesses. The planned reforms to the Trade Practices Act (TP

Act) 1974 include moves to further defend small business from predatory pricing and give the sector a permanent voice in

the Australian Competition and Consumer Commission (ACCC), the trade regulator.

These moves are intended to ensure genuine competition for the benefit of both consumers and small businesses.

Furthermore, it is hoped that the new rules will pave the way for indicting businesses that engage in anticompetitive

practices. The package will also give small businesses cheaper and more efficient judicial access, and permit cases

involving a misuse of market power to be heard in the federal magistrate’s court rather than in the federal court.

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Future risks

Rigid legal action on corporate sector

The Australian Securities and Investment Commission (ASIC), the regulatory authority for financial institutions, follows the

corporate laws very strictly and reviews corporate actions with great diligence. In fact, the implementation of laws is so

tough that the ASIC is almost considered to be major impediment for conducting free business. As a result, some of the

nation's most talented businesspeople are shunning directorships, as they are afraid of being sued for any purported

negligence or mistake. This reluctance to become directors is mainly due to the ASIC laying personal liability upon

business personnel. Furthermore, some of the risks taken by companies are strategic but, due to rigid laws, firms now tend

to be conservative. This kind of rigid law may send a negative signal to business houses and hamper the normal

functioning of these companies.

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Environmental analysis

Overview

The Australian government has comprehensive policies in place to protect the environment. Moreover, the government

encourages all of the citizens to participate in saving and protecting the environment through various schemes. The

government has also been active in developing various technologies that are environmentally friendly. Australia has already

started to witness the effects of global warming, with the country frequently experiencing the effects of climate change. One

of the most severe effects of rising pollution levels has been the decreasing area of the Great Barrier Reef. Australia is also

facing pollution due to forest fires in South America that produced excessive amounts of carbon monoxide.

Table 10: Analysis of Australia’s environmental landscape

Current strengths Current challenges

▪ Tight environmental policies

▪ Environmental research

▪ Rising pollution levels

▪ Pollution from South America

Future prospects Future risks

▪ Kyoto Protocol

▪ Environmental co-operation

▪ Green energy scheme

▪ Pollution affecting the Great Barrier Reef

▪ Effects of global warming

Source: Datamonitor D A T A M O N I T O R

Current strengths

Tight environmental policies

Environmental administration and regulation is taken very seriously in Australia. In mid-2007, for example, the Department

of Environment and Conservation suspended lead shipments from Esperance, a private shipping port in Australia, due to

pollution of the seas with lead that killed thousands of birds in the area. An investigation also found higher lead and nickel

levels in rainwater tanks in the area, and some instances of high lead levels in the blood of a number of residents,

prompting a parliamentary inquiry. The port company was charged with unreasonable emissions and was handed a penalty

of nearly $1m. In November 2008, the Australian government also announced the creation of the Green Car Innovation

Fund as part of the new car plan for a greener future. These kinds of positive actions against any kind of environmental

pollution have put all of the corporate houses on alert in the country.

Environmental research

Environmental research in Australia has taken a very optimal and sustainable route. Many environmental research

programs now adopt community-based philosophies and designs, although there are few applications in Australian

indigenous communities. Many environmental scientists endorse the participation of indigenous (and non-indigenous)

stakeholders in research. Agenda 21 and the Convention on Biological Diversity were outcomes of the 1992 United Nations

(UN) Conference on Environment and Development and were reaffirmed by most countries at the World Summit on

Sustainable Development in 2002. Agenda 21 is a global action plan that promotes the environment and the development

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of partnerships, and is supported by international agreements on the conservation and sustainable use of environmental

resources. These policy tools support initiatives that concurrently deal with environmental degradation. Signatory nations to

the Convention on Biological Diversity make efforts towards a reasonable sharing of technologies, and project resources

and benefits, with indigenous people and developing nations. Australia is a signatory nation to both Agenda 21 and the

convention, and has taken steps to uphold its commitment under both treaties.

Current challenges

Rising pollution levels

The rising pollution levels are causing environmental disruption in Australia, and are only getting worse. The proportion of

the country's land that is hospitable to useful vegetation has now fallen to 8%, and wetlands in the Murray-Darling basin

have come down by 90%. Even the coast and ocean life are under increasing pressure in Australia; it has also been

discovered by the forest department that the water yields from woodland to the Melbourne’s supply catchments have come

down by 50%. Carbon dioxide emissions have also been rising at an increased rate, growing from 381 million metric tons in

2004 to more than 417 million metric tons in 2006. Although there are number of policies in place, the government is finding

it difficult to control the mounting pollution levels. This is largely due to increased dependency on coal for electricity.

Pollution from South America

Envisat, the European Space Agency’s environmental satellite, has discovered that some carbon monoxide in Australian air

during 2004, originally blamed on local bushfires, in fact came mainly from South America forest fires. Scientists estimated

that almost one third of the extra carbon monoxide in North Australia was from South America. This is becoming a worrying

factor for the authorities in the country.

Future prospects

Kyoto Protocol

One of the first policy decisions taken by Prime Minister Rudd after assuming office was to sign the Kyoto Protocol. In doing

so, Australia committed itself to meeting its Kyoto Protocol target, and has set a goal of reducing greenhouse gas

emissions by 60% on 2000 levels by 2050 and by 5% before the end of 2020. This is considered by some to be too little

given the high level of pollution in the country. However, the Australian government is prepared to increase this target if

other countries such as China and India make similar commitments.

The new government also issued draft legislation in December 2008 for the creation of the carbon trading system known as

the Carbon Pollution Reduction Scheme, scheduled to be launched in 2010. The government hopes that this scheme will

become the bedrock upon which Australia will reduce its greenhouse gas levels by making the creation of carbon pollution

expensive to encourage major polluters to reduce emissions.

Environmental co-operation

Australia has entered into several international agreements, enabling the country and others to fight pollution with collective

strength. In October 2007, Australia and India entered into an environmental pact to monitor pollution in the groundwater.

The Cooperative Research Centre for Contamination Assessment and Remediation of the Environment (CRC-CARE) and

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the Indian Institute of Technology, Kanpur have signed a memorandum of understanding to work together on research

projects and the training of experts in contamination risk assessment and clean-up. CRC-CARE is a partnership of five

Australian universities and more than 20 companies and government agencies from Australia. The agreement entails the

exchange of staff and students from both organizations as well as joint workshops. This collaboration will enhance the

development of environmental protection and also widen the environmental knowledge base of both countries. Moreover,

Australia has environmental pacts with Association of Southeast Asian Nations (ASEAN) members, the US and also

several neighboring countries. Environmental pollution can be dealt with in an effective way through the collective efforts of

these nations. Furthermore, co-operation with various countries will support the conservation and protection of the

environment.

Green energy scheme

The Australian Capital Territory's green energy scheme encourages citizens to use renewable sources of power. Under

electricity feed-in laws, households are paid a tariff 3.88 times the retail cost of electricity for the clean energy produced

from rooftop solar panels or other renewable sources that they feed into the grid. According to the laws, the grid operator

must connect home producers and purchase their electricity. Generators of renewable energy will be paid the tariff for 20

years from the date they connected to the grid. Other states and territories have implemented or are considering similar

schemes. In this way, Australia is introducing innovative plans to tap renewable energy sources.

Future risks

Pollution affecting the Great Barrier Reef

The Great Barrier Reef is home to 400 species of coral and supports over 2,000 different types of fish and 4,000 species of

mollusks, as well as countless other invertebrates. It is the world's largest coral system and stretches over 2,300 kilometers

along Australia's northeast coast, covering an area bigger than Britain. The reef is one of Australia's most important tourist

destinations, contributing an estimated $5 billion to the economy. Scientific research in Australia has proved that the Great

Barrier Reef is being threatened by agricultural activities: more than 90% of its pollution comes from soil, pesticides and

other chemicals that have washed off farms and sugarcane plantations into rivers. The situation is becoming alarming and

is adding to the government's existing environmental problems.

Effects of global warming

Australia is vulnerable to the changes in temperature and rainfall projected for the next 50 years, because it already has

extensive dry and semi-dry regions and existing pressure on the water supply in many areas. Climate change will bring

about more problems for the country. Australia has a highly concentrated population in the coastal areas, which are now

affected by high pollution levels. Moreover, tourism is dependent on the health of the Great Barrier Reef and other fragile

ecosystems. According to research conducted by the inter-governmental panel on climate change, it is expected that global

greenhouse-gas emissions will almost double by 2030. The Australian government is pursuing a 60% decrease in

emissions by 2050. However, these targets do not meet the urgency of the situation, which is presently causing

consternation among the authorities.

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Political landscape

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© Datamonitor. This brief is a licensed product and is not to be photocopied Page 34

POLITICAL LANDSCAPE

Summary

Australia is an independent nation within the Commonwealth of Nations, established on January 1, 1901. Queen Elizabeth

II has been the head of state since 1952 and has been represented by Governor General Quentin Bryce since 2008. It is a

democratic, federal state and has a bicameral parliament. The Labor Party, led by the Prime Minister Kevin Rudd, has been

in power since it won the 2007 elections.

Three parties dominate the political scenario: the Liberal Party, representing urban business interests; the National Party,

representing rural interests; and the Australian Labor Party, representing the trade unions and left-of-center groups. A

Liberal/National coalition came to power in 1996 after 13 years of Labor rule. However, in the recent 2007 elections, the

Labor Party came back to power with a landslide victory of 32 seats in the Senate and 83 seats in the House of

Representatives. The first policy that the government implemented after coming to power was to ratify the Kyoto Protocol.

This was a shrewd move by the government and won it international applause. In another major policy shift, the

government apologized for the past wrongs committed against the indigenous population. Furthermore, it eased its asylum

policy by abandoning the practice of holding all asylum seekers in detention centers until their cases are heard.

Evolution

Pre-1950s

Australia is a democratic, federal state, recognizing the British monarch as its sovereign. The Commonwealth of Australia

was formed on January 1, 1901, converting six colonies into a federation. Until this time, the country had been under the

direct rule of the UK. Australia was on Britain’s side in both world wars, during which the country sent its troops to fight.

Australia also maintained close relations with the US by providing air support in the fight against Japan during 1941. In

1948, Australia began an immigration scheme for Europeans. This resulted in the migration of more than two million people

into Australia over the next 30 years, one third of which were from Britain.

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Figure 2: Australia – political events timeline

• In 1829, the colony of Western Australia was

established at Perth.

• In 1836, South

Australia was established with

Adelaide as capital.

• In 1856, Australia

became the f irst country to introduce the secret

ballot for elections.

• In 1901, the country was unified.

• In 1914, Australia sent troops for World War I,

to support UK’s war effort.

• In 1939, Australia followed Britain's lead

and declared war on Nazi Germany.

• In 1941, the US

declared war on Japan,

with Australia as base.

• In 1829, the colony of

Western Australia was

established at Perth.

• In 1836, South Australia was

established with Adelaide as capital.

• In 1856, Australia became the first country

to introduce the secret ballot for elections.

• In 1901, the country was unified.

• In 1914, Australia sent

troops for World War I, to support UK’s war

effort.

• In 1939, Australia

followed Britain's lead and declared war on

Nazi Germany.

• In 1941, the US

declared war on Japan,

with Australia as base.

• In 1950, Australia sent troops to join the UN

forces in the Korean war.

• In 1965, Australian army joined the US war

against Vietnam.

• In 1967, national

referendum on changes to const itution was

passed. The sect ion that excluded aboriginal

people from official census was removed.

• In 1975, Australia introduced new

immigration laws, restricting the number of

unskilled workers into

the country.

• In 1986, The Australia Act made the country

fully independent of the British parliament and

legal system.

• In 1950, Australia sent

troops to join the UN

forces in the Korean war.

• In 1965, Australian

army joined the US war against Vietnam.

• In 1967, national referendum on changes

to constitution was passed. The section

that excluded aboriginal people from official

census was removed.

• In 1975, Australia

introduced new immigration laws,

restricting the number of unskilled workers into

the country.

• In 1986, The Australia

Act made the country

fully independent of the Brit ish parliament and

legal system.

• In 1992, The Cit izenship Act was

amended to remove the oath of allegiance

to the British Crown. Prime Minister Paul

Keating's Labor

government took a pledge to make

Australia a republic and concentrate on

links with Asia.

• In 1993, Keating won

the elections.

• In 1996, Keating was

defeated in elections. John Howard of the

Liberal Party became prime minister.

• In 1998, delegates in a constitut ional

convention vote to replace Queen

Elizabeth II as head of state with a president

chosen by the parliament.

• In 1992, The

Citizenship Act was

amended to remove the oath of allegiance

to the British Crown. Prime Minister Paul

Keating's Labor government took a

pledge to make Australia a republic

and concentrate on

links with Asia.

• In 1993, Keating won the elections.

• In 1996, Keating was defeated in elections.

John Howard of the Liberal Party became

prime minister.

• In 1998, delegates in a

constitutional convention vote to

replace Queen Elizabeth I I as head of

state with a president chosen by the

parliament.

• In 2001, Australia celebrated 100 years as

the Commonwealth of Australia.

• In May 2001, churches rebuked Prime Minister

John Howard for failing to acknowledge the

suffering of thousands of Aborigines under the

assimilat ion policy.

• In 2002, aid agencies,

rights groups and UN report criticized the

policy of holding asylum seekers in detention

camps unt il their visa applications were

processed.

• In 2003, Australia

headed peacekeeping force to restore order in

troubled Solomon Islands.

• In 2004, John Howard won fourth term as

prime minister.

• In 2001, Australia

celebrated 100 years as

the Commonwealth of Australia.

• In May 2001, churches

rebuked Prime Minister John Howard for failing

to acknowledge the suffering of thousands

of Aborigines under the assimilation policy.

• In 2002, aid agencies, rights groups and UN

report criticized the policy of holding asylum

seekers in detention camps until their visa

applications were processed.

• In 2003, Australia headed peacekeeping

force to restore order in troubled Solomon

Islands.

• In 2004, John Howard

won fourth term as

prime minister.

• In 2005, Australia deployed special

forces in Afghanistan to counter rebel

attacks.

• In 2006, Australian

troops headed the peace keeping forces

in the Solomon Islands.

• In August 2006,

proposed legislation to take asylum seekers to

offshore detention camps was scrapped

after a revolt by ruling party lawmakers

• In 2007, Kevin Rudd won the general

election.

