Australia

Politics:

• Analysis

  Australia politics: Quick View - Prime minister reshuffles cabinet after le

  Event

  The prime minister, Julia Gillard, has conducted a cabinet reshuffle, the fifth in the current parliamentary term, following the failed attempt to replace her as leader of the Labor Party on March 21st.

  Analysis

  Although Ms Gillard's authority was undermined by the desire of a proportion of the Labor caucus to have her replaced as party leader, the non-appearance of her supposed challenger, her predecessor, Kevin Rudd, and her subsequent unanimous re-election, have actually strengthened her hold on the party, even if its standing with the public has taken another hit. She has also used the latest outbreak of disloyalty to purge almost all remaining Rudd sympathisers from her front bench, and has reinforced it with new figures who owe their promotions to the prime minister.

  Senior Labor figures that have stood by Ms Gillard have also been rewarded with greater responsibility. The trade minister, Craig Emerson, has seen his portfolio swell to include tertiary education, skills, science and research, while the climate change minister, Greg Combet, now also looks after industry and innovation in a beefed-up ministry. Communities, environment and water minister, Tony Burke, has been given the Arts role vacated by Simon Crean, the former Labor leader who instigated the failed challenge to Ms Gillard. The sole surviving Rudd supporter is Anthony Albanese, who adds regional development and local government to his existing role as transport and infrastructure minister.

  New faces include a Labor MP for Western Australia (WA), Gary Gray, who becomes the new resources minister. His appointment has been applauded by many in the WA-focused mining sector, who were keen to see one of their own tasked with policymaking for the sector. The home affairs minister, Jason Clare, is promoted to the full cabinet, while there was also an enhanced role for the attorney-general, Mark Dreyfus.

  March 25, 2013

• Background

  Australia: Key figures

  Kevin Rudd

  The prime minister and leader of the Labor Party, Mr Rudd, is former diplomat who came to the House of Representatives (the lower house of parliament) from state politics in Queensland. He wrested the national Labor leadership from Kim Beazley in 2006. He has reinvigorated the party and struck a chord with an electorate that had grown weary of a coalition government that had been in power for 11 years. More recently, his appeal has begun to fade, as the public has become frustrated with his ‘everyman' persona and the growing gap between his rhetoric and his actions.

  Wayne Swan

  The treasurer, Wayne Swan, is a former university lecturer and was a political advisor to the previous Labor leader, Kim Beazley. He was the shadow treasurer during 2004-07. Having lifted spending and increased debt in 2009, he now faces the challenge of rebuilding the public finances. Although that task has been made simpler by continued economic growth at home and a renewed wave of demand for Australia's resources from Asia (especially from China and India), the looming federal election is constraining his ability to make politically unpopular changes to taxation and spending.

  Tony Abbott

  Mr Abbott became leader of the Liberal Party in December 2009, defeating the former leader, Malcolm Turnbull. Mr Abbott is renowned for his conservative social views and tends to rate poorly with female voters. His tendency to make policy announcements without prior agreement with coalition frontbenchers has caused internal friction. Nonetheless, he is likely to remain as leader unless the coalition performs poorly at the next election.

  Joe Hockey

  Mr Hockey has been the shadow treasurer since February 2009, and is a potential future Liberal Party leader. However, a question mark hangs over his appetite for the role. Prior to entering parliament in 1996, Mr Hockey was a banking and finance lawyer. He is a formidable parliamentary performer, but has an affable and personable manner that appeals to voters.

  Bob Brown

  Mr Brown is the leader of the Greens, which have five seats in the Senate (the upper house). Together with two independents, they hold the balance of power in the Senate and have the opportunity to work with the Labor government to further their aims in relation to environmental issues. However, their ability to influence policy in these areas is limited by the generally more conservative stance taken by the independents and the electorate's focus on economic issues. Mr Brown has a reputation for leading vocal protest campaigns. He was suspended from parliament in 2003 for interjecting during an address by a former US president, George W Bush.

