OECD ECONOMIC SURVEYS n ;i ii I II :-, .1 i I i| I ; i) ;l : H tl I D 'I I ij i: i.l - f) V \\ \ I I tl I \ I H !l .:'/:! [I :' 'I : I AUSTRALIA S I I : \ I I l| I H : i; ii i| i< i Mil H 1 : I H : ij : 7 : I H ',' I1 : 'I : I I : i: II I i| 'I I M l| DECEMBER 1976 BASIC STATISTICS OF AUSTRALIA THE LAND Area (1000 sq. km) 7686.8 Urbanpopulation, 1971, %oftout Agricultural area, 1973, % oftotal 65.0 (cities over 100000) 64 Tillage and temporary grassland, Population ofmajor cities. 1973, % oftotal 5.6 30.6.1973 (1 000): Sydney 2874 Melbourne 2584 Brisbane 911 Adelaide 868 Perth 739 THE PEOPLE Population,30.6.1976(1000) 13643 Civilian employment, 1975 (1000) 3726 No. ofinhabitantspersq.km 1.8 ofwhich: Agriculture 385 Natural increase rate, per Industry 1934 I 000inhabitants, 1974 9.6 Other activities 3407 Net migration rate, per 1000 inhabitants. 1974 6.5 PARLIAMENT AND GOVERNMENT Present composition ofParliament: House of Parly Senate Representatives National Country Party 8 23 Liberal Party of Australia 27 68 Australian Labor Party 27 36 Other 2 Total 127 PresentGovernment: Liberal National - Country Party NextgeneralelectionsforHouseofRepresentatives:atthelatestDecember 1978 PRODUCTION1 Gross Domestic Product, 1976 Gross fixed capital formation, 1976: (S A million) 69622 Percentage ofGDP 24.0 GDP per head (US .) 6460 Per head (US J) 1550 THE PUBLIC SECTOR % of GDP in 1976' Expenditureongoodsandservices* 25.6 Currentrevenue 31.8 Current transfers 9.2 ofwhich: Direct taxes 17.9 FOREIGN TRADE Exports1 Imports1 Main exports in 1976, % oftotal: Main imports in 1976, %oftotal: Food and live animals Machineryandtransportequipment 38.6 Crudematerials, inedible, except Manufactured goods 17.7 fuels 26.6 Miscellaneous manufactured articles 12,7 Manufactured goods 10.6 Chemicals 8.6 Machinery and transport equipment 5.2 THE CURRENCY Monetary unit: Australian dollar Currency unit per US dollar, averageofdailyfigures: Year 1975 0.7598 November 1976 0.8267 1 Fiscalyearended 30thJune. 2 Current and capital expenditure. Includingpublic enterprises. Note An internationalcomparisonofcertainbasicstatisticsisgiven inanannextable. OECD ECONOMIC SURVEYS '«o pÊf 'Jan»*1» *c AUSTRALIA ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT The Organisation for Economic Co-operation and Devel¬ opment (OECD) wassetupundera Conventionsignedin Parison 14th December, i960, which provides that the OECD shall pro¬ mote policies designed: to achieve the highest sustainable economic growth and employment and a rising standard ofliving in Member countries, while maintaining financial stability, and thus to contributeto the developmentoftheworld economy; to contribute to sound economic expansion in Member as well as non-member countries in the process ofeconomic development; to contribute to the expansion ofworld trade on a multi¬ lateral, non-discriminatory basis in accordance with inter¬ national obligations. TheMembersofOECDareAustralia,Austria,Belgium, Cana¬ da, Denmark, Finland, France, the FederalRepublicofGermany, Greece, Iceland, Ireland, Italy,Japan, Luxembourg, the Nether¬ lands, New Zealand, Norway, Portugal, Spain, Sweden, Switzer¬ land, Turkey, the United Kingdom and the United States. The Socialist Federal Republic ofYugoslavia is associated in certainworkofthe OECD, particularlythat ofthe Economic and Development ReviewCommittee. Theannualreview ofAustralia by the OECD EconomicandDevelopment Review Committee took place on 25th November, 1976. © OECD, 1976. Queries concerning permissions or translation rights should be addressed to: Director ofInformation, OECD 2. rue André-Pascal, 75775 PARIS CEDEX 16, France. CONTENTS Introduction 7 I Recent developments 7 The recent cycle 7 Demand components 12 The labour market 15 Prices and incomes 19 Balance of payments 25 II Economic policy 28 Fiscal policy 28 Monetary policy 32 Policy towards wage determination 38 External policy 38 III Prospects and conclusions 40 Prospects 40 Conclusions 44 Annexes I Income tax and wage indexation in Australia 47 II Calendar of main economic events 49 Statistical Annex 58 TABLES Text : 1 Demand and output 1973 to 1976 10 2 Disposable income, saving and consumption 13 3 Selected unemployment rates 18 4 Adjusted unemployment rates in selected OECD countries 19 5 Consumer prices in selected OECD countries 20 6 Components of the consumer price index 20 7 Wage rates and earnings 22 8 Balance of payments 26 9 Budget transactions 29 10 Formation of the volume of money 34 11 Short-term forecasts of demand, output and prices 41 12 Household appropriation account 42 4 OECD Economic Surveys Annex I : Decisions in national wage cases 48 Statistical Annex: A Gross domestic product, current prices 58 B Gross domestic product, average 1966-67 prices 59 C Income and expenditure of households 60 D Labour market 61 E Prices and wages 62 F Liquidity formation 63 G General government receipts and expenditure 64 H Balance of payments 65 I Foreign trade - commodity and geographic structure 66 DIAGRAMS 1 Recovery phase in selected OECD countries 8 2 Final domestic demand and gross domestic product 9 3 Cyclical indicators 11 4 Components of fixed investment 14 5 Employment and unemployment 16 6 Participation rates 17 7 Wholesale prices, foreign trade prices and consumer prices 19 8 Wage rates, earnings and unit labour costs 23 9 The profit share in two cycles 24 10 Implicit deflators for export commodities 25 II Volume of money 33 