• In September 2008, Quentin Bryce was

appointed as Australia's governor-

general, the f irst

woman to hold the post.

• In 2005, Australia

deployed special

forces in Afghanistan to counter rebel

attacks.

• In 2006, Australian troops headed the

peace keeping forces in the Solomon Islands.

• In August 2006, proposed legislation to

take asylum seekers to offshore detention

camps was scrapped after a revolt by ruling

party lawmakers

• In 2007, Kevin Rudd

won the general election.

• In September 2008, Quentin Bryce was

appointed as Australia's governor-

general, the first woman to hold the

post.

Pre –1950 1950–90 1990–2000 2000–04 2005 Onwards

• In 1829, the colony of Western Australia was

established at Perth.

• In 1836, South

Australia was established with

Adelaide as capital.

• In 1856, Australia

became the f irst country to introduce the secret

ballot for elections.

• In 1901, the country was unified.

• In 1914, Australia sent troops for World War I,

to support UK’s war effort.

• In 1939, Australia followed Britain's lead

and declared war on Nazi Germany.

• In 1941, the US

declared war on Japan,

with Australia as base.

• In 1829, the colony of

Western Australia was

established at Perth.

• In 1836, South Australia was

established with Adelaide as capital.

• In 1856, Australia became the first country

to introduce the secret ballot for elections.

• In 1901, the country was unified.

• In 1914, Australia sent

troops for World War I, to support UK’s war

effort.

• In 1939, Australia

followed Britain's lead and declared war on

Nazi Germany.

• In 1941, the US

declared war on Japan,

with Australia as base.

• In 1950, Australia sent troops to join the UN

forces in the Korean war.

• In 1965, Australian army joined the US war

against Vietnam.

• In 1967, national

referendum on changes to const itution was

passed. The sect ion that excluded aboriginal

people from official census was removed.

• In 1975, Australia introduced new

immigration laws, restricting the number of

unskilled workers into

the country.

• In 1986, The Australia Act made the country

fully independent of the British parliament and

legal system.

• In 1950, Australia sent

troops to join the UN

forces in the Korean war.

• In 1965, Australian

army joined the US war against Vietnam.

• In 1967, national referendum on changes

to constitution was passed. The section

that excluded aboriginal people from official

census was removed.

• In 1975, Australia

introduced new immigration laws,

restricting the number of unskilled workers into

the country.

• In 1986, The Australia

Act made the country

fully independent of the Brit ish parliament and

legal system.

• In 1992, The Cit izenship Act was

amended to remove the oath of allegiance

to the British Crown. Prime Minister Paul

Keating's Labor

government took a pledge to make

Australia a republic and concentrate on

links with Asia.

• In 1993, Keating won

the elections.

• In 1996, Keating was

defeated in elections. John Howard of the

Liberal Party became prime minister.

• In 1998, delegates in a constitut ional

convention vote to replace Queen

Elizabeth II as head of state with a president

chosen by the parliament.

• In 1992, The

Citizenship Act was

amended to remove the oath of allegiance

to the British Crown. Prime Minister Paul

Keating's Labor government took a

pledge to make Australia a republic

and concentrate on

links with Asia.

• In 1993, Keating won the elections.

• In 1996, Keating was defeated in elections.

John Howard of the Liberal Party became

prime minister.

• In 1998, delegates in a

constitutional convention vote to

replace Queen Elizabeth I I as head of

state with a president chosen by the

parliament.

• In 2001, Australia celebrated 100 years as

the Commonwealth of Australia.

• In May 2001, churches rebuked Prime Minister

John Howard for failing to acknowledge the

suffering of thousands of Aborigines under the

assimilat ion policy.

• In 2002, aid agencies,

rights groups and UN report criticized the

policy of holding asylum seekers in detention

camps unt il their visa applications were

processed.

• In 2003, Australia

headed peacekeeping force to restore order in

troubled Solomon Islands.

• In 2004, John Howard won fourth term as

prime minister.

• In 2001, Australia

celebrated 100 years as

the Commonwealth of Australia.

• In May 2001, churches

rebuked Prime Minister John Howard for failing

to acknowledge the suffering of thousands

of Aborigines under the assimilation policy.

• In 2002, aid agencies, rights groups and UN

report criticized the policy of holding asylum

seekers in detention camps until their visa

applications were processed.

• In 2003, Australia headed peacekeeping

force to restore order in troubled Solomon

Islands.

• In 2004, John Howard

won fourth term as

prime minister.

• In 2005, Australia deployed special

forces in Afghanistan to counter rebel

attacks.

• In 2006, Australian

troops headed the peace keeping forces

in the Solomon Islands.

• In August 2006,

proposed legislation to take asylum seekers to

offshore detention camps was scrapped

after a revolt by ruling party lawmakers

• In 2007, Kevin Rudd won the general

election.

• In September 2008, Quentin Bryce was

appointed as Australia's governor-

general, the f irst

woman to hold the post.

• In 2005, Australia

deployed special

forces in Afghanistan to counter rebel

attacks.

• In 2006, Australian troops headed the

peace keeping forces in the Solomon Islands.

• In August 2006, proposed legislation to

take asylum seekers to offshore detention

camps was scrapped after a revolt by ruling

party lawmakers

• In 2007, Kevin Rudd

won the general election.

• In September 2008, Quentin Bryce was

appointed as Australia's governor-

general, the first woman to hold the

post.

Pre –1950 1950–90 1990–2000 2000–04 2005 Onwards

Source: Datamonitor D A T A M O N I T O R

1950–90

Following World War II, Australia’s foreign policy became more closely aligned with the US than with Britain. Another

foreign policy theme has been collective security. Australian forces participated in the Korean War (1950–53) in support of

the UN-backed campaign. In 1951, the country signed the Australia-New Zealand-US (ANZUS) security treaty, which

committed the three nations to mutual defense. In 1954, Australia helped to found the Southeast Asian Treaty

Organization, the region's equivalent of the North Atlantic Treaty Organization (NATO). From 1965 to 1971, Australia sent

troops to Vietnam in support of the US efforts in the country.

1990–2000

In 1990, Australia deployed three ships to support the US-led naval blockade of Iraq following Iraq’s invasion of Kuwait. In

1992, the long practiced Citizenship Act was amended to remove the oath of allegiance to the British Crown. The then

Prime Minister Paul Keating's Labor government pledged to make Australia a republic and concentrated on improving ties

with Asia. The promises made by Paul Keating resulted in the Labor party winning the elections in 1993, and he was

appointed prime minister. Paul Keating lost the prime ministerial race in 1996 to John Howard. In 1998, there was a vote to

replace Queen Elizabeth II as head of state with a president chosen by parliament. This issue was put to a referendum in

1999, but the proposal was defeated, with 55% voting to retain the status quo.

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2000–04

After the September 11, 2001 terrorist attacks on the US, Australia invoked the ANZUS treaty and dispatched troops to

Afghanistan. In 2003, the country also sent troops to participate in the Iraq War. Australia was rewarded for its strong

political ties with the US when the two nations instigated a bilateral free-trade agreement in January 2005. During the same

period, Australia also headed various peacekeeping forces in the Solomon Islands and Iraq. This period ended with John

Howard winning his fourth term as prime minister, and the Liberal Party gaining complete control of the Senate.

2005 onwards

This period began with Australia sending special forces to Afghanistan to support the US campaign. During the year, there

was racially motivated violence in Sydney, as large numbers of youths protested against racial discrimination. In 2006, the

parliament scrapped the legislation that had prompted the protests, which stipulated that future asylum seekers were to be

taken to offshore detention camps. In the 2007 general elections, the Labor party, under Kevin Rudd, won the elections,

with 32 seats in the Senate and 83 seats in the House of Representatives. In the same year, Prime Minister Kevin Rudd

ratified the Kyoto Protocol on climate change, reversing the previous government's policy. In another major policy shift, the

government apologized for the past wrongs committed against the indigenous population. Furthermore, it eased its asylum

policy by abandoning the practice of holding all asylum seekers in detention centers until their cases are heard.

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Structure and policies

Key political figures

Key political figures in Australia are:

• Chief of State: Queen Elizabeth II

• Governor General: Quentin Bryce

• Prime Minister: Kevin Rudd

Figure 3: Australia – key political figures

Queen Elizabeth II has been the UK’s reigning monarch since 1952. She was proclaimed queen in 1952 following the death of her father, George VI. She is Australia's sovereign and is officially called Queen of Australia. The monarch is represented at the federal level by the governor general. The governor general is appointed by the monarch on the advice of the prime minister. The powers that belong to the crown are collectively known as the royal prerogative, which includes many powers such as the ability to make treaties or send ambassadors, as well as certain duties such as defending the realm. Parliamentary approval is not required for the exercise of the royal prerogative.

Quentin Bryce, was sworn in as the governor general of Australia in September 2008, becoming the first woman to hold the position. Prior to this, she was the governor of Queensland. After completing her degree in Law, she had the distinction of becoming one of the first women to be accepted to the Queensland bar. In the past, she had held various responsible positions including the faculty member of the Law school and director of the Queensland Women's Information Service. She also worked as the the Queensland director of the Human Rights and Equal Opportunity Commission and the Federal Sex Discrimination Commissioner.

The prime minister is the head of the government and holds, in practice, the most powerful political office in Australia. Barring exceptional circumstances, the prime minister is always the leader of the political party, with majority support in the House of Representatives. The present prime minister of Australia is Kevin Michael Rudd. He is the leader of the Australian Labor Party (ALP). Under Rudd's leadership, the Labor Party won the 2007 federal election against the incumbent Liberal/National coalition government led by John Howard. Before becoming the PM, he served as Australia’s minister for foreign affairs.

Queen Elizabeth II has been the UK’s reigning monarch since 1952. She was proclaimed queen in 1952 following the death of her father, George VI. She is Australia's sovereign and is officially called Queen of Australia. The monarch is represented at the federal level by the governor general. The governor general is appointed by the monarch on the advice of the prime minister. The powers that belong to the crown are collectively known as the royal prerogative, which includes many powers such as the ability to make treaties or send ambassadors, as well as certain duties such as defending the realm. Parliamentary approval is not required for the exercise of the royal prerogative.

Quentin Bryce, was sworn in as the governor general of Australia in September 2008, becoming the first woman to hold the position. Prior to this, she was the governor of Queensland. After completing her degree in Law, she had the distinction of becoming one of the first women to be accepted to the Queensland bar. In the past, she had held various responsible positions including the faculty member of the Law school and director of the Queensland Women's Information Service. She also worked as the the Queensland director of the Human Rights and Equal Opportunity Commission and the Federal Sex Discrimination Commissioner.

The prime minister is the head of the government and holds, in practice, the most powerful political office in Australia. Barring exceptional circumstances, the prime minister is always the leader of the political party, with majority support in the House of Representatives. The present prime minister of Australia is Kevin Michael Rudd. He is the leader of the Australian Labor Party (ALP). Under Rudd's leadership, the Labor Party won the 2007 federal election against the incumbent Liberal/National coalition government led by John Howard. Before becoming the PM, he served as Australia’s minister for foreign affairs.

Source: Datamonitor D A T A M O N I T O R

Structure of government

Australia uses a federal system, implying the division of powers between the national government (also known as the

Commonwealth parliament) and the states. The bicameral parliament consists of the Queen and two houses: the Senate

and the House of Representatives. The constitution provides for the Commonwealth government's legislative powers and

allocates certain powers and responsibilities (known as 'heads of power') to the Commonwealth government. All remaining

responsibilities are retained by the six colonies, which under the constitution became states of the Commonwealth of

Australia.

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The House of Representatives is elected on a basis of the differing populations of the states. The majority party in the

house forms the government and appoints its leader as prime minister. The prime minister selects cabinet ministers from

both houses.

The role of head of state in Australia is divided between the Queen and the governor general, who is appointed by the

Queen on the advice of the prime minister. In many respects, however, the governor general is the Queen's representative,

and exercises various constitutional powers in her name. She is also independently vested with many important

constitutional powers.

The Federal Executive Council is the formal body that holds executive authority. The council consists of the governor

general, the prime minister and other ministers. The main function of the council is to advise the governor general in the

administration of the government. Most of the powers vested in the governor general, such as appointments and the

authorization of budgets, are exercised after consulting the Federal Executive Council. The council acts as a formal

ratification body for the decisions of the cabinet.

Provincial setup

The third level of government after the parliament and the states is local government, in the form of shire, town or city

councils. These bodies administer the provision of services such as local roads, sanitation and libraries. Councils comprise

elected representatives, usually serving on a part-time basis. Under the federal system, the parliament shares power with

the states and the financial relationship between these two levels of government is a key challenge. The federal

government collects 70–80% of taxes, but the responsibility for spending is more evenly shared between the parliament

and the states. A premier heads each of the six states, and a chief minister heads each of the two territories.

Structure of legislature

The legislature is the Commonwealth parliament, comprising the Queen, the Senate (76 members), and the House of

Representatives (150 members). The Queen is represented by the governor general, whose powers are limited to

assenting to laws. The members of the House of Representatives are elected by preferential voting from single-member

constituencies allocated among the states and territories roughly in proportion to population. Under the prevailing system,

the leader of the political party or coalition of parties that wins a majority of the seats in the House of Representatives is

named prime minister. The prime minister and the cabinet are responsible to parliament, of which they must be elected

members. The Commonwealth parliament and all the state and territory legislatures operate within the conventions of the

Westminster system, with a recognized leader of the opposition, usually the head of the largest party outside the

government. The current leader of the opposition is Brendan Nelson of the Liberal Party.

Key political parties/figures

There are three major political parties: the Australian Labor Party, the Liberal Party and the National Party of Australia. The

other minor parties that have achieved representation in the Australian Parliament are the Greens and the Australian

Democrats.

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The Australian Labor Party

The Australian Labor Party is the center-left social democratic party of Australia. It is the oldest party in the country, having

been founded in 1891 by the trade union movement. It is the main opposition party when the Liberal/National coalition is in

power. The party’s leader is Kevin Rudd, the deputy leader is Julia Gillard, and the national president is Michael

Williamson.