  May 14, 2010

• Structure

  Australia: Political structure

  Official name

  Commonwealth of Australia

  Form of state

  Federal democracy

  Legal system

  Based on the constitution of 1901

  National legislature

  Bicameral: the 150-member House of Representatives (the lower house) is directly elected by a preferential voting system for a three-year term; the 76 members of the Senate (the upper house) are directly elected by proportional representation for six-year terms, with one-half of the chamber's members retiring every three years, usually to coincide with elections for the House of Representatives. The Senate may not initiate or amend money bills, and in certain circumstances the governor-general may dissolve it

  Electoral system

  Compulsory universal direct suffrage over the age of 18

  National elections

  An election for the lower house and one-half of the seats in the upper house was held in August 2010. The next election (for the lower house and the other one-half of the seats in the upper house) is due in 2013

  Head of state

  Queen Elizabeth II, represented in Australia by a governor-general; Quentin Bryce was appointed to the post in 2008

  State legislatures

  Five of the six states have bicameral legislatures; that of Queensland is unicameral

  National government

  A cabinet, presided over by the prime minister, is appointed by the governor-general on the basis of party strength in the House of Representatives. The Labor Party is currently in power, backed by three independents and one member of the Greens

  Main political parties

  Labor Party; Liberal Party and National Party (in long-term coalition)

  Prime minister: Julia Gillard

  Deputy prime minister & treasurer: Wayne Swan

  Cabinet ministers

  Agriculture, fisheries & forestry: Joe Ludwig

  Attorney-general & emergency management: Nicola Roxon

  Broadband communications & the digital economy: Stephen Conroy

  Climate change & energy efficiency, industry & innovation: Greg Combet

  Defence: Stephen Smith

  Families, communities & indigenous affairs: Jenny Macklin

  Finance & deregulation: Penny Wong

  Foreign affairs: Bob Carr

  Health: Tanya Plibersek

  Immigration & citizenship: Chris Bowen

  Infrastructure & transport: Anthony Albanese

  Mental health & ageing: Mark Butler

  Regional Australia, local government & the arts: Simon Crean

  Resources, energy & tourism: Martin Ferguson

  Schools, early childhood & youth: Peter Garrett

  Sustainable population, environment & water: Tony Burke

  Tertiary education, skills, science & research: Chris Evans

  Trade & competitiveness: Craig Emerson

  Workplace relations, financial services & superannuation: Bill Shorten

  Central bank governor

  Glenn Stevens

  January 01, 2013

• Outlook

  Australia: Key developments

  Outlook for 2013-17

  • With one eye on the next general election in late 2013, the government is launching a slew of new policies, as well as distancing itself from unpopular elements of previous reforms.
  • Recent polling has boosted the hopes of the prime minister, Julia Gillard, of remaining as Labor Party leader into the next election. The prospects of another leadership challenge have receded significantly.
  • Despite its launch in July 2012, the government's carbon tax will remain a source of contention. Given its benign effect on households, the opposition Liberal-National coalition may be less keen to criticise it than previously.
  • Following a year of rapid, if uneven, growth in 2012, real GDP is forecast to moderate slightly in 2013, to 3.1%. Mining exports will underpin faster economic expansion of 3.4% a year on average in 2014-17.
  • Relative to those of other developed economies, Australia's public finances will stay healthy. However, we are now very doubtful that the government will achieve its target of a balanced budget in fiscal year 2012/13 (July-June).
  • The future direction of monetary policy will be largely determined by external events. The Reserve Bank of Australia (RBA, the central bank) will begin to tighten policy in 2013 as inflation picks up.

  Review

  • An investigation into alleged corruption in the New South Wales Labor Party has dredged up a host of potentially salacious details involving the awarding of coal exploration licences and the sale of property in energy-rich areas.
  • In late November the immigration minister, Chris Bowen, conceded that asylum-seekers will be permitted to "live in the community" after the volume of arrivals swamped the government's reopened offshore processing facilities.
  • As markets expected, on December 4th the RBA reduced the official cash rate by 25 basis points to 3%, meaning that the central bank has now made interest rate cuts worth 175 basis points in the current loosening phase.
  • Real GDP growth slowed to 3.1% year on year in the third quarter of 2012, largely owing to the slowdown in China and lower global commodity prices.
  • In October Australia recorded a trade deficit of A$2.1bn (US$2.2bn), the largest monthly shortfall since March 2008. Exports edged up by A$99m (US$102m) to A$24.4bn, while imports surged by A$768m to A$26.5bn.
  • The current-account deficit expanded by A$2.5bn to A$14.9bn in the third quarter. The terms of trade continued to weaken, to stand 13.6% below the peak reached in the year-earlier period.

  January 01, 2013

Economy:

• Background

  Australia: Country fact sheet

  Fact sheet

  Annual data	2011a	Historical averages (%)	2007-11
  Population (m)	22.5	Population growth	1.5
  GDP (US$ bn; market exchange rate)	1,490.4	Real GDP growth	2.8
  GDP (US$ bn; purchasing power parity)	926.2	Real domestic demand growth	3.7
  GDP per head (US$; market exchange rate)	66,282	Inflation	2.9
  GDP per head (US$; purchasing power parity)	41,191	Current-account balance (% of GDP)	-4.0
  Exchange rate (av) A$:US$	0.97	FDI inflows (% of GDP)	3.3
  a Actual.