12 Interest rates and security yields 35 13 Trading bank liquidity 36 14 Exchange rate developments and the terms of trade 39 This Survey does not take account of any measures introduced after 25th November, 1976. On 28th November theAustralianGovernment announcedal7\percentdevaluation of the Australian dollar anda move to a more flexibly administered exchange rate. LU CD < û. < Où INTRODUCTION The last EDRC examination of Australia took place nearly 18 months ago1. Over this time span, the economy went through a difficult period characterised by high rates of inflation and unemployment and, until the close of 1975, continuing recessionarytendencies. Recentdevelopmentshavebeensomewhatmorepromising, withanumberofindicatorssuggestingthatsomerecoveryisunderway,accompanied by a substantial deceleration in the rate of inflation, but by no improvement in unemployment which in mid-1976 reached a postwar peak. The current account of the balance ofpayments during this period recorded moderate deficits, smaller, in relation to GDP, than the longer run trend. Economic policy has become more restrictive during the course ofthis period. Both fiscal and monetarypolicies have been directed to curbing the rate ofinflation, entailing restraint ofpublic expenditure in the 1975/76 financial year2, the adoption of further restraints for the present financial year, and a monetary posture which aimed at a growth of monetary aggregates somewhat below the expected growth of nominal GDP. In addition, the authorities have strongly argued the case for only partial wage-indexation and have met with varying degrees of success. Indi¬ cations ofanupturn inearly 1976 onthe one hand, and arestrictiveeconomicpolicy on the other, suggest that growth will continue in 1977 but only at a modest rate. Further progress in the fight against inflation can be expected, but unemployment may remain high in the short term. The expected widening ofthe current external deficit would still leave it somewhat below historical levels. The present survey follows the by-now traditional outline, with the first part describing recent developments, the second part analysing the policy experience and the final section considering prospects and policy issues. The time span covered, however, will not be limited to the last year or so, but will stretch somewhat further back in the past in order to cover developments from late 1974 to date. I RECENT DEVELOPMENTS The recent cycle By the first halfof 1976, it was possible to say that some recovery was under way, after the longest recession in the postwar period. The recovery is, at this stage, rathermore hesitant innature than inprevious Australian upswings, and later and less rapid than generally in the OECD countries. The evidence that a turning point has been reached is asyetscattered, with the recovery in residential construc¬ tion andtheturnaroundinstockbuildingatallstagesofproductiontheclearestsigns. In addition, foreign trade and capital expenditure on new plant and equipment have 1 There was a change of government during the period. In December 1975 a Liberal- National Country Party AdministrationreplacedtheLaborGovernment which had beenin power since December 1972. 2 Running from 1st July 1975 to 30th June 1976. OECD Economic Surveys Diagram 1 Recovery phase in selected OECD countries Indices of seasonally adjusted GDP in constant prices, 1974 = 1001 lot 101 Japan IK 106 Canada 104 / 104 102 S ,' 102 ^^- Auslialia S 100 * _^_--" ,,- \ 100 * UnitedKingdom *" \ V / ^ \ UnitedSlates / II III IV I II 1975 1.76 1 GNP for United States, Canada, Japan and Germany. Source: OECD. picked up and indicators of both consumer and business confidence also show an improvement over 1975. The pattern ofdevelopment over the last two years has been unusual. On the basis of movements in the level of seasonally-adjusted real GDP or of non-farm output,thedeclineinactivitystartedaroundthesecondquarterof1974andcontinued until the first quarter of 1976, interrupted, however, by a short-lived upturn around thefirst halfof 1975. This would suggest that the recessioncould be approximately dated from a peak in the first quarter of 1974 to a trough in the fourth quarter of 1975, a period during which GDP fell by 3.1 per cent and gross non-farm product by4.8percent3. However, there are anumberofdifficultiesinvolved in establishing these turning points and notably the latter one4. Several indicators on the supply side suggest that the trough may have occurred earlier with industrial production and employment already growing in the second half of 19755. The difficulty of 3 The most severe previous post-war recession was 1960/61. Between the third quarters of1960and1961,realGDPandrealgrossnon-farmproductfellby3.6and4.7percentrespectively. 4 In addition to the qualifications mentioned below, it must also be pointed out that the reliability of seasonally-adjusted quarterly national accounts data has increasingly come under considerabledoubt. Forthisreasonmuchofthediscussiononrecentdevelopmentswillbecarried out in terms of half-yearly data. 5 Using the trend-deviation or "growth-cycle" method on 40 economic indicators Defris suggests that the peak be dated August 1973 and the trough May 1975; see L. Defris "Leading Australian Cyclical Indicators", Australian Economic Review, 4/1975. This earlier dating of the peak is to be expected from the use of trend-deviation indicators, but is nevertheless slightly