OECD Economic Surveys Australia

1 OECD Economic Surveys Australia December 2018. OVERVIEW. This Overview is extracted from the Economic Survey of Australia . The Survey is published on the responsibility of the Economic and Development Review Committee ( edrc ) of the OECD, which is charged with the examination of the Economic situation of member countries. This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. OECD Economic Surveys : Australia OECD 2018. You can copy, download or print OECD content for your own use, and you can include excerpts from OECD publications, databases and multimedia products in your own documents, presentations, blogs, websites and teaching materials, provided that suitable acknowledgment of OECD as source and copyright owner is given.

2 All requests for public or commercial use and translation rights should be submitted to Requests for permission to photocopy portions of this material for public or commercial use shall be addressed directly to the Copyright Clearance Center (CCC) at or the Centre fran ais d'exploitation du droit de copie (CFC) at TABLE OF CONTENTS 3. Table of contents EXECUTIVE SUMMARY .. 6. 1. Key Policy Insights .. 11. Macroeconomy: a good near-term outlook but risks remain .. 14. Monetary policy, housing and financial markets: emerging from the low-interest rate environment .. 24. Policy-rate normalisation will ease tensions .. 24. Vigilance and policy action are still required on mortgage debt and housing .. 24. High-profile cases of misconduct in the financial sector have emerged .. 26. Fiscal policy: deficit reduction continues .. 27. Completion of "budget repair" is on the 28. Progress on tax reform but room for more.

3 30. Efficiency in public services is increasingly 33. Transport, urban environments and utilities: substantial ongoing challenges .. 38. A major push to improve urban transport infrastructure is 38. Urban environments would benefit from governance and land-use reform .. 39. Some underlying energy sector problems have yet to be 40. Progress but also remaining challenges in ensuring access to low cost-high speed ICT .. 40. Skills: evolving to new needs .. 41. Inclusiveness: scope to narrowing gaps remains .. 43. Some shortfalls in labour-force participation .. 43. Mixed progress in closing the gaps for indigenous populations .. 44. Business policies: ensuring strong competition and boosting innovation .. 49. Framework conditions: scope for improving market functioning remains .. 50. Targeted policy for business: a focus on innovation continues .. 51. Environmental policy: challenges in climate change and biodiversity.

4 52. CO2 emissions remain high .. 52. Climate-change policy: clarity and stability are key .. 53. Biodiversity needs greater priority in decision making .. 56. References .. 58. Tables Table Macroeconomic indicators and projections (to be updated with autumn Economic Outlook (EO 104)).. 18. Table Tail-end scenarios for the Australian economy .. 22. Table Past OECD recommendations on monetary and financial stability .. 27. Table Illustrative fiscal impact of recommended reforms .. 36. Table Illustrative GDP-per-capita impact of recommended reforms .. 37. Table Past OECD recommendations on maintaining fiscal prudence and ensuring efficient tax and public spending .. 38. Table Past OECD recommendations on infrastructure and utilities .. 41. Table Past OECD recommendations on employment, health and welfare .. 48. Table Past OECD recommendations on ensuring competitive and innovative business.

5 52. OVERVIEW - Economic SURVEY Australia 2018. For official use 4 TABLE OF CONTENTS. Table Selected components of Australia 's current emission-reduction policy .. 56. Table Past OECD recommendations on environment policy .. 57. Figures Figure 1. GDP per capita performance has been strong .. 6. Figure 2. Economic growth will remain robust .. 6. Figure 3. High levels of house prices and household debt pose risks .. 7. Figure 4. Fiscal policy needs to get to surplus .. 7. Figure 5. Australia 's PISA scores have worsened .. 8. Figure Strong GDP per capita performance .. 12. Figure Favourable well-being 13. Figure A range of Economic , social and environmental challenges .. 15. Figure Robust output growth with recovering investment and falling unemployment .. 16. Figure Wage and price inflation remain 19. Figure House prices are easing but the household-debt burden continues to rise .. 20. Figure Exports of commodities to Asia remain dominant.