  Download the numbers in Excel

  Background: The Commonwealth of Australia was established in 1901. Since the end of the second world war the US has replaced the UK as Australia's main defence ally. A mass-immigration programme that began in 1947 has resulted in sweeping demographic, cultural and social change and stronger ties with Asian countries. Australia is a resource-rich country, and booming commodity exports to China have made that country Australia's largest trade partner since 2009.

  Political structure: The Commonwealth of Australia is a democratic federal state within the Commonwealth of Nations. Formally, executive power is vested in the governor-general (who represents Queen Elizabeth II). The legislature consists of a federal parliament comprising a 76-member Senate (the upper house) and a 150-member House of Representatives (the lower house). Elections are held at maximum intervals of three years, when one-half of the senators (who serve six-year terms) and all the representatives are elected by compulsory ballot. Each of the six states in the federation has its own government, with a governor and a bicameral legislature, apart from Queensland, which has a unicameral legislature.

  Policy issues: The government is launching a series of new policies in traditional areas of strength for the Labor Party, such as education and health, and is attempting to neutralise areas where it may be vulnerable to attacks by the opposition ahead of the next election, such as the public finances and the processing of asylum-seekers. Businesses are growing restless at the lack of clarity on the tax regime, against the background of a last-minute reversal of a planned cut in the corporation tax rate. Increasing attention will be paid to the operating environment for the mining sector, which is undergoing a huge expansion that will entail a restructuring of the national economy. Various free-trade agreements are being pursued.

  Taxation: The corporation tax rate of 30% is applied both to retained earnings and to dividends. Shareholders receive credits for corporation tax already paid on dividends. Personal income tax is progressive, with the top marginal rate of 45% levied on earnings over A$150,000 (US$155,000). In addition, the federal government collects a levy of 1.5% of personal taxable income as a contribution towards healthcare.

  Foreign trade: Following a contraction of 18.1% in exports of goods in 2009 (IMF data, on a balance-of-payments basis) as a consequence of the 2008-09 global financial crisis, growth picked up again in 2010. Exports increased by 37.5% in 2010, while imports rose by 22.4%.

  Main exports 2011	% of total	Major imports 2011	% of total
  Metalliferous ores	29.4	Machinery & equipment manufacturing	27.8
  Coal	17.9	Transport equipment	12.7
  Manufactured metals	13.3	Oil & gas extraction	10.2
  Oil & gas extraction	9.0	Chemicals	9.9
  Leading markets 2011	% of total	Leading suppliers 2011	% of total
  China	27.4	China	20.4
  Japan	19.3	US	12.6
  South Korea	8.9	Japan	8.7
  India	5.8	Singapore	6.9

  Download the numbers in Excel

  Download text file (csv format)

  January 09, 2013

• Structure

  Australia: Economic structure

  Data and charts: Annual trends charts

  
  

  

  January 01, 2013

• Outlook

  Australia: Country outlook

  Australia: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: The Labor Party government, led by the prime minister, Julia Gillard, has endured a difficult time in office since it was re-elected in 2010. Labor performed disappointingly in that year's general election, winning 72 seats in the House of Representatives (the lower house of parliament), compared with 73 for the opposition Liberal-National coalition. This has meant that it is dependent on the support of independents and the Greens' sole member of the lower house to advance its legislative agenda. However, as these alliances do not extend beyond confidence motions and supply bills, Labor will have to continue to negotiate hard and offer policy concessions to ensure parliamentary support. Furthermore, the government's wafer-thin majority means that it is vulnerable to indiscretions and defections by its members of parliament.

  ELECTION WATCH: The next general election, for the House of Representatives and one-half of the Senate (the upper house), is due in late 2013, although the fragile balance of power in the lower house means there is a small chance that a poll could be held sooner. If Labor were to replace Ms Gillard with a new leader of whom its independent allies disapproved, the withdrawal of their support would trigger an early poll. However, an election in the next few months would not suit Labor, the coalition or several independents, all of whom are struggling to build momentum in opinion polls.