The Labor Party has always been controlled to various extents by trade unionists, and its policy at any given time has been

the policy of the broader labor movement. While in office from 1983 to 1996, the party pursued many economic policies

such as privatization, tariff reductions and deregulation of the financial system. Thus, it is difficult to say that the party

strictly follows the normal ideologies of socialist parties. When the coalition government came into power in 1996, the party

responded by moving back to a more traditional labor stance, emphasizing 'fairness' in the economy, education system,

health system and industrial relations system.

The Liberal Party

The Liberal Party is a center-right party and advocates economic liberalism and free markets. Socially, the party is

conservative. It was established in 1934, a year after the federal election of 1933, to replace the United Australia Party. The

current leader of the party is Brendan Nelson and the national president is Alan Stockdale. The party was in opposition

since 1983 until it came to power in 1996, in coalition with the National Party. The party has taken a tough stand on

unauthorized immigration. However, its policies relating to this have faced condemnation from the UN's high commissioner

for refugees and remain a controversial aspect of the historic immigration policy of the country. The party has also strongly

supported Australia's traditional alliances with the US and the UK, including the Iraq war.

The National Party of Australia

The National Party of Australia is a conservative party, and represents the rural population. It was founded in 1922 as the

Country Party and assumed its present name in 1982. The current leader is Warren Truss. The National Party's support

base and membership are closely associated with the agricultural community. It follows an anti-union ideology and has

argued for state support for primary industries and free agricultural trade. Its main polices are pro-mining and pro-

development. The party has also opposed tariff protection for Australia’s manufacturing and services industries.

Key policies

Since the 1980s, Australia has transformed itself from an inward-looking, highly protected and regulated economy to an

open and export-oriented economy through significant structural reforms. Australia is a member of various international

organizations including the Asia Pacific Economic Cooperation (APEC), the Common Wealth Cairns Group, the

International Monetary Fund (IMF) and the OECD.

After assuming office, Prime Minister Kevin Rudd made a number of decisions that proved immensely popular, such as the

ratification of the Kyoto Protocol, the issuing of an official apology to Australian aboriginals and the reintroduction of

collective bargaining in the workplace. These decisions helped Rudd to maintain high approval ratings. However, the

economic downslide of the country has made his government vulnerable to the opposition’s criticism.

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Economic

The economic downslide has brought financial policies to the forefront. The government has taken a number of bold policy

decisions in the form of fiscal stimulus packages and guarantees of deposits and wholesale borrowing for many financial

institutions to prevent the economy from entering a recession. The Australian economy has performed better than other

advanced economies in facing the crisis.

In February 2009, the government announced a $26 billion stimulus package aimed at nation-building and supporting up to

90,000 jobs. It includes increased spending on education and infrastructure, tax breaks for small businesses and cash

handouts to eligible workers, farmers and students. Prior to this, in December 2008, the government had pumped an

additional A$10.4 billion (around $8 billion) in the economy to boost consumer spending.

Besides these fiscal stimuli, the Australian government continued with its policy of aggressive interest rate cuts, the latest

being a percentage point cut to reach a 45-year low of 3.25%. Since September 2008, there has been significant easing of

425 BPs.

From an historical perspective, the 1980s brought about a huge change for the Australian economy. The government

undertook structural reforms, which included reducing tariff barriers, floating the Australian dollar, liberalizing the banking

sector and deregulating the financial sector. The government also initiated steps towards improving the labor markets,

privatizing government-owned companies and increasing the efficiency of the branches of the government. The reforms

brought in significant changes towards reducing federal government debt and the federal budget deficit and also decreased

the influence of organized labor. The administration has also accelerated the pace of privatization. The present

government, led by Kevin Rudd, is focused on improving growth and addressing the developmental issues of the country.

The two main challenges facing the Australian government are infrastructure and climate change. To address these

concerns, Australia’s government has recognized the need to invest heavily in infrastructure to expand the supply capacity.

Furthermore, the country is expected to play an active role in developing a global carbon trading system and has committed

to adopt such a system by 2010.

Social

Australia has an impressive welfare system, which includes income support programs funded by the government. The

Welfare to Work reform package was announced in 2005, and included a combination of changes to payments and work

incentives, work participation requirements and employment units. Other social welfare programs are designed to address

the issues of health, housing and education. The programs also include family assistance, student support and child care

support.

Australia has maintained a restrictive immigration policy, favoring the skilled labor from the Asian communities and barring

the entry of poor refugees. From 1901 to 1973, Australia followed the White Australia Policy, which favored immigrants

from the British Isles and Eastern Europe over Asians. Though this policy was abandoned in 1965, the country's

immigration policy continues to be restrictive and is heavily criticized. The UN Human Rights Commission has censured the

Australian policies on asylum and the treatment of aborigines, although the US State Department has recognized Australia

for its respect for human rights.

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Foreign

Australia has been an active player in international affairs since World War I. Since World War II, Australia has built close

ties with the US. It signed its only formal security treaty with New Zealand and the US, popularly known as ANZUS, in

1951. Australia was also one of the founding members of the UN.

Australia has shown active interest in relations between the developed and developing nations and has emphasized

continuity in its foreign policy towards the US and Asian nations such as China, Japan and Indonesia. The country

generally enters into bilateral trade agreements to promote trade liberalization. The Australian government has historically

provided strong support to US policies due to the two countries' major trade relations. Prime Minister Rudd is supportive of

US President Obama’s international policies. Under Rudd’s leadership, Australia withdrew troops from Iraq, although it has

pledged to maintain its troops in Afghanistan.

Moreover, after signing the Kyoto Protocol, Australia set the target of reducing its carbon emissions by 60% from 2000

levels by 2050. This is similar to the US target of reducing emissions by 80% over the same period.

Australia favors good relations with China but is apprehensive of its growing influence in the Asian region. Furthermore,

Australia's relationship with Japan has been improving, and the nations have signed a joint pledge towards free trade. FTAs

were also signed with Singapore in 2003 and Thailand in 2004, joining the existing ones with New Zealand and the US.

Defense

Australia’s key foreign military relationship is with the US. This relationship is formalized through the ANZUS security treaty.

Al Qaeda’s attack on the US on September 11, 2001, triggered the mutual-defense commitment, and Australia participated

in the subsequent US-led military interventions in Afghanistan and Iraq.

The US and Australia signed a Defense Cooperation Treaty in 2007, which is yet to be ratified by the US Senate. If

implemented, the treaty will facilitate the trade of defense equipment and technology between the countries.

Australia also has a military alliance with Malaysia, Singapore, New Zealand and the UK under the Five-Power Defense

Arrangements. In addition, the ASEAN's regional forum involves the discussion of regional security issues. In July 2005,

Australia’s foreign minister announced that the country would sign an agreement with ASEAN to renounce the use of force

to settle regional disputes or intervene in the affairs of other member states. This step was a concession—long resisted by

Australia—that paved the way for Australia to participate in an East Asian summit later in the year.

Performance

Governance indicators

The World Bank report on governance uses voice and accountability, political stability and absence of violence,

government effectiveness, regulatory quality, rule of law, and control of corruption as indicators for 212 countries and

territories over the period 1996–2007. The study was conducted by Daniel Kaufmann and Massimo Mastruzzi of the World

Bank Institute, and Aart Kraay of the World Bank Development Economics Research Group. For any country, a percentile

rank of 0 corresponds to the lowest and 100 corresponds to the highest.

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In 2007, Australia was ranked in the 92.8 percentile in the voice and accountability parameter, created to measure the

extent to which citizens can participate in selecting their government. It also measures freedom of expression, freedom of

association and the freedom given to the media. Australia has one of the highest ranks in this criterion due to deep-rooted

democratic principles and a highly decentralized political set-up. New Zealand, a peer nation, has a higher percentile rank

at 97.1 due to its small size, which allows greater interaction between citizens and the government.

Australia ranks in the 78.8 percentile on political stability and absence of violence parameter. The political stability and

absence of violence indicator measures perceptions of the likelihood that the government will be destabilized or overthrown

by unconstitutional or violent means, including domestic violence and terrorism. With a score above 70, Australia is ranked

well, with the political situation being fairly under control in the country. In comparison, New Zealand ranks 94.2 in this

parameter.

Australia ranks in the 97.2 percentile on the government effectiveness parameter. The government effectiveness indicator

measures the quality of public services, the civil service and the degree of its independence; the quality of policy

formulation and implementation; and the credibility of the government's commitment to such policies. In comparison, New

Zealand ranks 95.7 under this parameter. This is due to the continuation of policies in spite of changes of government.

Australia ranks in the 96.1 percentile on the parameter of regulatory quality. The regulatory quality indicator measures the

ability of the government to formulate and implement sound policies and regulations that permit and promote private-sector

development. Australia's high score indicates that the country has been successful in its implementation of policies and

regulations for the private sector. Australia follows a liberalized regulatory environment, which allows the private sector to

compete with the public sector on an equal basis. In comparison, New Zealand ranks 96.6 in this parameter.

Australia ranks in the 95.2 percentile on the rule of law parameter. Rule of law measures the extent to which agents have

confidence in the rules of the society. It particularly looks at the quality of contract enforcement, the police and the courts,

as well as the likelihood of crime and violence. In comparison, New Zealand ranks 98.1 under this parameter.

Australia ranks in the 94.7 percentile in the control of corruption parameter. The control of corruption indicator measures

the extent to which public power is exercised for private gain, especially corruption, as well as the private and elite influence

over the state. In comparison, New Zealand ranks 98.1 under this parameter.

Outlook

In November 2007, John Howard, the leader of the government at the time, resigned after the Labor Party won the

elections. The new prime minister, Kevin Rudd, gave the assurance that he would change the political scenario, which was

previously dominated by trade union leaders at the highest ministerial levels, and also take the course of liberalization from

a ‘tax and spend’ policy of previous government. Kevin Rudd called himself a ‘fiscal conservative’ and has promised the

nation that he will increase the funding available for education, renewable energy and the national broadband network. The

main reason behind Rudd’s victory was his affirmation that the legislation on ‘work choices’ and industrial relations between

labor and management will be reformed, and he also promised to limit trade union power. Another issue that brought

support to the Labor Party in the elections was the promise to withdraw Australian troops from Iraq in 2008. The first official

assignment that the new government successfully completed was ratifying the Kyoto Protocol in January 2008.

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Prime Minister Rudd’s policies continue to receive tremendous popular support, especially the public apology to Aborigines

and the reintroduction of collective bargaining in the workplace. However, the economic downslide of the country poses

fresh challenges for the present government. Rudd’s administration has had to defend its economic policies, which are

being widely criticized by the opposition. Although the government has put forward its argument that the country’s

economic performance is better than other advanced economies, the electorate may nonetheless hold the party

responsible for the effects of the economic crisis in the federal elections, which is due in 2010.

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ECONOMIC LANDSCAPE

Summary

Australia has transformed itself from an inward-looking economy to an export-oriented economy. In the process, the

government has initiated reforms for reducing tariff rates, removing the barriers to trade, and facilitating privatization of

government enterprises. These reforms, combined with the high and rising per capita GDP, low unemployment and low

inflation rates, have led to consistent economic growth. Australia is largely a services-driven economy: indeed, the sector

contributes 74% to its GDP. The industry and agriculture sectors account for about 23.5% and 2.5%, respectively. The

main exports are agricultural commodities: almost 80% are exported. Other important exports are coal, iron ore, gold and

aluminum. Currently, the problem of an aging population is slowly increasing in the country, with a corresponding rise in

social expenditure. The Australian government needs to initiate reforms to increase the supply of labor.

The economy has been facing a downturn since 2008, yet its performance is better than most of the other advanced

economies, mainly because its government finances are in a better state and its exports are dominated by commodities.

The government has announced expenditure programs to revive the economy, which will lead to a budgetary deficit.

Evolution

Pre-1940

Until the early 1880s, the economic activity of Australia was dominated by the production of wool. Gradually, the country

became a major minerals exporter, with abundant coal, iron ore and gold reserves. Immigration to Australia began

increasing during 1850–90. Eventually, the Australian government adopted a development strategy in which it sold bonds

to the London market, and used the funds to build infrastructure in the country. During 1880–90, Australia experienced an

investment boom, with foreign investors trying various modes of business in the country. However, the returns on

investment were very low, which resulted in withdrawal of funds and led the country into a depression in 1890. The then

government of Victoria took several fiscal measures, and the country recovered in 1894. After 1900, investment in Australia

picked up and there was increased agricultural activity and infrastructural development. However, the return on investment

was still a worry, with many countries falling into a depression in 1920. The demand for Australian exports fell globally, and

the country entered a recession again in 1931. Increased manufacturing activities and production nullified the recessional

effect in Australia during this period.

1940–75

The period after World War II (until 1974, at least) is referred to as the ‘long boom’ time in Australia. During this period, the

country experienced continuous economic expansion, with its per capita GDP being one of the highest in the world. This

continuous expansion was largely due to increased manufacturing and mining activities, along with a high inflow of foreign

investment. During the period, the Australian government implemented import restrictions, which led to increased profits for

the manufacturing industry. These restrictions encompassed a variety of industries including automobiles, metal

processing, textiles, clothing, footwear and chemicals. The biggest investor in Australia during this period was the US.

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1975–2008

The GDP growth was recorded between 3% and 4% during 1970–80. In 1983, the Australian dollar was floated and it was

allowed to fluctuate according to the foreign exchange market. Since then, the Australian dollar has reflected the credits

and debits in the balance of payments.

Deregulation came into focus under the labor government led by Bob Hawke. In 1987, the Australian Stock Exchange

(ASX) was formed. The formation of the ASX was a result of the amalgamation of six stock exchanges of different states in

Australia. As a result of deregulation, the GDP growth rate increased from an average of around 3.3% during 1980s to

around 3.8% in the 1990s. The Australian economy continued to grow steadily, with a rate of growth of around 3% during

1991–2003 (except for 2000, when the growth rate was 2.29%). The strong consumption demand helped maintain the

growth rates in the wake of the Asian crisis of the late 1990s, offsetting the deterioration of regional export demand for

Australian products.

The economy did not suffer from the global slowdown in 2002 and grew at a much higher rate of 3.41%. Furthermore, in

2003, the economic growth still did not decline even though the country was hit by the worst drought in its history. The

buoyant growth is the result of good macro-economic policies and the fiscal prudence of the government. The economy

grew consistently between the years 2004 and 2006, with a growth rate averaging 2.85% for the period. In 2007, the GDP

growth rate was around 3.9% but declined to 1.5% in 2008 as the global economic crisis deepened.