6 21. Figure Recession probabilities .. 23. Figure Policy-rate normalisation yet to begin, federal budget consolidation 24. Figure Capital and liquidity positions of banks have improved .. 25. Figure Low public debt and comparatively low government spending .. 28. Figure Federal budget consolidation since the global finance crisis .. 29. Figure A wide range of debt-reduction speeds can be followed .. 30. Figure The Goods and Services Tax rate is low in international comparison .. 33. Figure Education and health indicators point to middle-ranking spending, yet room for better 35. Figure A new surge in government investment is underway .. 39. Figure Australia 's PISA performance is weakening .. 42. Figure Motherhood has a strong impact on labour market 45. Figure Partnered mothers work very short hours .. 47. Figure A favourable regulatory climate for business .. 49. Figure Services Trade Restrictiveness 50.

7 Figure Environmental indicators (standard panel of figures) .. 55. Boxes Box Predicting downturns using the OECD's Resilience Database .. 23. Box Housing affordability initiatives continue .. 26. Box Hikes in VAT rates: examples from other countries, impact on inflation .. 33. Box Quantifying the fiscal impact of structural reforms .. 36. Box Potential impact of structural reforms on per capita GDP .. 37. Box Keys to successful outcomes in support for indigenous 46. OVERVIEW - Economic SURVEY Australia 2018. For official use 5. BASIC STATISTICS OF Australia . (Data refer to 2017 or latest available. Numbers in parentheses refer to the OECD average)*. LAND, PEOPLE AND ELECTORAL CYCLE. Population (million) Population density per km ( ). Under 15 (%) ( ) Life expectancy (years) ( ). Over 65 (%) ( ) Men ( ). Foreign-born (%) Women ( ). Latest 5-year average growth (%) ( ) Latest general election July 2016.

8 ECONOMY. Gross domestic product (GDP) Value added shares (%). In current prices (billion USD) 1, Primary sector ( ). Latest 5-year average real growth (%) ( ) Industry including construction ( ). Per capita (000 USD PPP) ( ) Services ( ). GENERAL GOVERNMENT. Per cent of GDP. Expenditure ( ) Gross financial debt ( ). Revenue ( ) Net financial debt ( ). EXTERNAL ACCOUNTS. Exchange rate AUD per USD Main exports (% of total merchandise exports). PPP exchange rate (USA = 1) Crude materials, inedible, except fuels In per cent of GDP Mineral fuels, lubricants and related materials Exports of goods and services ( ) Food and live animals Imports of goods and services ( ) Main imports (% of total merchandise imports). Current account balance ( ) Machinery and transport equipment Net international investment position Miscellaneous manufactured articles Mineral fuels, lubricants and related materials LABOUR MARKET, SKILLS AND INNOVATION.

9 Unemployment rate, Labour Force Survey (age 15 and Employment rate for 15-64 year-olds (%) ( ) over) (%) ( ). Men ( ) Youth (age 15-24, %) ( ). Women ( ) Long-term unemployed (1 year and over, %) ( ). Participation rate for 15-64 year-olds (%) ( ) Tertiary educational attainment 25-64 year-olds (%) ( ). Average hours worked per year 1 676 (1759) Gross domestic expenditure on R&D (% of GDP) ( ). ENVIRONMENT. CO2 emissions from fuel combustion per capita Total primary energy supply per capita (toe) ( ) (tonnes) ( ). Renewables (%) ( ) Water abstractions per capita (m3 ) 697 (804). Fine particulate matter concentration ( , g/m3) ( ) Municipal waste per capita (kilogrammes) 561 (523). SOCIETY. Income inequality (Gini coefficient) Education outcomes (PISA score, 2015). Relative poverty rate (%) ( ) Reading 503 (493). Median disposable household income (000. USD PPP) ( ) Mathematics 494 (490).

10 Public and private spending (% of GDP) Science 510 (493). Health care, current expenditure ( ) Share of women in parliament (%) ( ). Pensions ( ) Net official development assistance (% of GNI) ( ). Education (primary, secondary, post sec. non tertiary) ( ). Better life index: * Where the OECD aggregate is not provided in the source database, a simple OECD average of latest available data is calculated where data exist for at least 29. member countries. Source: Calculations based on data extracted from the databases of the following organisations: OECD, International Energy Agency, World Bank, International Monetary Fund, Inter-Parliamentary Union. OVERVIEW - Economic SURVEY Australia 2018. For official use 6 EXECUTIVE SUMMERY. EXECUTIVE SUMMARY. indigenous Australians and the rest of the Economic growth has been resilient population are narrowing too slowly. Australia 's long span of positive output growth continues, demonstrating the and climate-change policy still lacks economy's resilience to shocks (Figure 1).