  INTERNATIONAL RELATIONS: Ms Gillard is attempting the delicate balancing act of maintaining a close political relationship with the US (reconfirmed during a visit to Australia by the US president, Barack Obama, in late 2011) while strengthening economic ties with China (which became Australia's largest trading partner in 2009). In 2013-17 she will be hoping to demonstrate that the two relationships are not incompatible. Australia will hold a seat on the UN Security Council in 2013-14-a role that will raise the country's profile but also potentially complicate its efforts to balance US and China ties. The government will also be an advocate of free trade on the global stage. Negotiations on free-trade agreements with Japan, China, India, Malaysia and South Korea are under way, and Australia is participating in discussions on the expansion of a pan-Pacific free-trade bloc, the Trans-Pacific Partnership.

  POLICY TRENDS: With one eye on the next general election, the government has begun to make a string of big-ticket policy announcements. They include plans for a National Disability Insurance Scheme, a revamp of dental funding for the less well-off and increased education spending. The government is also trying to neutralise any policy areas where it feels that it is vulnerable to pre-election attacks. In August 2012 it abandoned its commitment to a three-year carbon-price floor of A$15 (US$16) per tonne that would have come into effect after the planned shift from the carbon tax to an emissions trading scheme in mid-2015. Instead, pricing will be linked to the cost of carbon permits in the EU.

  ECONOMIC GROWTH: At 3.1%, the Economist Intelligence Unit's forecast for GDP growth in 2013 is moderate. This partly reflects base effects from 2012, when the economy is expected to have grown at the rapid rate of 3.5%, which would be the strongest performance since 2007. The continued development of the mining sector will ensure that gross fixed investment makes the greatest contribution to growth in 2013. Demand for capital imports for construction projects in the sector, combined with a boost to consumer goods imports provided by the high Australian dollar, will mask a strong export performance, ensuring that the external sector detracts from expansion again. Heavily indebted Australian consumers responded to the 2008­09 global financial crisis by increasing the rate of household saving, which stood at 10.3% on a seasonally adjusted basis in January-September 2012, compared with an annual average of 3.3% in 2004-08. This conservatism, combined with the expected raising of interest rates in the second half of 2013, will keep private consumption growth to 2.7% next year.

  INFLATION: Consumer price inflation is forecast to average 2.8% in 2013, up from an estimated 1.9% in 2012. The introduction of the carbon tax in mid-2012 pushed up consumer prices in the third quarter and will continue to generate inflationary pressures. Government modelling suggests that the tax will add 0.7 percentage points to consumer price inflation in fiscal year 2012/13 (July-June), which explains our relatively rapid forecast that otherwise appears at odds with the slowdown in GDP growth in 2013. Our inflation forecast of 2.7% on average in 2014­17 is subject to equal degrees of upside and downside risk. It is possible that interest rate rises could take some of the inflationary pressure out of the economy, but a revival of the housing market and even faster growth than we are forecasting in the mining sector could cause inflation to pick up quickly. The Reserve Bank of Australia (the central bank) is also concerned that skill shortages in some areas of the economy could lead to demands for higher wages that push up the cost of living unless commensurate increases in productivity occur.

  EXCHANGE RATES: Buoyed by high prices for commodity exports and the substantial interest-rate differential with other developed economies, the local currency has performed strongly against the US dollar in recent years, reaching a 29-year high of A$0.89:US$1 in July 2011. But the country's onerous foreign debt-servicing obligations make the Australian dollar a risky currency to hold, and it is therefore exposed to any rise in investor risk aversion. This vulnerability can be seen when changes in the currency's value are tracked against developments in the euro zone debt crisis. The Australian dollar is also often viewed by investors as a proxy for the performance of China's economy, which suggests that Chinese data releases will exert a greater effect on the behaviour of the local currency in 2013-17. We expect the Australian dollar to remain above parity with the US dollar on an annual average basis for the third consecutive year in 2013. The eventual revival of the US economy in 2014-15 will cause a very slight depreciation of the Australian dollar in those years, but it will subsequently rally modestly, in line with a revival of global prices for exported commodities, to reach A$1.02:US$1 by 2017.

  EXTERNAL SECTOR: We have revised our estimate for merchandise trade and now expect the account to have returned to deficit in 2012, following a year defined by weather-related supply disruptions and weak global demand. As a result, we have also pushed out our estimate for the current-account deficit to the equivalent of 3.7% of GDP, from 2.9% previously. However, increasing mining capacity will facilitate continued strong growth in overseas sales in 2013-17, so that we expect the value of merchandise exports to be over 40% higher in local-currency terms in 2017 than in 2012. The income deficit will remain the largest area of weakness, reflecting the cost of servicing foreign debt. The strong local currency will impede growth in services exports, as Australia will prove prohibitively expensive for some potential students and tourists. We expect the current-account deficit to average 3.7% of GDP in 2014-17.