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Figure 4: Evolution of GDP growth in Australia, 1970–2008

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

1970 1980 1990 2000 2002 2004 2005 2006 2007 2008

Year

Gro

wth

ra

te (

%)

Source: Datamonitor D A T A M O N I T O R

Structure and policies

Overview

In 1911, government legislation established the Commonwealth Bank of Australia. Originally a corporate body, it was

upgraded to become the Reserve Bank of Australia (RBA) in 1959. The bank was entrusted with the responsibility of

carrying out central banking functions. Its commercial and savings banking operations were transferred to a new institution,

which carried on with the old name of Commonwealth Bank of Australia. The Reserve Bank Act of 1959 took effect from 14

January, 1960. There were no major changes in the functions of the RBA until the abolition of exchange control following

the shift to a floating system in 1983. The shift to market-oriented methods of implementing monetary policy was gradual.

Furthermore, the Australian financial landscape was transformed into a fully deregulated system. At the same time, the

RBA gradually built up a specialized banking supervision function.

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Financial authorities/regulators

Reserve Bank of Australia (RBA)

The RBA is the central bank of Australia and, according to the RBA Act of 1959, is the highest authority in the financial

system. The prime objectives of the RBA are to regulate the exchange rate, maintain full employment and increase the

economic prosperity and welfare of the citizens of Australia. In 1993, the maintenance of price stability was also introduced

as one of the objectives of the RBA. The RBA issues a statement on monetary policy four times a year. These statements

assess current economic conditions and the prospects for inflation and output growth.

Australia Securities and Investment Commission (ASIC)

The ASIC was established under the Australia Securities and Investment Commission Act 2001. The ASIC is an

independent body of the government and operates under the guidelines of the Corporations Act. It regulates Australian

companies, financial markets, financial services organizations and professionals who deal and advise in investments,

superannuation, insurance, deposit-taking and credit. As the market regulator, ASIC makes assessments about how

effectively authorized financial markets are complying with their legal obligations and whether they are operating in a fair,

orderly and transparent way. ASIC is also the financial services regulator in Australia. Thus, it approves licenses and

monitors financial services businesses to ensure that they operate efficiently, honestly and fairly. These businesses

typically deal in superannuation, managed funds, shares and company securities, derivatives, and insurance.

Other regulatory authorities

In Australia, there are several other regulatory bodies that facilitate the smooth functioning of the financial system. The

Auditing and Assurance Standards Board is one such independent statutory body, developing high quality standards and

related guidance for auditors and providers of other assurance services. The other regulatory authorities include the

Australian Accounting Standards Board, Australian Prudential Regulation Authority (APRA), and Financial Reporting Panel.

Banking sector

Australia’s banking sector is rated as one of the best in the world, and enjoys an international reputation for excellence in

financial market regulation and supervision. In the Global Competitiveness Report 2006–07 by the World Economic Forum,

Australia was ranked eighth among 125 countries. As of March 2007, there were 54 authorized banks in Australia, of which

40 were foreign-owned. The Australia and New Zealand Banking Group, Commonwealth Bank of Australia, National

Australia Bank, and Westpac Banking Corporation are the four major banking houses in the country. There are also a

number of regional banks and important European, US and Asian investment banks. The banking system is regulated by

the APRA, which enforces capital adequacy requirements consistent with other developed countries.

The Australian banking industry is dominated by four publicly owned and nationally operated commercial banks. The

Australian government has renewed an 18-year-old policy banning Australia’s four banks, namely National Australian Bank,

Commonwealth Bank, ANZ and Westpac, from merging with each other, in the name of preserving competition. Recently,

larger banks have sought to increase their presence in more than one state. There are also regional/domestic banks

operating in the country. Emerging competitors to the 'big four' banks are St.George Bank, Bendigo Bank, BankWest,

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Suncorp-Metway and the Bank of Queensland. There are several small regional banks that have had a traditional regional

base in one state, although most of the banks are expanding in Australia. There are a growing number of foreign subsidiary

banks, although only a few have a retail banking presence. One of the most significant is HBOS of the UK, which owns

BankWest. HSBC, Bank of Cyprus Australia Limited, Laiki Bank (Australia) Ltd and Citibank Australia have a small number

of branches. Foreign banks have a more significant presence in the Australian merchant banking sector.

Australian Securities Exchange (ASX)

The ASX is one of the top 10 listed stock exchanges in the world, measured by market capitalization. The ASX was formed

through the merger of the ASX and the Sydney Futures Exchange in December 2006. The scope and authority of the ASX

extends from corporate control and capital formation in primary markets and secondary markets to capital allocation in

secondary markets, price discovery and risk transfers. It also functions as a market operator, supervisor, central

counterparty clearer and payments system facilitator. The diverse domestic and international customer base of ASX

includes issuers of a variety of listed securities (such as corporations and trusts), investment and trading banks, fund

managers, hedge funds, commodity trading advisers, and proprietary and retail traders.

Like most of the leading stock exchanges, ASX witnessed a decline in the market capitalization in 2008, albeit to a lesser

extent. Market capitalization declined by around 18% in 2008 to reach $1.06 trillion by the end of the year.

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Figure 5: Market capitalization of Australian securities exchange, 2001–08

0.00

200.00

400.00

600.00

800.00

1,000.00

1,200.00

1,400.00

2001 2002 2003 2004 2005 2006 2007 2008

Year

$ b

illi

on

Source: Datamonitor D A T A M O N I T O R

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Insurance

The ASIC is the regulatory authority of insurance market in Australia. It administers the regulatory system of consumer

protection for deposit-taking activities, general insurance, life insurance, superannuation and retirement savings accounts.

The Insurance Council of Australia is the top body for general insurance companies in Australia licensed under the

Insurance Act 1973. The Insurance Council represents its members, handles issues and puts across the points of view of

the industry to the government, while also handling public affairs, industry forums, issues management and consumer

services, all of which are backed up by technical research and resources. The Insurance Australia Group and QBE

Insurance Group are two major players in the Australian insurance market.

The Australian insurance market experienced uneven but notable growth between 2003 and 2007; however, this is

expected to slow in the years through to 2012. Gross written premiums in the Australian insurance market generated a total

value of $73.2 billion in 2007, representing a compound annual growth rate of 8.8% for the period spanning 2003–07.

The life insurance segment proved the most lucrative for the market in 2007, generating total premium income of $45.9

billion, equivalent to 62.5% of the market's overall value. In comparison, non-life insurance premiums generated $27.5

billion in 2007, equating to 37.5% of the market's aggregate value.

Performance

GDP and growth rate

Overview

The Australian economy grew at more than 3% a year during 1991–2003, except for 2000, when it grew at 2.29%. The

medium-term outlook of the economy is positive, as it is expected to grow between 2% and 2.7% until 2012. Strong

consumption demand has helped maintain the growth rates in the wake of the Asian crisis of the late 1990s, offsetting the

deterioration of regional export demand for Australian products.

The economy was unaffected by the global slowdown in 2001 and grew at a significant rate of 3.36%. The economic

growth rate did not decline even when the country was hit by the worst drought in its history in 2003; in fact, the growth rate

rose to 3.79% that year, compared to 3.41% in 2002. The buoyant growth was driven by sound macro-economic policies

and fiscal prudence. The growth rate increased to 3.9% in 2007 from 2.95% in 2006. However, the growth momentum

declined in 2008 because of the global slowdown. The GDP attained a growth rate of 1.5% during the year but is expected

to further decline to record a negative growth of 0.5% in 2009. According to the RBA’s Statement on Monetary Policy in

May 2009, GDP declined by 0.5% during the December 2008 quarter: the first quarterly fall since 2008. According to the

report, the slowing in the domestic economy has been evident across private-sector spending and in the labor market.

Household consumption has been quite weak since the start of 2008 after growing strongly over the previous years, and

dwelling investment declined in the second half of 2008, with a further decline expected in the first half of 2009. The pace of

growth of business investment slowed in the second half of 2008 from the high rates seen in previous years, and indicators

suggest that investment will contract through 2009. Export volumes have been broadly flat recently. As a result of the

weaker economic environment, labor market conditions have deteriorated, with the unemployment rate increasing from its

trough of around 4% in early 2008 to more than 5% in April 2009.

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Figure 6: GDP and growth rate in Australia, 2002–12 (constant prices)

200

250

300

350

400

450

500

550

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Year

$ b

illi

on

-3.00

-2.00

-1.00

0.00

1.00

2.00

3.00

4.00

5.00

Gro

wth

rate

(%)

GDP Real GDP growth rate

Source: Datamonitor D A T A M O N I T O R

GDP composition by sector

In Australia, the service sector is one of the biggest contributors to the overall GDP, contributing 74%. This sector is

followed by the manufacturing industry, which constitutes 23.5% of the GDP, followed by the agricultural sector with a

negligible 2.5%.

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Figure 7: Sector composition of GDP in Australia, 2008

Services, 74%

Industry, 23.5%

Agriculture, 2.5%

Source: Datamonitor D A T A M O N I T O R

Agriculture

The agricultural sector contributes a very negligible share of 2.5% to the GDP in Australia. Until the late 1980s, agriculture

accounted for 80% of the country's exports, but this fell to 40% by the late 1990s and 29% by 2006. The main agricultural

products of Australia are wheat, barley, sugarcane, fruits, cattle, sheep and poultry. Of these, wheat is the most important

agricultural export commodity of the country.

Agriculture sector has posted a comparatively better performance in 2008–09, reflecting a stronger cereal harvest.

According to the RBA’s forecasts, the outlook for the 2009 cereal crop is mixed, with substantial rainfall required in the

coming months to improve soil moisture levels. Inflows into the Murray-Darling river system were at a record low between

January and March 2009, suggesting that water availability for irrigated crops is likely to remain constrained.

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Figure 8: Australia’s agricultural output, 2001–08

0.00

5.00

10.00

15.00

20.00

25.00

30.00

2001 2002 2003 2004 2005 2006 2007 2008

Year

AU

D b

illi

on

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

Gro

wth

rate

(%)

Agriculture output Growth rate

Source: Datamonitor D A T A M O N I T O R

Industry

The structural shift from industry to services in Australia has mainly been due to the fast growth of some industries within

the services sector and the slowdown in the growth of the manufacturing sector. This is a long-term trend, as

manufacturing’s share of output peaked in 1960 and has been falling since. There are growing investments in the mining

and manufacturing sectors, although investment in the services sector has also increased marginally. In 2006, the industrial

sector contributed around 25% of the GDP. Concrete, automotive gasoline, automotive diesel fuel, raw steel and cement

are some of the more important sectors in the manufacturing sector. The Australian industrial sector is mostly dominated by

small enterprises. The industrial output was on the rise from 2002, clocking an average annual growth of 4.7% during

2001–07. However, industrial activities declined in 2008 to a much lower growth rate of 1.8%. According to the Monetary

Policy Report of the RBA in May 2009, machinery and equipment imports have fallen sharply since late 2008 and the trend

is likely to continue during 2009. There has been a fall in machinery and equipment spending over the first half of 2009.

Furthermore, construction activities have also been weak. In addition, a number of large mining firms have announced

reductions to capital expenditure plans for 2009, although the high level of commencements of engineering projects in the

second half of 2008 suggests that this spending may remain firm in the near term.

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Figure 9: Australia’s industrial output, 2001–08

100.00

120.00

140.00

160.00

180.00

200.00

220.00

240.00

260.00

280.00

2001 2002 2003 2004 2005 2006 2007 2008

Year

AU

D b

illi

on

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

Gro

wth

rate

(%)

Industry output Growth rate

Source: Datamonitor D A T A M O N I T O R

Services

The service sector was an important contributor to Australia's economic activity throughout the 20th century, especially

since the 1980s. The growth in the sector’s share of employment has been even stronger. The average annual growth of

employment in the service sector has also been higher than that of the economy during 1990–2006, with an average

annual growth of 2.3% for services compared with 1.8% for the overall economy. The communications sector was the

fastest growing service industry during 1990–2006.

The service sector’s biggest export earner is travel services (including business, education and tourism-related travel

services). It reflects the attractiveness of Australia as a tourist destination and the strong demand for Australia’s education

services. The remaining service exports (which have displayed strong export growth in recent years, although their overall

value remains relatively small) comprise business-related services, including finance and insurance, IT, and professional

and technical services.

The services industries tend to be less capital-intensive than other sectors. There has also been a transfer of certain

industrial sector operations to the services sector, including finance, auditing and legal aspects. Their inclusion in the

services sector has pushed its share in GDP even further. After attaining an annual average growth of around 8% during

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2001–07, the services sector recorded a comparatively low growth rate of 5% in 2008. Deterioration in the global economic

conditions has impacted Australia’s earnings from tourism and financial services.

Figure 10: Australia’s services output, 2001–08

0.00

100.00

200.00

300.00

400.00

500.00

600.00

700.00

800.00

900.00

2001 2002 2003 2004 2005 2006 2007 2008

Year

AU

D b

illi

on

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

Gro

wth

rate

(%)

Services output Growth rate

Source: Datamonitor D A T A M O N I T O R

Fiscal situation

Fiscal deficit/surplus situation

The accumulation of surpluses allowed the authorities to pay off a significant portion of the national debt, reducing the

outstanding commonwealth government net debt stock from almost 20% of GDP in 1995 to 8% of GDP in 2000. The

decline continued in 2004–05, when the net debt was at its lowest (just over 2% of GDP) in the last 24 years. Australia is

now one of the few OECD countries in which the government’s net debt has been eliminated. The government’s sound

fiscal management saw the elimination of net debt but also the prospect of positive net worth in 2008–09.

The Australian government is set to record a deficit in 2009. According to the budget unveiled in May 2009, the budget

deficit will almost double during 2009–10 due to large-scale infrastructure spending.

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Latest budget

The Australian budget for the financial year 2009–10 was released in late May 2009. According to the budget proposals,

the government plans to raise infrastructure spending by A$22 billion (around $16.9 billion). The government also intends

to increase pension payments, boost spending on education and employment-oriented training and lower taxes for small

enterprises. The financial year is expected to see lower revenue by 1.8% because of rising unemployment and falling trade

activities.

The government projects that net debt will go up from -0.4% of GDP in 2008–09 to 13.8% in 2013–14, but will come back to

3.7% in 2019–20. These targets may not be achieved if the economy fails to revive post-2010.

