OECD ECONOMIC SURVEYS 1983-1984 D i) _ 7\ 3 ) 3 .17 I D 3 ? D il I B 3 3 3 77J I 3 . M) ? I i) ,H 1 D . .1 71 3 D § V 1 _. D P 7,1 I 3 7 AUSTRALIA D 71 3 .1 3 ) 3 .17) 3 3 3 1 3 D 3 ? J 7) .17 I D 3 17 3 1 3 i 7 1 1 0 ? ? 1 7,1 1 71 7 _ B 3 3 3 7,1 I 3 3 i 3 JUNE 1984 "innn" innnr OECD ECONOMIC SURVEYS AUSTRALIA JUNE 1984 ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT Pursuanttoarticle 1 oftheConventionsignedinParison 14thDecember, 1960,andwhichcameintoforceon30thSeptember, 1961,theOrganisation for Economic Co-operation and Development (OECD) shall promote policiesdesigned: - toachievethehighestsustainableeconomicgrowthandemployment andarisingstandardoflivinginMembercountries,whilemaintaining financial stability, and thus tocontribute to the development ofthe worldeconomy; - to contribute to sound economic expansion in Member as well as non-membercountries in theprocessofeconomicdevelopment; and - to contribute to the expansion of world trade on a multilateral, non-discriminatory basis in accordance with international obliga¬ tions. The Signatoriesofthe Convention on the OECD are Austria, Belgium, Canada, Denmark, France, the Federal Republic of Germany, Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain,Sweden,Switzerland,Turkey, the United Kingdomand the United States.ThefollowingcountriesaccededsubsequentlytothisConvention(the datesarethoseonwhichtheinstrumentsofaccessionweredeposited):Japan (28thApril, 1964), Finland (28thJanuary, 1969), Australia (7thJune, 1971) and New Zealand (29th May, 1973). TheSocialistFederalRepublicofYugoslaviatakespartincertainworkof theOECD (agreement of28thOctober, 1961). ©OECD, 1984 Application for permission toreproduce ortranslate all orpart ofthis publication should be made to: DirectorofInformation, OECD 2, rue André-Pascal, 75775 PARIS CEDEX 16, France. CONTENTS Introduction 7 I. Comparative economic performance 8 II. Wages, prices, employment and investment 10 Wage developments and the wage determination system 12 Prices and movements in factor income shares 15 Real wages, productivity, employment and investment 18 III. Economic policies and inflation 21 1972 to mid-1975 22 Mid-1975 to mid-1982 25 The current policy framework 26 IV. Recent trends, policies and prospects 27 Demand and output 27 Labour market developments 31 Prices, wages and costs 34 Foreign trade and balance ofpayments 35 Fiscal policy 39 Financial conditions and monetary policy 41 Short-term prospects 46 V. Conclusions 49 Notes and References 52 Annexes : I. The principles for wage determination: 1983-1985 54 II. Calendar ofmain economic events 58 Statistical annex 64 TABLES Text 1. Factor income shares 17 2. Demand and output 28 3. Labour forces indicators 32 4. Recent trends in prices and costs 34 5. Foreign trade 36 6. Balance ofpayments - current and capital accounts 38 7. Budget transactions 40 8. Formation ofchanges in the volume ofmoney 42 9. Volume ofmoney 44 10. The outlook to 1985 47 Statistical annex A. Gross domestic product, current prices 64 B. Gross domestic product, average 1979-1980 prices 65 C. Income and expenditure ofhouseholds (including unincorporated enterprises) 66 D. Labour market 67 E. Prices and wages 68 F. General government receipts and expenditure 69 G. Balance ofpayments 70 H. Foreign trade - commodity and geographic structure 71 DIAGRAMS 1a, b Comparative economic indicators 8-9 2. Real wages and productivity indicators 1 1 3. Award wages, compensation per employee and the labour market 13 4. Contributions to the total final expenditure deflator 15 5. Profit mark-up over costs 16 6a, b Cyclical comparisons; output, employment, investment, the real wage and inflation 19-20 7. Public sector borrowing requirements 22 8. Monetary indicators 23 9. Commonwealth Budget