  January 01, 2013

• Forecast

  Australia: Country forecast summary

  Country forecast overview: Highlights

  • With one eye on the next general election in late 2013, the Labor Party government is launching a slew of new policies in areas such as health and education in which it has a strong ideological stance, in addition to distancing itself from unpopular elements of previous reforms.
  • Recent polling has boosted the position of the government, with some voter surveys showing Labor drawing even with the opposition Liberal-National coalition. The performance of the prime minister, Julia Gillard, has also improved in recent months, considerably reducing the chances that she will face another challenge to her leadership of Labor in the run-up to the election.
  • The government has a long-standing goal of eliminating the budget deficit by the time of the next election. The administration has tied its economic policymaking credibility to this target, but, despite some hefty spending cuts, declining global commodity prices mean that the Economist Intelligence Unit expects it to record a narrow deficit.
  • Real GDP growth will average 3.4% a year in 2013-17. Expansion will be moderate in 2013, owing to the continued trends of weakness in the global economy and consumer conservatism at home. Subsequent years will see an improved performance as the mining boom moves into its export phase.
  • The main downside risks to our GDP growth forecast for Australia are linked to the effects of the continuing sovereign debt crisis in Europe and the risk of a sharp slowdown in economic expansion in China. The likelihood of a crash in the housing market is now much diminished.
  • Our inflation forecast of 2.7% a year on average in 2013-17 has equal amounts of upside and downside risk. It is possible that interest rate rises could take some of the inflationary pressure out of the economy, but a revival of the housing market and even faster growth than we are forecasting in the mining sector could cause inflation to pick up quickly.
  • Owing to the likelihood that the economy will grow steadily in the next five years, external events will be the primary determinants of monetary policy. Given the resumption of growth in house prices, we believe that the period of monetary loosening is now over. The Reserve Bank of Australia (the central bank) will start to raise interest rates in mid- to late 2013.
  • The trade account is likely to return to the red in 2012, owing to weather-related disruptions and weak global demand for commodities. Interest payments on foreign commercial debt will ensure current-account deficits during 2013-17.

  Country forecast overview: Key indicators

  Key indicators	2012	2013	2014	2015	2016	2017
  Real GDP growth (%)	3.5	3.1	3.5	3.4	3.3	3.5
  Consumer price inflation (av; %)	1.9	2.8	3.0	2.6	2.5	2.6
  Budget balance (% of GDP)	-1.0	-0.4	-0.6	-0.7	-1.1	-1.6
  Current-account balance (% of GDP)	-3.6	-3.6	-3.6	-3.1	-3.7	-4.2
  Deposit rate (av; %)	4.0	3.9	4.4	4.9	5.1	5.1
  Exchange rate A$:US$ (av)	0.97	0.97	1.00	1.04	1.03	1.02
  Exchange rate A$:¥100 (av)	1.21	1.18	1.16	1.17	1.12	1.12

  Download the numbers in Excel

  Download text file (csv format)

  January 09, 2013

View detailed map

Country Briefing

Land area

7,682,400 sq km (61% agricultural, 5% forest)

Population

22,696,000 (September 2011)

Main towns

Population in '000 (June 2006):

Sydney: 4,284

Melbourne: 3,471

Brisbane: 1,629

Perth: 1,393

Adelaide: 1,108

Canberra (capital): 319

Climate

Temperate in the south; subtropical or tropical in the north; hot and dry inland

Weather in Canberra (altitude 560 metres)

Hottest months, January and February, 13-28°C; coldest month, July, 0-11°C (average daily minimum and maximum); driest month, June, 37 mm average rainfall; wettest month, October, 69 mm average rainfall

Language

English

Measures

Metric system

Currency

Australian dollar (A$); A$1 = 100 cents. Average exchange rate in 2011: A$0.97:US$1

Time

Hours ahead of GMT (summer time in brackets):

New South Wales, Tasmania, Victoria & the Australian Capital Territory: 10 (11)

Queensland: 10

Northern Territory: 9.5

South Australia: 9.5 (10.5)

Western Australia: 8

Fiscal year

July 1st-June 30th. Most Australian statistics are reported on a fiscal-year basis

Public holidays

January 1st (New Year's Day); January 28th (Australia Day); March 29th-April 1st (Easter); April 25th (Anzac Day); June 10th (Queen's Birthday, except in Western Australia); December 25th (Christmas Day); December 26th (Boxing Day); plus other days at state level

January 01, 2013