Current account

Australia’s export performance has been relatively healthy in the recent years, assisted by the strong global economy

during 1970–2000. However, import growth was even more robust, resulting in a widening current account deficit of close

to 6% of the GDP in 2000. The deficit narrowed to less than 3% of GDP in 2001, as the softening in the Australian dollar

reduced the trade gap. However, with the strengthening of the currency in 2002–03, the gap increased considerably, and it

was once again recorded at around 6% of the GDP in 2003. In 2004, Australia’s current account balance was negative

$39.6 billion, which was 6.2% of the GDP. The current account deficit was nullified by a similar surplus in the capital

account. In particular, the inflow of portfolio investment was abnormally high. The current account deficit narrowed

marginally to around 6% of the GDP in 2005–06. In the last quarter of 2007–08, the current account deficit grew by $2.8

billion to reach $18.28 billion. This was a record high, with the deficit standing around 7% of GDP. The deficit is expected to

further widen in 2009–10 to around 9% of GDP due to the global demand for Australia's export commodities deteriorating

without an equivalent fall in imports, as Australian consumption expenditure will remain healthy compared to other

advanced economies.

Exports and imports

The Australian economy has been driven by both exports and imports, which are increasing as a proportion of GDP. The

balance of trade as a percentage of GDP shows a negative trend, indicating a much larger increase in imports than

exports. One of the main driving forces of economic activity is the global boom in mining commodities, of which Australia is

a major exporter. Business investment, especially in mining and associated infrastructure, is growing at a high rate.

Australia’s trade in services is relatively concentrated among a few major markets. The top five export markets (the US,

Japan, the UK, New Zealand and Singapore) account for the largest share of total services exports and imports.

Australia's prime exports are coal, iron ore, non-monetary gold, crude petroleum and beef. Its main imports are passenger

cars, crude oil, computers, medicines and telecommunications equipments. The largest contributors to total exports are

minerals and exports from the services sector. The recent fall in exports may be the result of firms trying to satisfy strong

demand in the domestic market, rather than a failure to exploit export opportunities. Over the last few years, China has

become Australia’s second largest merchandise export market after Japan, while India’s recent strong economic growth

has also led to a surge in exports from Australia.

Capital goods imports increased at the highest rate, reflecting strong investment in the Australian economy. Imports of

consumption goods showed the second highest growth, demonstrating domestic demand, while services imports increased

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at the third highest rate. The US is the largest source of imports, followed by China, Japan, Singapore, Germany and the

UK.

Despite lower global demand in 2008, exports from Australia have remained robust compared to other advanced

economies. One of the main factors for this, according to the RBA’s Monetary Policy Report (May 2009), is the composition

of Australia’s exports. Slower industrial activities have caused sharp fall in manufactured exports, such as machinery, motor

vehicles and other transport equipment, both from Australia and abroad. However, manufactured goods account for only

around 20% of the value of Australia’s total merchandise exports, compared with over 90% for countries such as Japan,

Korea and China.

Nevertheless, weak global demand conditions have had a much more pronounced effect on resource commodity prices

than on Australia’s export volumes. Moreover, the lower exchange rate has moderated the decline in demand for

Australia’s other exports, including tourism and education exports. Rural exports have also picked up in recent quarters, as

the large 2008 wheat crop has been shipped.

Imports in Australia have declined considerably more than exports, a trend similar to those observed in other advanced

economies.

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Figure 11: Australia’s external trade (merchandise), 2004–08

251

292

327

363

398

193175156

137115

171

205188

155137

0

50

100

150

200

250

300

350

400

450

2004 2005 2006 2007 2008

Year

$ b

illi

on

Exports Imports Total trade

Source: Datamonitor D A T A M O N I T O R

External debt

Australia’s external debt has grown sharply since the late 1990s. By 1987, foreign debt as a percentage of GDP stood at

44% of GDP. It reached 56% of GDP by 1997 and by June 2008 was at 95% of GDP. The accumulation of current account

deficits coupled with Australian equity investment abroad, which was partly funded by increased borrowings, has led to this

trend of growing debt. At the end of 2008, external debt was $1,032 billion.

International investment position

Foreign direct and portfolio investments

A feature of globalization is the increasing volume and velocity of international capital flows. Like exports, Australia’s FDI

has not been severely affected by the global slowdown in 2008. It registered a marginal increase in 2008 to reach $44

billion from $43 billion in 2007. According to the UN Conference on Trade and Development Survey (2008), Australia ranks

ninth in the list of the most attractive locations for FDI in the next three years. The US is Australia’s single largest source of

inward foreign direct investment (FDI) and the most important destination for Australian FDI abroad.

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Growth in outward FDI has also increased significantly in recent years, reflecting the increasing integration of Australian

businesses into the global economy. According to the foreign ministry of Australia’s report on FDI, Australian outward FDI

stocks have grown more strongly than inward FDI stocks over the past decade. This trend of Australian firms increasingly

investing overseas has added another dimension to the contribution that FDI makes to Australia’s economic growth.

Outward FDI enables Australian firms to expand their business beyond the potential constraints imposed by the limited size

of the domestic market. By extending their market presence and access to resources, expertise and technology in other

markets, Australian firms are able to become more efficient and competitive in global markets.

Figure 12: Australia – total foreign direct investment inflows, 2001–08

8.30

17.00

7.97

37.34

27.08

43.06 44.00

-33.21-40

-30

-20

-10

0

10

20

30

40

50

2001 2002 2003 2004 2005 2006 2007 2008

Year

$ b

illi

on

Source: Datamonitor D A T A M O N I T O R

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Foreign exchange position and exchange rate

Australia's foreign exchange reserves have been growing on a regular basis, with exports becoming important stimulants.

At the end of May 2009, total official reserves stood at $41.3 billion, which includes $37.2 billion of foreign exchange. In

May 2008, official reserves were at $33.7 billion.

The Australian dollar has been constantly appreciating against the US dollar since 2006. At the end of 2008, the US dollar

to Australian dollar exchange rate was at 1:1.20, but it rose to 1:1.24 in June 2009. This was caused by recovery in global

commodity prices. An adverse balance of payments situation will cause depreciation of the Australian currency during

2009, but the country’s positive interest rate differential with other advanced nations will have the opposite effect. The

demand for Australian dollars, nevertheless, will remain volatile due to fluctuating commodity prices.

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Figure 13: Australian dollar to US dollar exchange rate (A$ per $), 2004–08

1.100

1.150

1.200

1.250

1.300

1.350

1.400

2004 2005 2006 2007 2008

Year

Ex

ch

an

ge

ra

te,

AU

D-$

Source: Datamonitor D A T A M O N I T O R

Credit rating

Australia has an AAA stable and A-1 short-term foreign currency sovereignty credit rating from Standard & Poor's. The

rating agency did not alter its rating for Australia despite that fact the latest budget (2009) has projected for a deficit in the

next six years. S&P notes that its highest rating for Australia's sovereign credit is not threatened due to the strong public-

sector finances. However, there is a risk in terms of a weakening of the credit quality of the country's banking sector.

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Monetary

Key monetary indicators

Inflation

The government is following a restrictive monetary policy to cut inflation to 2–3%. The inflation rate crossed the 4% mark in

2008 to reach 4.5%. However, since the beginning of 2009, inflationary pressure has begun to ease in line with the

weakening in the economy. The RBA’s report notes that inflation expectations have fallen since mid-2008 to quite low

levels, and growth in labor costs appears to be slowing, as are upstream producer price pressures. Although it will take

some time for these factors to fully flow through to consumer prices, The CPI increased by 0.1% in the quarter ending

March 2009, which was higher by 2.5% than the corresponding period of 2008.

Figure 14: Consumer price index and CPI-based inflation in Australia, 2002–08

95.00

100.00

105.00

110.00

115.00

120.00

125.00

130.00

135.00

2002 2003 2004 2005 2006 2007 2008

Year

Co

ns

um

er

pri

ce

in

de

x

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

Infla

tion

(%)

Consumer price index Inflation

Source: Datamonitor D A T A M O N I T O R

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Money supply and interest rate

The RBA had left interest rates unchanged at their 12-year high of 7.25% in the first quarter of 2008–09. However,

deteriorating economic conditions have forced the RBA to undertake rate cuts to increase liquidity in the system, the latest

one being a 0.25 percentage point cut to reach a 45-year low of 3% in April 2009. Since September 2008, there has been

significant easing by 425 BPs.

Moreover, the money supply has also been increased in recent months to boost liquidity in the system. By the end of April

2009, M3 increased by 1.1% and broad money increased by 0.7%. Compared to the corresponding period of last year,

broad money grew by 11.8%.

Employment

The labor force participation rate measures the proportion of the working age population that is economically active. The

rate for Australia increased from 74.05% in 2002 to 75% in 2008. The increase had been marginal over the period of five

years, leaving a scope for improvement and catching up with other advanced nations. The size of the Australian labor force

is around 10 million at present. It increased from 7.6 million to 10 million during 1990–2008, growing at an average annual

rate of 1.5%. With a labor force participation rate of 75%, the Australian economy is dominated by its services sector; 75%

of its workforce is employed in this sector, particularly in the finance, property and business services. The proportion of

employment in the agricultural, fishing, mining and industry sectors has been declining, which is consistent with the trends

of their shares in total output. The secondary sector employs 21% of the total labor force, while the primary sector employs

4%.

During 2000–07, the employment growth rate stayed consistently above 1.5%. However, labor conditions have deteriorated

since 2007, resulting in lower number of jobs added. The unemployment rate stood at 5.4% in April 2009, up from around

4% in early 2008. The majority of the contraction in employment came from the full-time component, which has been

coming down since August 2009. According to RBA’s estimates, full-time employment has contracted by over 1% since

mid-2008, while part-time employment has continued to move upward. This reflects the shift of full-time workers to part-

time, as employers attempt to rein in labor costs while avoiding lay-offs.

Outlook

The Australian economy, though better placed than other advanced economies, is facing a downturn. The RBA specifies

that there will be a less severe recession in Australia than in many other countries. The factors working in favor of Australia

are a bigger decline in interest rates, the healthier state of the financial sector, Australia’s export mix (a relatively low share

of exports of capital goods and high-value manufactures, where global trade has fallen most), the recent recovery in the

Chinese economy, and the exchange rate depreciation in the second half of 2008.

According to Datamonitor estimates, the downturn will be more severe in 2009, with GDP recording negative growth of

0.5%. In such a scenario, the economic stimulus programs of the government will be of utmost importance. Nevertheless,

these programs will affect the government’s financial health, as revenue income is set to decline. The economy also poses

a risk of delayed recovery and increased tax burden for future tax payers if these packages fail to stimulate the economy.

The government is expected to continue with its policy of monetary easing along with fiscal stimulus measures.

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As far as other components of GDP are concerned, Australia’s terms of trade has fallen sharply, thus lowering the

contribution of trade to GDP. Domestic spending will also remain subdued because of a deterioration of the labor market

and a large decline in household net worth over the past year. Moreover, business investment is forecast to fall significantly

during 2009, according to the RBA. However, government’s public investment plans for education, rail, road and

communications infrastructure spending are likely to provide significant support during the year.

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SOCIAL LANDSCAPE

Summary

Australia has a high literacy rate and a relatively small population. In 1990, the population of Australia was 17 million, which

rose to around 19 million in 2003 and to 21 million in 2008. The national population growth rate since 2000 on an average

has been around 1%. The overall decreasing population coupled with the increase in the aging population is now a

challenge for the government. Nevertheless, Australia is one of the most urbanized countries in the world: less than 15% of

the population lives in rural areas. The educational and health sectors are well developed, reflected in a high literacy rate of

99% and a low death rate of 6.7 deaths per 1000 people. The country also has a strong social welfare network, providing

various facilities for the disabled, unemployed and pensioners.

Evolution

A very important and significant feature of Australian society since the beginning of European settlement in 1788 has been

foreign immigration. For many centuries, most immigrants came from the British Isles, bringing with them a distinctively

Western culture. This Western mindset made many impressions on Australian society in terms of culture, lifestyles and

standard of living. Soon, the country was flooded with people from the Middle East, Asia, and Latin America due to a

governmental initiative that gave immigrants access through a planned program introduced in 1960. By 2000, about 5.9

million immigrants had settled in Australia, with nearly three out of every 10 Australians being foreign-born.

Furthermore, the country’s social development policies have been reformulated to meet the new challenges faced by the

country. There has also been a stronger policy focus by the government on social welfare issues. The country is historically

known for contributing huge funds to enhance its healthcare network and education system.

Structure and policies

Demographic composition

Composition by age and gender

Australia's population has grown from about 17 million in 1990 to almost 21 million in 2008. The national population growth

rate since 2000 has been around 1%. The sex ratio in Australia is balanced, with 1.06 males being born for every female.

Life expectancy is also high at 81.6 years for the total population, with females living for more than 84 years compared to

males who live for around 79 years. With more than 13.5% of the population being above 65 years of age, Australia's aging

population will continue to increase in the coming years.

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Table 11: Mid-year population by age (millions) in 2006

Mid-year population by age Female Male

0–4 0.61 0.64

5–9 0.64 0.67

10–14 0.68 0.71

15–19 0.69 0.72

20–24 0.68 0.71

25–29 0.66 0.68

30–34 0.72 0.74

35–39 0.76 0.77

40–44 0.75 0.76

45–49 0.74 0.74

50–54 0.68 0.67

55–59 0.64 0.64

60–64 0.51 0.51

65–69 0.41 0.38

70–74 0.33 0.29

75–79 0.30 0.24

80+ 0.47 0.28

Source: Datamonitor D A T A M O N I T O R

Urban/rural composition and migration

Despite its large geographical size, Australia has a relatively small population that is highly urbanized and concentrated in

certain regions of the country. Sydney and Melbourne are the two biggest cities in Australia, with populations of more than

four million and 3.5 million, respectively. The low population density in the country impedes the authorities from providing

services such as higher education to rural and isolated communities.

Religious composition

In Australia, about 25% of the population are Catholic, 21% belong to other Christian groups, 21% are Anglican and 2% are

Muslim. People following other religions constitute about 16%, leaving 15% who do not follow any organized religion.

