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The following OECD assessment and recommendations summarise Chapter 2 of the Economic Survey of Australia 2006 published on 31 July 2006.
Contents
How strong has recent performance been and what challenges remain?
Recent macroeconomic performance continues to be impressive: gross domestic product (GDP) growth since the turn of the millennium has averaged above 3% per annum and, including the terms-of-trade gains, growth in real gross domestic income has averaged over 4%, among the handful of OECD countries achieving such rapid growth; the unemployment rate has fallen to around 5%, its lowest level since the 1970s; inflation has remained within the target range; and, following a long stretch of fiscal surpluses, Australia is now one of the few OECD countries where general government net debt has been eliminated. Living standards have steadily improved since the beginning of the 1990s and now surpass all G7 countries except the United States. Wide-ranging reforms, particularly to promote competition, were instrumental in this respect. They promoted productivity growth, most notably in the second half of the 1990s. The greater flexibility engendered by these reforms, together with the introduction of robust monetary and fiscal policy frameworks, has also bolstered the economy’s resilience to a series of major shocks over the last decade: the Asian crisis in the late 1990s, the global downturn at the turn of the millennium, followed by a major drought, the ending of a house price boom and currently, the commodity price boom.
The major short-term challenge is to manage the consequences of the commodities price boom that has boosted the terms of trade by around 30% over the last three years, but is likely to decline at some point. The buoyancy of tax revenues, which is significantly higher than can be explained by the commodities boom alone, also raises a complex question as to how ambitious short-term fiscal objectives should be. Over the longer term, the key challenge is to sustain the growth in living standards, particularly in the face of population ageing. In many areas this would be facilitated by, or even requires, improvements in the operation of fiscal federalism. The efficiency of government services can be raised by clarifying responsibilities and improving co-operation in those areas, notably health, where the federal government and the states both have responsibilities. Similarly, productivity can be enhanced by further co-operation to reform infrastructure and network industries as well as making more efficient use of the available water supply. Productivity can also be boosted by up-skilling the workforce and by taking advantage of the reformed framework for industrial relations to promote necessary workplace re-organisation. Finally, to counter the adverse effects of ageing on labour supply, consideration should be given to whether further reform is required to lessen welfare dependency and promote the labour force participation of particular groups – notably women, single parents, the disabled and those aged over 55.
Decomposition of the gap in GDP per capita(1)
Percentage point differences with respect to Australia, 2004
1. GDP based on 2004 purchasing power parities.
2. Based on total number of hours worked per capita.
Source: OECD, Productivity database, January 2006.
How to obtain this publication
The Policy Brief (pdf format) can be downloaded. It contains the OECD assessment and recommendations, but not all of the charts included on the above pages.
The complete edition of the Economic Survey of Australia 2006 is available from:
- SourceOECD for subscribing institutions and many libraries
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OLISnet, under "Publication Locator", for government officials with accounts (suscribe)
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Additional information
For further information please contat the Australia Desk at the OECD Economics Department at webmaster@oecd.org. The OECD Secretariat's report was prepared by David Turner and Vivian Koutsogeorgopoulou under the supervision of Peter Hoeller.
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