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Politics and socio-economics

Figure 1: Territories and States of Australia: (Source: picswallpaper.com)

Government of Australia

Australia is a constitutional monarchy with a federal division of powers. As part of the Commonwealth its official head of state is Queen Elizabeth II, who is represented by her viceroys in Australia, the Governor-General at the federal level and a separate Governor for each state. Australia has six states and two territories, and the national capital, Canberra, is in the Australian Capital Territory (ACT). The current prime minister of Australia is Tony Abbott, who leads a right-wing coalition government.

Elections take place in Australia every three years, with the next election due in 2016. The two major political groups are the broadly left-wing Australian Labor Party and the Coalition, which combines the right-wing Liberal Party with the traditionally rural-focused National Party. Voting is compulsory for Australian citizens and uses preferential voting.

Most of the Australian population is concentrated on the South Eastern seaboard, with major cities including Sydney, Melbourne, Brisbane and Adelaide. Perth, on the West Coast, is the only major population centre elsewhere.

Quick stats:

Population 23.8m

Components Six states and two territories

Official language English

GDP 1.525 trillion USD

Currency Australian dollar (AUD)

Country statistical profile: Australia 2015

Country statistical profiles: Key tables from OECD - ISSN 2075-2288 - © OECD 2015

Source: OECD Factbook statistics. For explanatory notes, see OECD Factbook 2014 (DOI: 10.1787/factbook-2014-en)

Economy

Australia’s economy is one of the largest mixed market economies in the world, with a GDP of around 1.525 trillion US dollars. The service sector comprises 68% of GDP, with economic growth largely dependent on mining (8.4% of GDP) and agriculture (12% of GDP). Australia’s stock exchange, the Australian Securities Exchange (ASX) is the ninth largest in the world.

The rapid growth of China, in particular its demand for resources, helped Australia largely escape the 2008 Global Financial Crisis. The Australian government also provided a fiscal stimulus programme to help keep the economy out of recession.

Trade

International trade remains critical to Australia’s economy and nurturing trade links has been a priority for successive governments.

China remains Australia’s largest export partner (29.5%) followed by Japan (19.3%) and South Korea (8.0%). Its main import partners are China (18.2%), the US (11.6%) and Japan (7.8%). China is considered increasingly important to Australia as a trading partner, and China is already the largest purchaser of Australian debt. The recent (November 2014) Signing of the China-Australia Free-Trade Agreement has the potential to drastically increase Chinese investment and trade.

Australia has also entered into free trade agreements with ASEAN, Canada, Chile, Korea, Malaysia, New Zealand, Japan, Singapore, Thailand and the US. It is a member of the APEC, G20, OECD and WTO.

Issues facing the Australian economy

Remote geographic location Australia’s location makes transport and logistics lengthier and more costly than for many other developed markets. This often results in higher consumer prices on imported goods, a phenomenon nicknamed the “Australia tax”.

Large size The size of Australia is a challenge for national operators and drives up the cost, speed and complexity of domestic logistics. Rural residents are often forced to travel hundreds of miles to major cities for certain services, and upgrading the country’s internet infrastructure has been more expensive and challenging than in countries with a more concentrated population density.

Relatively small population Australia has a similar landmass to the US but less than a tenth of its population, meaning a limited consumer market size, as well as limited potential for economy of scale.

Rising unemployment Unemployment reached twelve-year highs in the first quarter of 2015. Rural and regional areas are particularly severely affected. While official estimates by the Australian Bureau of Statistics put unemployment at just over 6%, independent analysts suggest it is over 10%, and combined with underemployment and casual, cash wages, this combined may affect over 20 per cent of the population.

Skills shortage Despite rising unemployment Australia still suffers a shortage of skills in key areas, notably ICT, finance and certain trades. The government provides some support to industry to address this, including the 457 visa scheme which allows Australian employers to sponsor skilled workers from overseas.

Currency volatility the Australian dollar has experienced significant volatility against its main trading pairs. Over the past four years it has lost nearly a third of its value against the US dollar and shows a similar performance against Sterling (GBP) and the Euro (EUR). While of benefit to exporters, the weakened AUD$ has significantly increased the cost of imports, forcing local retailers to raise prices. The overall impact has been negated by customer demand for international brands from global merchants.

Overseas retail many Australian retailers have been lobbying for a reduction in the “low value threshold”, which currently sees goods worth less than AUD $1,000 exempted from GST (10% goods and services tax). They would like GST to be added to international purchases to bring them into line with local retail prices. The exemption was a particular issue when the Australian dollar was above parity with the US dollar, making overseas retail prices more attractive to Australian consumers than local prices.