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Figure 15: Major religions in Australia

Catholics25%

Anglicans21%

Other Christians21%

Muslims2%

Others16%

None15%

Source: Datamonitor D A T A M O N I T O R

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Education

Education is compulsory from six to 16 years of age in the states of South Australia and Tasmania and up to age 15

elsewhere in Australia. The curriculum varies between states, although measures have been taken to standardize core

educational areas and the age at which education begins. These changes have allowed students to have access to 13

years of schooling on a comparable basis anywhere in Australia.

The education system in Australia consists of a total of 15 years. There are many types of education for children up to five

years of age, but the main ones are the child care regulated centers or families in registered residences who take care of

preschoolers in a system called 'family day care'. Up to age 12, students are considered to be part of the primary and

secondary educational system. This is followed by high school, where the students study different courses up to age 17

and, after completion, receive a high school diploma. The options after the completion of education at the high school level

include obtaining an apprenticeship, entering the workforce or studying any vocational course.

After high school education, students can enter university. University education within Australia is provided by both the

government and the private universities. The courses offered are referred to as ‘undergraduate’ programs, followed by

‘graduate or postgraduate programs.’ The duration of university study is generally very short: the minimum duration is six

months for graduate programs, one year for a masters, 1.5 years for a master honors and two years for a doctorate.

Healthcare

Healthcare services

The healthcare services in Australia are handled and managed by the Department of Health and Aging. The department

focuses on establishing healthy lifestyles, and preventing and adopting best practices for handling chronic diseases. It also

works to improve the transparency, accessibility, accountability and quality of public and private health and aged care

service provision through financing and agreements with stakeholders, industry and state and territory governments.

The central government takes the lead in terms of development of national health policies, regulation and funding, while

states and territories are responsible for the implementation of healthcare services and regulation of healthcare providers. It

is estimated that around 70% of Australia’s healthcare expenditure is funded by the government. The government provides

the services through subsidized schemes such as Medicare and the Pharmaceutical Benefits Scheme. The rest of the

contribution comes from the Private Health Insurance Rebate.

Social welfare

Social welfare policies

An important challenge for Australia is to sustain the growth in living standards, particularly in the face of an aging

population. This entails additional expenditure on the exchequer of the government and calls for fiscal prudence. The main

areas to be considered are labor, health and education. The recent reform focuses on reducing the dependency of income

support through increasing the access of the individuals to the labor market. Under the Welfare to Work reform package

announced in the 2005 budget, various incentives were provided. The initiative's goals include an increase in workforce

participation and employment among four priority clusters: people with a disability, principal career parents, older people

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and the very long-term unemployed. The new arrangements include stricter rules for eligibility and participation

requirements for new disability support pension applicants with working capacity above 15 hours per week. Furthermore,

the primary objective of the reforms is to improve the skill sets of the workforce for industry and promote necessary

workplace re-organization, thereby increasing productivity.

On the other hand, public spending on various welfare activities in the country is rising. To face this challenge, the

government has been taking active steps such as paying off the pension debt, and increasing the efficiency of different

levels of the government.

Performance

Healthcare

Healthcare expenditure of Australia stood at around $50 billion in 2008, representing 5.3% of GDP. In fact, healthcare

spending has remained at similar levels since 2002, which was lower than most of the other developed OECD nations.

According to the OECD Health Data 2008 report, there are fewer physicians per capita in Australia than in most other

OECD countries. In 2005, Australia had 2.8 practicing physicians per 1,000 people, below the OECD average of 3.1. There

were 9.7 nurses per 1,000 people in Australia that year, a similar figure to the average in OECD countries. Furthermore, the

number of acute care hospital beds in Australia was 3.5 per 1,000 people in 2005, slightly below the OECD average of 3.9

beds per 1,000 population. As in most OECD countries, the number of hospital beds per capita in Australia has fallen over

time.

Health and aged care spending is projected to grow at an average rate of 7% during 2008–12. Consequently, the

government projects that the federal government’s budget surplus will deteriorate to a deficit of 5% of GDP in the early

2040s. It has been predicted that there will be a long-term rise in government spending on aged care.

An increased focus is required on preventive measures to minimize future growth in healthcare costs and reduce long-term

financial pressure. The challenges lie in reducing the disparities in efficiency across jurisdictions in a range of healthcare

services, reinforcement of prevention, and allowing private insurance to cover a more comprehensive range of mainstream

health services, including non-hospital treatment.

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Figure 16: Expenditure on healthcare in Australia, 2002–08

0.0

10.0

20.0

30.0

40.0

50.0

60.0

2002 2003 2004 2005 2006 2007 2008

Year

$ b

illi

on

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Pe

rce

nta

ge

(%)

Healthcare expenditure Healthcare expenditure as % of GDP

Source: Datamonitor D A T A M O N I T O R

Income distribution

Standard of living

Over the period 1990 to 2008, there was an increase in the standard of living in Australia. The percentage of the population

living below $1 a day declined from 1.8% to 0.8%. The percentage of the population living below $2 a day has also

declined, from 3.6% to 1.7%. Living standards have steadily improved since the beginning of the 1990s, and the Gini index

has also improved. More than 60% of population was in the higher income bracket of higher than $2000 in 2007. This

indicates that Australia has achieved a certain success in reducing poverty. The unemployment rate also declined during

2001–07, which also contributed to the decline in poverty levels (the unemployment rate decreased from 7% in 1999 to

5.4% in 2008).

Education

The literacy rate in Australia is 99% for both males and females: one of the highest literacy rates in the world. This is mainly

because of easy access to education and government support for learning. The government expenditure on education as a

percentage of GDP was nearly 4.5% in 2005 but has increased to 5% in 2008. Despite the increase, Australia’s

performance does not compare favorably with other OECD nations. In an OECD report card on education comparing it with

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other advanced economies, the country’s track record was assessed as '"must improve". The report ranked Australia

second-to-last in terms of government funding of public education, as Australia is one of the few countries where the state

pays for less than half of the costs of tertiary education. The report revealed that, by the standards of developed

economies, the most highly paid Australian teachers earned comparatively little. Furthermore, working hours were longer

for teachers in Australia compared to those of its peers, and classes were larger.

To enhance the education infrastructure of the country, the government initiated the Building the Education Revolution

(BER) program in 2009. This program proposes to provide infrastructure funding worth $14.7 billion to Australia’s 9,540

schools to enable them to meet the changing educational requirements.

Figure 17: Expenditure on education in Australia, 2002–08

0.0

10.0

20.0

30.0

40.0

50.0

60.0

2002 2003 2004 2005 2006 2007 2008

Year

$ b

illi

on

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Pe

rce

nta

ge

Expenditure on education Expenditure as % of GDP

Source: Datamonitor D A T A M O N I T O R

Nevertheless, Australian students perform better than students of other OECD nations. Australia has emerged as an

attractive destination for international students. International education is the third largest source of overseas earnings,

generating around $12 billion in 2008 and supporting more than 125,000 jobs in Australia. China and India are the largest

sources of enrolments in Australia, with shares of 24.1% and 18.7%, respectively. The booming industry will take a hit in

view of the increasing instances of attacks on Indian students, however. A number of students planning to study in Australia

may opt not to and choose the UK or Canada instead, especially considering that studying in these countries is cheaper

than in Australia. The lower cost is because the UK and Canada have one-year master’s degrees whereas the Australian

degree is of two years duration.

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Outlook

The key issue of the social landscape of Australia is its aging population. As the Australian population progressively moves

into older age brackets, maintaining high per capita income growth will become harder to achieve. The under 55-year-old

age group, among whom labor force participation is normally highest, is expected to decline significantly during the next 20

years. Australian government projections indicate a doubling of the number of people over 65 to around 25% of the total

population over the next 40 years, while growth in the population of traditional workforce age is expected to slow to almost

zero. Excluding an unprecedented rise in fertility rates, the age structure of the population is likely to stabilize thereafter

with a far higher proportion of older people. The Australian government expects that the greatest pressures on public

finances will come from spending on public health and long-term care. Across the Australian health and aged care services,

average annual expenditure per person on those aged 65 is over four times the average for those under 65, and rises to

between six to nine times for the oldest groups. In addition, the demand for health services for all ages is likely to rise,

induced by new medical technologies. On the whole, the government is facing a daunting task as it faces the issue of an

elderly population. The government also needs to pay increasing attention to the educational needs of the country, which is

lagging behind those of other developed nations. Similarly the number of healthcare providers is also at a lower level. The

government’s stimulus package announced in 2009 includes provisions for improving the educational infrastructure of the

country; however, effective implementation remains critical.

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Technological landscape

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TECHNOLOGICAL LANDSCAPE

Summary

The Australian government plays a very active role in the development of technological policies. The most recent effort is

the launch of the Backing Australia’s Ability program to achieve excellence in research and technology. The technological

advancements not only belong to high-technology industries but also to traditional sectors such as agriculture,

manufacturing and mining. Backing Australia's Ability also supports R&D in information and communication technology

(ICT) to augment the country’s competitive advantage.

Evolution

The government initiative on the technology and innovation in Australia exists in the form of the 'Backing Australia’s Ability'

program. It entails an investment totaling $5.3 billion over a period of seven years from 2004–05. This package was

announced by the prime minister on May 6, 2004 to build on the initial investment of $3 billion during 2001–06. Now, it

constitutes an $8.3 billion funding commitment stretching from 2001–02 to 2010–11. This investment reflects a commitment

of the Australian government to pursue excellence in research, science and technology through three key themes: the

generation of new ideas, the commercial application of ideas and developing and retaining skills.

Innovation in Australia is not the exclusive domain of the high-technology industries: it is also important for the traditional

sectors such as agriculture, manufacturing and mining. In 2003, the government set up four national research priorities to

provide significant long-term benefits to Australia by increasing research efforts in key areas. These are: an

environmentally sustainable Australia; promoting and maintaining good health; frontier technologies for building and

transforming Australian industries; and safeguarding Australia.

ICT plays an important role not only in the growth of the economy but also in the capacity to carry out research and explore

new frontiers of science and technology. One of the key aims of Backing Australia’s Ability is to strengthen Australia’s

research capability by building a competitive advantage in ICT. The government aims to achieve this through the ICT

center of excellence, National ICT Australia. It was established in October 2002 to be a world-class, world-scale institute in

the areas of ICT research, research training and commercialization.

Structure and policies

Intellectual property

The number of patents granted increased from 517 in 1990 to 1,538 in 2006. During 2006, Australia experienced

remarkable year-on-year growth in patents awarded at 50%, compared to the average growth rate of about 5% during the

15 years previous. IP Australia is the Australian government agency that administers the patents, trademarks, designs and

rights systems within the country.

Australian patent law prohibits double patenting. It does not, however, prohibit having concurrent applications for the same

invention, or indeed two patents for the same invention but of differing claim scope. Australia introduced the second-tier

innovation patent system in 2001. The key to the Australian innovation patent system is that the standard level of utility for

which a patent may validly be granted to a product is significantly lower when compared to that required for the grant of a

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standard patent globally. This encourages many researchers to become involved in R&D activity. Both the tests for

infringement of an innovation patent and the available remedies are identical to those for standard patents. This led to

unsatisfactory responses from the innovators with higher utility products. However, the situation is now changing and it is

expected that the use of two forms of patenting—patents for inventions and standard patenting—will have commercial

viability for the country.

Research and development

The Australian government encourages funding for business R&D through a tax concession and subsidies. The research

funding schemes are administered by a number of bodies, the largest of which are the Australian Research Council (ARC)

and the National Health and Medical Research Council (NHMRC). The ARC is an independent statutory agency within the

education, science and training portfolio of the Australian government. The ARC plays a key role in the Australian

government‘s investment in research and innovation.

Performance-based block research funding schemes are appropriated through the Higher Education Support Act 2003. The

main schemes are the Research Training Scheme (RTS), the Institutional Grants Scheme (IGS) and the Research

Infrastructure Block Grants (RIBG) Scheme. The RTS and IGS offer research funding, on a yearly basis, to qualified higher

education institutions to enhance training for students undertaking doctoral programs.

The RIBG Scheme, meanwhile, provides funding for research on an annual basis to qualified higher education

organizations to improve the maintenance of research infrastructure. The funds are allocated based on their relative share

of Australian competitive grant income.

Technology agreements and pacts

The Australian government has signed a number of international agreements with various countries for co-operation in

science and technology. The country collaborates with the Chinese government specifically in science and technology, to

the extent of sharing a special fund. As part of the two countries' agreement, Australian researchers are encouraged to co-

operate with their Chinese counterparts in different fields of science and technology.

The Australian government signed a science and technology agreement with the US in 2005, which is now being pursued

by both governments to extend it to create a FTA for technological products. The country also has agreements with India,

Canada, China, Japan and South Korea to develop technologies for a cleaner environment and climate control.

Researcher-to-researcher collaboration is the main international activity supported by the Australian government.

Furthermore, its international collaborations also include facilitating access to overseas equipment and expertise, bilateral

agreements, exchanges and fellowships.

Performance

The most lucrative sectors in Australia in which to conduct research and development are information and communication

services, manufacturing, mining and energy, and construction.

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Telecommunications, broadband and internet

Australia has a strong and innovative ICT industry. Australia's ICT market is characterized by rapid growth and high

adoption by both business and consumers. Australia's mainline telephony network relies primarily on optical fiber networks,

with copper lines connecting households to local exchanges. For mobile telephony, the country relies mainly on a dominant

Global System for Mobile Communications (GSM) network. In Australia, more than nine million people had access to fixed

line telephones and over 20 million people had access to mobile phones in 2007. During 2002–07, the subscriptions for

mobile phones grew at an average rate of 11% annually, but the growth rate has declined since 2004. Fixed line

subscriptions, meanwhile, have fallen since 2005. It is expected that the fixed line subscription rate is going to further

decrease to seven million by 2012.

Figure 17: Telecommunications market growth in Australia, 2002–12

-20.00

-15.00

-10.00

-5.00

0.00

5.00

10.00

15.00

20.00

25.00

30.00

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Year

Gro

wth

ra

te (

%)

Mobile phones Fixed lines

Source: Datamonitor D A T A M O N I T O R

Broadband and internet

Access to the internet in Australia is characterized by differences between urban and rural areas. In March 2007, a

broadband guarantee program was unveiled to replace the existing broadband connect program in an effort to provide

internet access in rural areas. Residential broadband internet access is available in Australia using ADSL, ISDN, cable,

satellite and wireless technologies. There were about 16 million broadband subscribers in 2007. Furthermore, there was an

average annual growth rate of over 12% during 2002–07. It is expected that by 2012, the number of people using the

internet will reach 20 million.

