2009 Index of Economic Freedom

Quick Facts

Population:

• 20.7 million

GDP (PPP):

• $735.9 billion
• 2.8% growth
• 3.3% 5-year compound annual growth
• $35547 per capita

Unemployment:

• 4.4%

Inflation (CPI):

• 2.3%

FDI Inflow:

• $24.0 billion

Australia's economic freedom score is 82.6, making its economy the 3rd freest in the 2009 Index. Its overall score is 0.4 point higher than last year, primarily reflecting improvement in fiscal freedom as a result of recently implemented tax cuts. Australia is ranked 3rd out of 41 countries in the Asia–Pacific region, and its overall score is well above the regional average.

Australia rates high in virtually all of the 10 economic freedoms. Monetary stability and openness to global commerce buttress an internationally competitive financial and investment environment based on market principles. A strong rule of law protects property rights and tolerates virtually no corruption. Both foreign and domestically owned businesses enjoy considerable flexibility in their licensing, regulation, and employment practices.

Efforts to improve fiscal governance and maintain long-term fiscal sustainability are focused on achieving better efficiency and effectiveness, particularly in health care spending. The National Reform Agenda, adopted in 2006, should continue to promote needed competition in the energy and transport sectors.

Background Back to the top

Australia is one of the Asia–Pacific's richest democracies. Successive Labor and Liberal governments have deregulated financial and labor markets, floated the currency, and reduced trade barriers over the past three decades. Australia is now in its 17th year of uninterrupted economic expansion. The country is an internationally competitive producer of services, technologies, and high-value-added manufactured goods, and its export sector remains heavily focused on mining and agriculture.

Business Freedom 90.5 Back to the top

The overall freedom to start, operate, and close a business is strongly protected under Australia's regulatory environment. Starting a business takes only two days, compared to the world average of 38. Obtaining a business license requires less than the global average of 18 procedures and 225 days. Closing a business is very easy.

Trade Freedom 84.8 Back to the top

Australia's weighted average tariff rate was 2.6 percent in 2006. Stringent sanitary measures, a burdensome quarantine regime, subsidies and other support programs for agriculture and manufacturing products, some barriers to trade in services, and state trading of wheat and other agriculture products raise the cost of trade. Ten points were deducted from Australia's trade freedom score to account for non-tariff barriers.

Fiscal Freedom 61.4 Back to the top

Australia has a moderate corporate tax rate and a high income tax rate that continues to be reduced. The top corporate tax rate remains 30 percent. The top income tax rate is 45 percent, down from 47 percent as of July 1, 2007. Additional income tax cuts will be phased in gradually starting July 1, 2008, with a goal of reaching 42 percent by July 2010. Other taxes include a value-added tax (VAT), a goods and services tax (GST), and an excise tax. In the most recent year, overall tax revenue as a percentage of GDP was 30.5 percent.

Government Size 64.3 Back to the top

Total government expenditures, including consumption and transfer payments, are moderate. In the most recent year, government spending equaled 34.5 percent of GDP.

Monetary Freedom84.7 Back to the top

Inflation is very moderate, averaging 2.7 percent between 2005 and 2007. The government does not impose national price controls on goods, but states retain the power to impose their own controls, although the range of goods actually subject to control is diminishing as competition reforms are implemented. Retail gas and electricity prices are regulated, causing 5 points to be deducted from Australia's monetary freedom score.

Investment Freedom80.0 Back to the top

Foreign and domestic investors receive equal treatment. Proposals to start new businesses with an investment of A$10 million or more must be reported to the government, which accepts most of these proposals routinely but may reject those it deems inconsistent with the “national interest.” Foreign investment in media, banking, airlines, airports, shipping, real estate, and telecommunications is subject to limitations. Foreign investors may own land, subject to a number of restrictions. Residents and non-residents have access to foreign exchange and may conduct international payments and capital transactions. There are no controls on capital repatriation. Private property can be expropriated for public purposes in accordance with established principles of international law, and compensation is paid.

Financial Freedom90.0 Back to the top

Australia's well-developed and highly competitive financial sector provides a wide range of products and services through advanced banking, insurance, and equity industries. Government regulation of banks is minimal, and foreign banks, licensed as branches or subsidiaries, offer a full range of banking operations. As of October 2007, Australia had 55 licensed financial institutions: 14 Australian-owned banks and 41 foreign-owned banks. An additional 20 foreign banks have maintained representative offices. Though it has regulatory power to set lending policies and interest rates, the central bank has not exerted this authority since the deregulation of financial markets in the 1980s. There are no government-owned banks, and banks are highly competitive. Foreign insurance companies are permitted, and regulation is focused on capital adequacy, solvency, and prudential behavior. With 1,900 entities listed and their total market capitalization of over $900 billion, the Australian Stock Exchange is the world's eighth largest.

Property Rights90.0 Back to the top

Property rights are well protected. The government respects the independence of the judiciary. Protection of intellectual property rights meets or exceeds world standards. Contracts are secure and government expropriation is highly unusual. The rule of law is seen as fundamental to the functioning of government, and enforcement is even-handed.

Freedom From Corruption86.0 Back to the top

Corruption is perceived as minimal. Australia ranks 11th out of 179 countries in Transparency International's Corruption Perceptions Index for 2007, and the government actively promotes international efforts to curb the bribing of foreign officials.

Labor Freedom94.7 Back to the top

Australia's labor market operates under highly flexible employment regulations that enhance employment creation and productivity growth. The non-salary cost of employing a worker can be moderate, and dismissing a redundant employee is costless.