Property bubble Australia offers very generous tax breaks to property investors, which has driven up investment in property as well as the price of property. Investors account for more than 50% of lending in many areas. This has been exacerbated by undersupply in many areas. While the “FIRE sector” (finance, insurance and rental, hiring and real estate) is a beneficiary, there is concern that credit growth is primarily being funnelled into property rather than being invested into infrastructure and innovation. The current property market has been described as a “bigger bubble” than the US property bubble that preceded the subprime crisis.

High cost economy a high minimum wage combined with stringent employment regulations present a challenge for many smaller businesses, notably bricks-and-mortar retailers. The current property boom is also driving up the already high cost of doing business in Australia and eliminates the productivity of our certain industries.

Australia’s macroeconomic plans

Australia’s short election cycles (three years) have been criticised for discouraging a longer-term economic outlook. There has long been a call to diversify the economy away from mining and resources to a technology-led, knowledge economy with greater support for other sectors including retail.

The previous government’s ambitious plan to create a national fibre-to-the-home high speed broadband network attracted considerable international interest, but has since been cancelled by the current government. Internet speeds, as well as access in more remote areas, are hampering the growth of ecommerce in rural and regional areas.

The current government’s economic aims are to build more “21st century” infrastructure, to deepen engagement with and growth from Asia, to build a more diverse economy, and to help small business create stronger jobs growth.

Australian population

Australia’s population is growing at around 1.8%, higher than many of its OECD peers. Most of this population growth in recent decades is due to immigration. One in four Australians are born overseas and two in five have at least one overseasborn parent. Of the overseas-born population, 21% are from England and 9% from New Zealand and 6% from China. India and New Zealand are seeing the biggest growth in migration to Australia.

Australia is a secular country with no official state religion, though 61% identify as Christian. The adult literacy rate is estimated to be 99% with education compulsory from age five to fifteen or seventeen, depending on the state or territory. Nearly 45% of Australians aged 25 to 34 had attained tertiary education in 2010.

Australia has a high minimum wage combined with low unemployment and historically low interest rates, meaning that many Australians have a comfortable disposable income. On the flip side, the cost of living is high, and property costs are among the highest in the world. Home ownership is very important to Australians but property prices are increasingly putting ownership out of reach to first time buyers. Australians have also grown thriftier during and since the Global Financial Crisis. They are frequently described as a “nation of savers”. Despite this, consumer spending has seen a modest rise in recent quarters.

Government and business

Australia has a well-developed, business-friendly market and all recent governments have shown strong support for entrepreneurialism. There are several incentives and schemes to nurture enterprise and promote investment. The current flagship initiative is the Entrepreneurs’ Infrastructure Programme for business competitiveness and productivity. It supports businesses in three ways: business management, helping them collaborate with the research sector, and accelerating commercialisation.

Other schemes relevant to the retail sector include funds to assist with skills training, regional innovation funds in certain states, tax incentives for research and development, and support and advisory service for small business.

Australian governments pride themselves on fiscal discipline but generally avoid over-intervention in markets. The current government has also been trying to cut bureaucratic red tape and ease tax complications particularly for small businesses. The headline aim is to “ease red tape by AUD $1 billion a year”.

Entering the Australian market

Australia’s business environment is very conducive to international trade. The Federal Government is keen to see that consumers have choice and welcomes competition in the market. Global retail is viewed as providing fair competition and more choice for Australian consumers. Australian retailers are also encouraged to use export channels and free trade agreements to explore overseas markets, particularly given the limited size of the domestic market.

International retailers face no serious procedural or regulatory difficulties when trading cross border into Australia. The level of intervention is not different for foreign retailers when compared with domestic ones. The government has signed three new free trade agreements in the last two years alone: to China, South Korea and Japan. Corruption is also low in Australia, with all businesses following standard practices and procedures to establish their operations.

The retail industry in Australia is governed by Australian Consumer Law (ACL) which replaced the previous Trade Practices Act. This law is long established and has the broad acceptance and support of the industry. The Australian Competition and Consumer Commission (ACCC) is Australia’s competition regulator and national consumer law watchdog that helps ensure that ACL is complied with.

The Australian Trade Commission (Austrade) promotes foreign direct investment (FDI). It helps international companies establish and build their business in Australia. Its services include market intelligence and advising on investment opportunities, identifying suitable investment locations and partners, as well as advice on government programmes.

Another regulation that organisations need to be aware of include the Anti-Dumping Commission which investigates alleged dumping and subsidisation of goods imported into Australia. It imposes duties to address any material injury to the Australian industry that manufactures similar or the same goods. The work of the Commission complies with World Trade Organisation (WTO) rules as well as Australian legislation.

 

 

 

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