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Figure 18: Number of internet users in Australia, 2002–12

0

5

10

15

20

25

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Year

Nu

mb

er

of

us

ers

(m

illi

on

s)

-10.00

-5.00

0.00

5.00

10.00

15.00

20.00

Gro

wth

rate

(%)

Internet users Growth rate

Source: Datamonitor D A T A M O N I T O R

E-commerce

According to the National Office for the Information Economy, Australia is one of the most connected nations in the

world, with 46% of the population and more than 37% of households having internet access. The estimated revenues of

business-to-business e-commerce in Australia in 2000 were over $2.3 billion, ranking higher than other Asia Pacific

countries like Taiwan, South Korea, Hong Kong and Singapore. Small businesses are also adopting the e-commerce

route at an increasing rate. Between June 1998 and June 2000, the percentage of small businesses with e-commerce

and online selling presence increased from 32% to 65%. According to the Australian Bureau of Statistics' quarterly

survey of internet activity in March 2001, there were close to four million internet subscribers in Australia, downloading

more than one billion megabytes of data. Of these subscribers, 482,000 are registered as business or government

subscribers and account for 41% of the total data downloaded. It is expected that the e-commerce market will generate

revenues up to $20 billion by 2015.

Research and development

Australia has many initiatives in place to enhance the R&D activities in the country. Among others, the National Research

Priorities initiative, an important element of the Australian government‘s Backing Australia’s Ability project, was established

as a new national research priority-setting mechanism to complement existing R&D processes in 2006. Under these priority

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listings, industry R&D programs and university block grants are not included. The main goal of this initiative is to develop

research throughout the country without excluding any particular sector. The government is also making efforts to increase

the level of inter-institutional and inter-disciplinary collaboration by fostering networks of research activities.

Furthermore, there has been a conscious push by the Australian government to encourage universities to work in closer

collaboration with industry and business in order to foster innovation. This includes collaboration with other research

organizations conducting health and medical research. The Australian government‘s Backing Australia’s Ability program

was introduced in 2001 to promote science, technology and innovation.

R&D expenditure

The Australian government’s expenditure on R&D has been on a constant rise since 2002. In 2002, R&D expenditure was

just $7 billion, compared to $16 billion in 2007. It rose from around 1.5% of GDP to about 2% over the same period. It is

expected that it will reach around $23 billion by 2012. The largest contributors to R&D expenditure in 2007 were

manufacturing (38.6%), property and business services (17%) and mining (16.7%). The Australian government's policies—

such as its $8.3 billion innovation program, Backing Australia’s Ability—are said to have encouraged business R&D

investment in Australia.

Knowledge base

Through its 'Backing Australia’s Ability' program, the Australian government has introduced many scientific educational

initiatives such as smart moves program for students in the 15–18 group, science connections program, national

biotechnology strategies and various other programs. Since the start of all these initiatives there has been a constant

increase in the knowledge base of Australia. The number of R&D personnel in the country increased from around 105,000

in 1995 to more than 149,000 in 2006.

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Figure 19: R&D expenditure in Australia, 2000–12

0

5

10

15

20

25

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Year

$ b

illi

on

0.00

0.50

1.00

1.50

2.00

2.50

Pe

rce

nta

ge

(%)

R&D expenditure R&D expenditure as a % of GDP

Source: Datamonitor D A T A M O N I T O R

Outlook

Since 2002, the communications sector has been one of the fastest growing service industries in Australia, with an average

annual growth of over 6%. In 2007, the government invested heavily in the development of technologies such as digital

radio and television broadcasting. The 2008–09 budget of the Australian government showed strong commitment to ICT.

The government has continued its support of important communications and IT programs, particularly with the investment

of $241m during 2008–13, for the establishment of Enterprise Connect Innovation Centers. These centers will enhance

technologies and connect businesses with new ideas. The government will also invest $40m to provide advisory services to

small businesses utilizing these centers. Apart from the ICT allocations, the government has also prioritized funding to

research programs and R&D on technologies for climate change. The government is to allocate about $313m for fellowship

programs and $480m for technologies to create low emission vehicles. The government expenditure on R&D is set to move

higher and constitute around 2.1% of GDP by 2012. The country is also collaborating with Asian giants like India and China

to develop advanced technologies.

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Legal landscape

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LEGAL LANDSCAPE

Summary

The legal scenario in Australia is characterized by the hierarchical system of judiciary, with the High Court as its supreme

body. This is followed by the state-level supreme courts, the Family Court and the tribunals for administrative appeals.

The government lays down its legal polices in the broad areas of competition, trade practices, infrastructure, energy and all

other sectors of the economy. The important legal bodies regulating the corporate sector are the ACCC, the Australian

Energy Regulator, the Australian Energy Market Commission and the ARC. These bodies frame the nation's policies and

acts, and provide the guidelines for implementation.

Evolution

Australia has an independent judiciary. The legal system is based on English common law, including the principle of judicial

precedent. The High Court of Australia was established in 1901 by Section 71 of the constitution, although the appointment

of the first bench had to await the passage of the Judiciary Act in 1903. In their first judgments, the justices stamped the

authority of the High Court over the state supreme courts. The High Court was developed into a powerful and necessary

arm of the Commonwealth of Australia. In 1979, the High Court was given the power to administer its own affairs by the

passage of the High Court of Australia Act 1979. Other lower courts, including the Federal Court, Family Court and Federal

Magistrates’ Court, came into being during 1975–76. These courts have specific defined jurisdictions.

Structure and policies

Judicial system

Structure of the system

There are two broad levels of courts in Australia: the federal level and the state and territory level. The High Court of

Australia and the state courts are part of the constitution. The others are inferior courts with limited powers and authority.

Each state has a court hierarchy of its own, with the jurisdictions of each court varying from state to state. However, all

states have a state supreme court, which is the highest court within the state.

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Figure 20: Australia – judicial structure

High Court of Australia

State/Territorial Stream Federal Stream

Supreme courts

District courts

Federal court of Australia

Family court of Australia

Federal magistrates’ court

Source: Datamonitor D A T A M O N I T O R

High Court

The High Court has appellate jurisdiction over all other courts. It also has original jurisdiction, and the power of

constitutional review. The main functions of the High Court involve interpreting and applying the law of Australia and

arriving at decisions on cases with federal significance. This includes addressing cases confronting the constitutional

validity of laws. Furthermore, the High Court is also able to hear appeals, by special leave, from federal, state and territory

courts.

Federal Court of Australia

The Federal Court of Australia has various functions, including addressing various issues relating to corporations, trade

practices, industrial relations, bankruptcy, customs, immigration and other areas of federal law. The court has complete

authority in the above areas, and also wields the authority to hear appeals from various tribunals and other legal bodies.

Family Court of Australia

The Family Court presides over issues relating to the family and implements family law. The court was established by the

Family Law Act of the parliament in 1975. This court handles various cases pertaining to parental disputes, matrimonial

property, child support and other family-related issues.

Federal Magistrates' Court

The Federal Magistrates’ Court of Australia was established in 1999 to reduce the heavy case burden from other courts like

the Federal and Family Courts. The court comes under the same category or hierarchical level as the Federal and Family

Courts.

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State supreme courts

The state supreme courts are the highest courts in the states and territories of Australia and their jurisdiction is limited to

that particular state or territory, with responsibility for both criminal and civil matters. They are also the main appeal courts

of states. Each state supreme court is divided into two divisions: the general division and the court of appeal.

Business legislation

Industrial acts, legislations and regulations

The Australian government has consistently developed new legal policies and acts for the various aspects of the economy.

It focused on introducing three major bills into parliament in 2006. These bills involved amendments to the existing

competition provisions of the Trade Practices Act 1974 (TP Act) and their administration, amendments to the national

access regime and the introduction of criminal penalties for serious cartel conduct.

The TP Act prohibits a wide range of anti-competitive practices, including cartel conduct, arrangements that substantially

lessen competition, secondary boycotts, misuse of substantial market power and mergers or acquisitions that may

substantially lessen competition. The act also contains telecommunication-specific competition rules. In 2003, a review that

assessed the competition provisions of the TP Act took place, popularly known as the Dawson Review. The Dawson

Review concluded that, while the competition provisions of the TP Act have served Australia well, the TP Act should be

amended to improve its operation by providing for greater accountability, transparency, and timeliness in decision-making

by the Australian Competition and Consumer Commission (ACCC) and reducing the regulatory burden on business. A bill

was subsequently introduced in the parliament in 2004. However, this bill lapsed due to the federal election in October

2004. It was re-introduced with minor amendments to enhance and clarify its operation, but is still awaiting consideration in

the Senate.

Under the National Competition Policy (NCP), all Australian governments must legislate to establish a right for third parties

to negotiate access to services provided by essential infrastructure facilities. In particular, the NCP’s obligations on

electricity aim to facilitate trade across and within state boundaries, and offer third parties access to transmission and

distribution infrastructure. Furthermore, the new Australian Energy Regulator (AER) and the Australian Energy Market

Commission began operations in July 2005. They assumed functions that had been previously performed by the National

Electricity Code Administrator and the ACCC. The AER is a new legal entity with independent decision-making powers, but

remains a constituent part of the ACCC.

Australia protects intellectual property (IP) including patents, plant breeder‘s rights, copyright, trademarks and designs. IP

Australia is the Australian government agency responsible for granting IP rights. In 2001, the ARC, the NHMRC, the

Australian Vice-Chancellors’ Committee and a number of other government agencies jointly issued national principles of IP

management for publicly funded research guidelines. These guidelines assert that the rights of all IP generated by NHMRC

and ARC supported research will initially be vested in the research institutions administering the grants.

Furthermore, the country aims to remove barriers to competition. The Australian government is attempting to complete all

outstanding NCP electricity reforms, lift price regulations for households and foster strong competition in the electricity

generation sector. The major challenge here is to improve pricing and regulatory arrangements, rather than increasing the

total volume of infrastructure.

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Establishing business operations in Australia

The Corporation Act of Australia permits a liability corporation to take one of two main forms: that of a private company or a

public company. A foreign company can operate in Australia by incorporating an Australian subsidiary or registering as a

foreign corporation and operating as a branch office.

Subsidiaries

A foreign corporation can form an Australian incorporated subsidiary, which may be a proprietary or public company. A

company can be established in the form of a subsidiary either by incorporating a new company or by acquiring an

Australian company. The company to be acquired domestically can also be a company that has been incorporated but has

not yet traded.

Establishing a branch

Within one month of starting a business, a branch must be registered as a foreign company with the ASIC. To register, the

company should provide all relevant home country documents along with the memorandum of understanding and articles of

association. A branch of a foreign company has to provide the parent company’s balance sheets and other reports to the

ASIC. It should also submit all the bills and letterheads mentioning the new premises in Australia.

Representative office

Establishing a representative office can be another route to starting a business. A representative office engages in activities

that do not resemble any regular business in Australia. The activities may include anything other than sales, such as having

a nominated person employed by a local associate to handle enquiries. Special rules apply to banks wanting to set up a

representative office.

Tax regulations

Companies and corporations pay tax on profits in Australia. Unlike personal income taxes, which are progressive in nature,

corporate taxes in Australia are imposed at a flat 30% rate. Tax is paid on corporate income at the corporate level before it

is distributed to individual shareholders as dividends.

The federal government levies a multi-stage tax of 10% on the supply of most goods and services by entities registered for

goods and services tax (GST). Basic foodstuffs, medical and educational services, and exports are GST-free, while

earnings from residential accommodation and financial services are taxed. The revenue from this tax is distributed to the

states.

The Australian government’s taskforce report Rethinking Regulation appealed for simplification of the tax system and a

reduction of compliance costs. Many measures were announced in the 2006/07 Budget that reduced the complexity of the

tax laws and compliance costs for taxpayers.

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Individual income tax

Income tax is the main source of income for the Australian government. It is only imposed by the federal government. The

tax structure is progressive, with higher income earners paying a higher proportion of tax than lower income earners. The

income tax rate structure is divided into five tiers, with tax rates ranging from 0% to 45%.

Withholding tax

In Australia, the dividends paid by resident companies out of profits already taxed carry franking credits on the tax paid.

Franking credits are benefits given in the form of credits on various financial transactions. Dividends are referred to as fully

franked, partially franked or un-franked, depending on the extent to which the company has chosen to use its franking

credits. To the extent that distributions to non-residents are un-franked distributions, they are subject to withholding tax at a

statutory rate of 30%. Australia’s double tax treaties generally provide for a 15% withholding tax rate on dividends paid to

nonresident shareholders.

Other local taxes

The other taxes in Australia include GST, which is similar to VAT, luxury car tax, wine equalization tax and excise duties.

Other than these, employers are required to pay fringe benefits tax and a petroleum resource rent tax, which is levied on

income from the recovery of all petroleum products from offshore areas. The states impose payroll taxes at rates of up to

6.85% on wages and salaries. Stamp duties are also imposed on any property-related transactions.

Labor law

In Australia, the employment system is a mixture of legislation, common law, legally binding awards and agreements. A

syndicate of federal and state laws addresses various issues, including maximum working hours, working conditions such

as occupational health and safety, annual leave, workers compensation and industrial action. According to state legislation,

working hours are restricted to 40 hours per week. There is also a weekly cap that employers must set in the case of extra

work, forcing employers to compensate employees for extra hours of work accordingly. Overtime compensation is generally

one and a half times normal pay for the first two to three hours and double thereafter. The Australian Fair Pay Commission

sets and reviews the federal minimum wage. The minimum wage in Australia is A$13.47 per hour. As a part of the

termination process, the employer must give notice or the equivalent pay. The Workplace Relations Act provides for

minimum notice of one to five weeks.

Social security charges

In Australia, the pension guarantee is a compulsory, tax-deductible employer contribution to employee’s individual

occupational pension funds. This particular arrangement is valid for people aged 18–70, and paid above A$450 per month.

The government also provides social security payments for family tax benefits, disability pensioners, parents on low

incomes and unemployed adults.

Corporate governance

In the corporate governance statement of 2005–06, the Australian stock exchange outlined 10 broad principles that are to

be adhered to by the corporate sector. They are:

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• Lay solid foundations for management and oversight.

• Have a board of an effective composition, size and commitment to adequately discharge its responsibilities and duties.

