- Basic data
- Public finances and the state budget
- Banking system
- Tax system
The Australian economy is dominated by the service sector (65% of total GDP), mining (13.5% of GDP) and agriculture (2% of GDP). In 2020, Australia went into recession for the first time since 1991, however, thanks to the country’s successful handling of the pandemic, there has already been an economic recovery. The limiting factor for growth will be the continued closure of borders and the related low population growth, tourism, hospitality and education will continue to be affected in particular. The opening of the country is expected in the middle of 2022. The majority of the population will not be vaccinated until the end of 2021, there will continue to be sporadic outbreaks of the disease in cases of escape from quarantine facilities and local closures. Check ebizdir for economical facts of Australia.
The government will maintain a relaxed fiscal policy, does not plan to achieve a balanced budget and will prioritize spending with a view to elections in 2022. It will specifically support the most affected sectors of the economy through grants and tax breaks, increase spending on infrastructure construction. The employment rate is unlikely to return to pre-pandemic levels in the near future due to the end of government employment support in support packages. Unemployment in May 2021 was 5.5%. The central bank will keep the interest rate at a record low of 0.1% and continue quantitative easing through 5-10 year government bonds. A rate increase is not expected until 2023. The Central Bank expects inflation to be 1.73% in 2021.
The results in the field of foreign trade balance are dependent on the price of raw materials – iron ore, coal and liquefied natural gas accounted for more than half of total exports in 2020. Iron ore, copper and coal prices will increase in 2021. The trade balance with its largest trading partner, China, will continue to show a surplus due to high exports of iron ore, which the PRC needs for its infrastructural growth. Demand for other commodities will be lower on the back of the ongoing diplomatic and trade rift between the AU and the PRC. A series of Chinese moves, including import restrictions on lobster, beef, cotton and timber, holding back coal costs and imposing tariffs on barley, escalated in November 2020 when the PRC imposed 212% tariffs on Australian wine imports for alleged dumping.
In 2020, Australia implemented a higher level of supervision over foreign investment due to the protection of the national interest. All investment plans are approved by the Federal Investment Review Board. The review threshold was reduced to zero, the review period can be extended up to 6 months. Investors undergo a national security test in the case of investments in energy, telecommunications, ports, water management and data structures. The Treasurer has the authority to change the conditions of an already agreed acquisition or to order its sale.
|GDP growth (%)||2.8||1.9||-2.9||2.8||2.3|
|Export of goods (billion USD)||257.9||271.4||262.5||288.6||299.6|
|Import of goods (billion USD)||236.9||223.4||224.3||246.6||255.8|
|Trade Balance (Billion USD)||20.9||48.0||38.2||41.9||43.8|
|Industrial production (% change)||3.9||2.6||-1.6||2.2||2.7|
|OECD export risk||ON||ON||ON||ON||ON|
Source: EIU, OECD, WEF
Public finance and state budget
|State budget balance (% of GDP)||-5.9|
|Public debt (% of GDP)||59.6|
|Current account balance (billion USD)||16.7|
The Australian government has supported the economy with AUD 291 billion during the pandemic. The budget for the period 2021-2022 calculates with a deficit of AUD 106 million (5% of GDP), and aims primarily at economic recovery and job creation. A significant part of the budget will go to the improvement of care for the elderly (AUD 17.7 billion – mainly support for home care), another AUD 20.7 billion is allocated to tax breaks for companies. The budget also provides support for the most affected sectors – air transport and tourism (AUD billion), Australia’s digital economy under the Digital Economy Strategy (AUD billion) and the regions. Over the next decade, the government committed to providing an additional AUD 1 billion for infrastructure. AUD billion has been allocated to support working women – more than half of which will go towards improving access to pre-school care. This year’s budget also focused on supporting mental health. The government is also continuing last year’s tax relief program of up to AUD 1,080 per tax year for low- and middle-income Australians. The budget deficit is expected to nearly halve over the next four years as the economy grows stronger.
The Australian economy entered recession in 2020 for the first time since 1991. Real GDP will return to 2019 levels in 2021, although continued international border restrictions will continue to weigh on growth. The current account surplus increased by AUD 3,817 million to AUD 14,523 million. The capital and financial account deficit widened from AUD 4,270 million to AUD 9,999 million. External debt increased from AUD billion to AUD 1.16 billion.
The activity of the banking sector is governed by the Banking Act 1959. Banking has undergone a process of deregulation and privatization since the early 1980s, including the participation of foreign banks. Financial markets are regulated by the Reserve Bank of Australia (RBA). Since 1992, access has been liberalized for foreign banks, whose branches account for almost half of the more than 50 banks registered in Australia. Branches of foreign banks may participate in capital market operations. In addition to loans for the business and private sector, commercial banks provide a full range of services, including insurance and stock exchange operations. Financial services are very efficient with a flexible payment system and using a number of advantages of electronicization including a practical payment and credit card system (EFTPOS).
The main commercial banks are National Australia Bank, Commonwealth Bank, Westpac and ANZ Banking Group – referred to as the “Big Four” based on the size of their share capital. There are several smaller banks and other financial institutions such as credit unions. In May 2018, the Australian Regulatory Authority (APRA) allowed smaller companies to do business in banking services (Authorized deposit-taking institution – ADI).
The royal commission established in 2018 to investigate serious misconduct in the banking sector issued a final report in February 2019, in which it drew attention to, among other things, unethical and illegal remuneration incentives or prioritizing profit over the interests of customers. The result of the investigation had a negative impact on the reputation of the “big four”, however the report did not make any proposals for structural changes and the only result is to strengthen the role of regulators and establish a compensation fund for customers.
Development of interest rates
The Central Bank (Reserve Bank of Australia) cut interest rates to 0.10% in November 2020 in order to counter the economic consequences of the pandemic. In February 2020, before the pandemic spread in Australia, the rate was 0.75%. The central bank has announced that the rate will remain unchanged until 2024.
Australia has a three-tier system of taxation (federal, state, local). Federal taxes are, for example, income tax, GST or excise tax. Taxes collected by individual states include, for example, payroll tax, various stamp duties (e.g. land transfer tax) or motor vehicle tax. At the local level, these are so-called rates.
Income tax – a progressive tax based on the amount of an individual’s income. Residents and non-residents are subject to different taxation.
VAT (GST) – a tax of 10%, which is levied on most goods and services. Australia only introduced it in 2000.
Health insurance (medicare levy) – 2% tax on taxable income. This is an optional tax for non-residents.
Tax on contributions to the pension fund (superannuation funds taxation) – contributions to the fund are made by deduction from income tax in the amount of 9.5%.
Excise duty – included in the prices of petrol, diesel, alcohol and tobacco products.
Company income taxation – 27.5% for small businesses, 30% for others.
Agricultural levies – funds raised are directed to promotion, research and development. Wine equalization tax – 29% of the final wholesale price, in exceptional cases it reaches the level of 50% of the retail price.
Tax on minors – some incomes of persons under 18 are subject to higher taxation.
Tax on luxury vehicles (luxury car tax) – the sale of luxury cars is taxed at 33%. For 2020-2021, the threshold for economy vehicles was AUD 77,565, for others AUD 68,740.
Capital gains tax (CGT – Capital gains tax) – part of the income tax of persons or funds. Taxable assets include real estate, shares, trust units and installments.
Budget 2018 introduced a plan to reduce FO income tax for the period 2018-2025 (primarily middle-income earners) and simplify the tax system, in three phases. The Australian government plans to further reform the tax system due to the budget deficit caused by the COVID-19 pandemic and the shrinking proportion of the working-age population.