• Promote ethical and responsible decision-making.

• Safeguard integrity in financial reporting.

• Make timely and balanced disclosures.

• Respect the rights of shareholders.

• Establish a sound system of risk oversight and management and internal control.

• Fairly review and actively encourage enhanced board and management effectiveness.

• Remunerate people fairly and responsibly.

• Recognize the legitimate interests of stakeholders.

Performance

Effectiveness of the legal system

The Australian constitution established the High Court of Australia and empowered the Commonwealth parliament to create

other federal courts. The parliament also has the power to vest judicial authority in state and territory courts. The

government appoints federal judges and magistrates on the basis of merit. The Australian constitution does not set out

specific qualifications required by federal judges and magistrates. However, according to laws made by the Commonwealth

parliament, to be appointed as a federal judge, a person must have been a legal practitioner for at least five years or be a

judge of another court. To be appointed as a federal magistrate, meanwhile, a person must have been a legal practitioner

for at least five years. To be appointed as a judge of the family court of Australia, a person must also be suitable to deal

with family law by reason of training, experience and personality.

Federal judges and magistrates must be under 70 years of age when appointed. The Australian constitution stipulates that

a federal judge or magistrate can only be removed from office on the ground of proven misbehavior or incapacity, and with

consent from both the House of Representatives and the Senate. The constitution also specifies that the remuneration of a

federal judge or magistrate cannot be reduced while the person holds office. These guarantees of tenure and remuneration

assist in securing judicial independence.

The independence of the courts, and their separation from the legislative and executive arms of government, is regarded as

being of great importance in Australia. Indeed, it is taken for granted that judges, in interpreting and applying the law, act

independently of the government.

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Legal indicators

According to the Doing Business survey of the World Bank, the process of operating a firm in Australia has remained

stable. The 2008 indicator shows that the number of days required to start a company in Australia is just two, compared to

the OECD average of six. The starting business indicator also indicates efficiency and highlights the hassle-free business

environment.

With regard to acquiring or dealing with licenses, there has been no improvement in 2008, as Australia remained at the 52nd

rank. Employing workers remains easy, and the country continues to be in the eighth position in 2008. There was no

change in registration of property, indicating a large amount of stability, as the country remained at the 27th position in 2008.

Credit procedures have also remained stable at third place, indicating efficiency in production and overall management of

resources. The country's investment protection environment rank has come down slightly, from 49th in 2007 to 51st in 2008.

The Index of Economic Freedom ranks Australia as the third freest economy in 2009, with an economic freedom score of

82.6. Australia rates high in almost all of the 10 economic freedoms. According to the index, monetary stability and

openness to global commerce support an internationally competitive financial and investment environment based on

market principles. A strong rule of law protects property rights and tolerates virtually no corruption. Both foreign and

domestically owned businesses enjoy considerable flexibility in their licensing, regulation and employment practices. The

Australian labor market is also highly flexible, with regulations aimed at employment creation and productivity growth. The

country has also taken steps to restrict corruption, which is perceived as minimal. Australia ranks 11th out of 179 countries

in Transparency International's Corruption Perceptions Index for 2007.

Outlook

Australia is one of the most lucrative destinations for foreign investments in the world. The country is ranked ninth globally

in the Doing Business indicators of the World Bank, and is ranked first among the OECD countries. However, restrictions to

competition still remain in the agricultural marketing, postal services, liquor licensing and compulsory insurance schemes

sectors. Furthermore, there are restrictions on foreign investment in some sectors, like the media, transport and real estate.

Although changes were made to foreign investment screening arrangements for acquisitions of residential real estate by

foreign persons in December 2008, no such changes have been introduced in the media.

The country is now focusing on the regulatory inconsistency arising due to the co-existence of state and national regulators

in both the electricity and gas sectors. Although there have been significant improvements in urban water reforms, the pace

of rural water reform has been slow. The National Reform Agenda was adopted in 2006 and forms the basis to promote

competition in the energy and transport sectors. Furthermore, in April 2008, the Australian government unveiled a series of

measures aimed at promoting competition and cracking down on anticompetitive behavior by powerful businesses. The

planned changes are to take effect through the TP Act, and include moves to further defend small business from predatory

pricing and give the sector a permanent voice in the ACCC. Furthermore, the role of the ACCC is also to be strengthened

in terms of supporting small businesses. These measures will ensure fair competition for the benefit of consumers and

small businesses.

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Environmental landscape

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ENVIRONMENTAL LANDSCAPE

Summary

Australia is diverse in its natural resources. The main environmental concerns are regarding the dry land salinity and scarce

water resources. The country has also ratified the Kyoto Protocol and is committed to meeting the targets by 2010. Another

challenge the country faces is climate change. Australia is expected to play an important role in developing a carbon

emissions trading system at a global level, and is expected to adopt a domestic trading system by 2012.

Evolution

The Australian government has been playing an important role in the protection of the national environment and the

implementation of international environmental treaties dealing with climate change, destruction of the ozone layer and

protection of biodiversity. The government has framed certain landmark strategies, including: Australia’s Oceans Policy, the

National Forests Policy, the National Greenhouse Strategy, the National Strategy for Ecologically Sustainable

Development, the National Strategy for the Conservation of Australia’s Biological Diversity, and the National Action Plan for

Salinity and Water Quality. All of these policies have been enforced by the authorities, which has helped the country to

preserve its environment.

Structure and policies

Environmental regulations

Policy

The country has moved from a state-based policy to a more coordinated, market-based approach towards solving its

environmental problems. Water management is one of the prime examples of this. It was formerly a subsidized sector,

leading to inefficient allocation funds. However, increasing scarcity has spurred significant changes in water policy since the

1980s and, in 1994–95, the National Agenda for Water Reform was adopted, whereby all jurisdictions committed

themselves to implementing a range of market-based measures. This included the agenda for the specific provision of

water for the environment, making water services providers operate on a commercial basis and limiting new investment in

the rural water supply to economically viable and ecologically sustainable projects.

Environmental actions

Environmental Protection and Biodiversity Act

The Environment Protection and Biodiversity Conservation Act 1999 (the EPBC Act) is the Australian government’s central

authority of environmental legislation. It provides a legal framework to protect and manage important flora, fauna, ecological

communities and heritage places.

The objectives of the EPBC Act are to:

• Provide for the protection of the environment, especially on matters of national environmental significance.

• Conserve Australian biodiversity.

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• Provide a streamlined national environmental assessment and approvals process.

• Enhance the protection and management of important natural and cultural places.

• Control the international movement of plants and animals (wildlife), wildlife specimens and products made or derived

from wildlife.

• Promote ecologically sustainable development through the conservation and ecologically sustainable use of natural

resources.

Water management

Australia is a comparatively dry continent. Water shortages are aggravated by climate change, including intermittent

drought conditions. Water is state property in Australia, and the right to use it is granted according to land owned.

Furthermore, access to water is granted as a statutory right under state legislation. The rapid growth of population in urban

areas has increased the water usage in Australia, which, in turn, has augmented competition for water resources.

Furthermore, this led to increased pressure on the environment, caused by reduced water levels in rivers and irrigation-

induced salinity. The National Agenda for Water Reform implemented new pricing practices, which reflected the full

economic cost of resources. As a part of the reform process, cross-subsidies were abolished and other subsidies were

made transparent. Furthermore, allocative efficiency was attained by trading in water rights. The reforms also incorporated

the statutory provision of water for the environment. Ultimately, they have increased efficiency in water allocation and

usage, and brought in a better balance between consumption and environmental needs.

Salinity mitigation

Australia is biologically and climatically influenced by concentration of salt in the land. This is result of the combination of a

generally flat terrain with low rainfall, high evaporation, and very limited sub-surface drainage to the sea. Three measures

have been applied in Australia for salinity mitigation. These constitute changes in land and water use and management

practices, engineering salt-interception schemes (these pump saline groundwater and collect the salt through evaporation),

and river flow management. Currently, the measures to alleviate salinity have been implemented in the Murray-Darling

Basin, as most of the salinity effects were initially felt in this area. This region is home to a large amount of agricultural

activities.

Participation in global efforts/agreements/pacts

Green region environment pact

In the East Asian summit held in 2007, attended by the 10 ASEAN countries and Australia, a consensus was reached on

collectively solving the issues of climate change and forest cover, and promoting the usage of nuclear energy. The pact

also brought the development of alternative energy sources and cleaner fossil-fuel technologies into focus, as well as

upgraded energy efficiency and conservation.

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Kokoda preservation pact

The Kokoda trail is one of the most well-known historical war grounds in the world, where the Japanese and Australian

armies engaged in a fierce battle during World War II. This track, which is in Papua New Guinea, is considered to be of

high ecological and environmental importance. In April 2008, the Australian and Papua New Guinean governments signed

the Kokoda preservation pact to protect the environmental heritage of the track. The Australian government has provided

the Papua New Guinea government with an initial investment of $15m for the management and monitoring of the agreed

environmental norms.

US-Australia bilateral environmental co-operation

The US and Australia have a long and productive history of co-operation on environmental issues. The significant

environmental program that the countries created bilaterally is the US-Australia Climate Action Partnership. This

partnership focuses on botanical gardens, endangered and migratory species, meteorological and oceanographic research

and management, and whale and ozone protection. To further enhance the collaboration and co-operation between the US

and Australia, the respective governments are making efforts to regularly review ongoing co-operative activities and identify

priority areas for cooperation in the future. In particular, the governments intend to consider bilateral collaborative efforts to

help other countries to carry out environmental capacity building.

Table 12: International environmental treaties signed and ratified by Australia

International treaty Year of ratification

Vienna Convention for the Protection of the Ozone Layer, 1988 1987

Montreal Protocol on Substances that Deplete the Ozone Layer 1989

Framework Convention on Climate Change 1992

Convention on Biological Diversity 1993

UN Law of the Sea 1994

UN Convention to Combat Desertification in those Countries Experiencing Serious Drought and/or Desertification, Particularly in Africa

2000

Kyoto Protocol to the Framework Convention on Climate Change (year of ratification/signature) 2008

Cartagena Protocol on Biosafety NA

Stockholm Convention on Persistent Organic Pollutants, 2001 2004

Source: Datamonitor D A T A M O N I T O R

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Performance

Environmental impacts

Australia ratified the Convention on Biological Diversity in 1993 and undertook a major initiative in the form of the National

Strategy for the Conservation of Australia’s Biological Diversity in 1996. Also, the EPBC Act 1999 has been in force since

July 2000. Under the EPBC, actions that are likely to have a significant impact on matters of national environmental

significance are subject to a rigorous assessment and approval process.

With respect to global warming, the Australian Greenhouse Office was established for greenhouse gas policy. Climate

change is a challenging issue for Australia. One of the first policy decisions taken by Prime Minister Rudd after assuming

office was to sign the Kyoto Protocol. Following the ratification, Australia committed itself to meeting its Kyoto Protocol

target, and has set a target to reduce greenhouse gas emissions by 60% on 2000 levels by 2050 and by 5% before the end

of 2020. This is considered by some to be too little given the high level of pollution in the country. However, the Australian

government is ready to increase this target if other countries like China and India also make similar commitments.

The new government also issued draft legislation in December 2008 for the carbon trading system known as the Carbon

Pollution Reduction Scheme, scheduled to be launched in 2010. The government hopes that this scheme will become the

bedrock upon which Australia will reduce its greenhouse gas levels by making the creation of carbon pollution expensive to

encourage major polluters to reduce emissions.

Furthermore, measures have also been implemented to support the production and use of renewable energy. This initiative

began in 1997 and seeks to increase the share of renewable electricity by 2% by 2010. The trading mechanism will also

provide flexibility in meeting the target.

A risk to future growth is environmental degradation, as the interests of the federal government and the state governments

differ depending on energy production patterns, biodiversity concerns and water use. Furthermore, there is a requirement

for increased coordination between regional and national efforts, in particular, to deal with cross-state spillovers and the

need to enforce agreements under international treaties.

Outlook

Under the Environmental Performance Index (EPI) study carried out by Yale and Columbia University, Australia received a

low global ranking for its environmental performance, mainly because of its non-supportive assessment of climate change.

The country is ranked 46th out of 149 countries on the 2008 EPI with a score of 79.8, which is behind countries like the US

and Brazil. In the category of climate change (measure for ecosystem vitality), Australia was rated at 42.5. By comparison,

China had a climate change score of 52.7, India 57.9 and the US 56.1. Australia's greenhouse gas emission per capita and

emissions per kilowatt-hour received a score of 45.4 and 5.9, respectively. Water stress was 49.6.

The Australian government has made various policy improvements and has implemented several policy measures to

enhance environmental conservation. The government is estimated to have spent 50 million in 2008, employing indigenous

Australians to deliver environmental services in remote and regional areas. This program builds on Community

Development Employment Projects and offers the prospect for some indigenous Australians to get better jobs. This

program is set to run from 2008–12. Australia is also joining with India and South Africa to develop technologies to fight

pollution. The government has also joined hands with APEC to address some of the key environmental issues.

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Furthermore, the Australian corporate sector has come forward to participate in developing technologies for reducing

environmental degradation. In February 2008, an Australia-based company acquired the rights to HTC Purenergy's carbon

capture management product for the Australian region. The system, called the Purenergy CO2 Capture System, is the

world's first pre-engineered, modular carbon capture system, and can be retrofitted onto existing power plants or any large

industrial greenhouse gas emitter.

Furthermore, Australian companies are also making efforts to build the biggest solar power station in the country. The

Australian government has agreed to fund more than $370m in this venture. The government is also investing $7.2 billion to

increase the production of renewable energy. In spite of its low EPI ranking, Australia is making efforts to reduce its

greenhouse gas emissions, employ indigenous people to deliver environmental services and encourage the augmentation

of solar energy. Hopefully, these initiatives will increase the country’s performance in terms of environmental indicators.

With the ratification of the Kyoto Protocol, Australia is expected to further gear up to meet the targets under the Kyoto

Protocol.

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Appendix

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APPENDIX

Ask the analyst

DATAMONITOR’s Country Analysis Practice consists of a team of economists, analysts and researchers, all with expertise

in their given fields. For any questions or comments about this report you can contact the author directly.

[email protected]

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We hope that the data and analysis in this brief will help you make informed and imaginative business decisions. If you

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Datamonitor’s consulting capabilities, please contact us directly at [email protected].

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