indicators 24 10. Demand and output 29 11. Investment trends 30 12. Employment and unemployment 33 13. Recent trends in international competitiveness 37 14. Interest rates 43 15. Leading indicators 48 BASIC STATISTICS OF AUSTRALIA THELAND Area(1 000x).km) 7682.3 Urbanpopulation,30.6.1981, Agriculturalarea, 19S0,%oftotal 64.6 %oftotal(citiesover 100000) 69 Populationofmajorcities, 30.6.1981 (1 000): Sydney 3281 Melbourne 2804 Brisbane 1 086 Adelaide 953 Perth 918 THEPEOPLE Population,31.I2.I9S3(1 000) IS4S2 Civilianemployment,February 1984 No.ofinhabitantspersq.km 2.0 (1000) 6366 Naturalincrease, 1983(1 000) 133 ofwhich:Agriculture 404 Netmigration, 1983(1 000) 42 Industry1 1 791 Otheractivities 4 171 PARLIAMENTANDGOVERNMENT CompositionofParliamentfollowinglatestelections: Houseof Party Senate Representatives AustralianDemocrats 5 AustralianLaborParty 30 75 Independent LiberalPartyofAustralia 24 33 NationalPartyofAustralia 4 17 Total 64 125 PresentGovernment:Australian LabourParty NextgeneralelectionsforHouseofRepresentatives:atthelatest March 1986 PRODUCTION2 GrossDomesticProduct, 1983 Grossfixedcapitalformation, 1983: (SAmillion) 163857 PercentageofGDP 23.0 THEPUBLICSECTOR %OFGDPIN 19832 Expenditureongoodsandservices3 20.9 Currentrevenue 34.2 Currenttransfers 10.6 ofwhich:Directtaxes 17.7 0REIGNTRADE Mainexportsin 1982-83,%oftotal: Mainimportsin 1982-83,%oftotal Foodandbeverages 23.2 Foodandbeverages 4.3 Industrialrawmaterials 42.0 Industrialrawmaterials 24.9 Fuelsandlubricants 21.2 Fuelsandlubricants 13.9 Capitalgoods 4.5 Capitalgoods 24.9 Transportequipment 2.1 Transportequipment 12.7 Consumergoods 1.9 Consumergoods 14.7 THECURRENCY Monetaryunit:Australiandollar CurrencyunitperUSdollar, averageofdailyfigures: Year 1983 1.110 April 1984 1.0837 1. Includingminingelectricity,gasandwaterandconstruction. 2. Fiscalyearended30thJune. 3. Currentandcapitalexpenditure. Noie:Aninternationalcomparisonofcertainbasicstatisticsisgiveninanannextable. ThisSurveyisbasedontheSecretariat'sstudypreparedfor theannualreviewofAustraliabytheEconomicandDevelopment Review Committee on 9th May 1984. Afterrevisionsin thelightofdiscussionsduringthereview, final approval ofthe Surveyfor publication was given by the Committeeon5th June 1984. INTRODUCTION Since the early 1970s, in common with most other OECD countries, Australia has experienced high rates ofinflation, relatively weak economic growth and rising unemploy¬ ment. The inflation rate was above the OECD average between 1971 and 1977, fell below it tip to 1981 but has since been higher. Moreover, the reduction in the inflation rate in the recent period came considerably later than generally elsewhere in the OECD area. These developments reflect partly the rapid increase in nominal and real wages in the mid-1970s and early 1980s, influenced by the system of wage determination. A strongly expansionary fiscal policy in 1974-1975 contributed to the emergence of some large inflationary distor¬ tions which persisted for a considerable time. Until around 1975, macro-economic policy was mainly concerned with reducing unemployment which had risen considerably in the post-1973 recession. After mid-1975 and until 1981-1982, inflation became the main priority of policy, its reduction being seen as a necessary pre-condition for reducing unemployment. With the election ofthe new Government in March 1983, policies against a background of achieving concensus through consultation have been directed to fighting inflation and unemployment simultaneously, this approach being endorsed by the National Economic Summit held in April 1983. Reflecting mainly the expansionary stance of fiscal policy in the 1982-1983 and 1983-1984 Budgets, wage moderation and the recovery ofthe rural sector from the drought, real GDP is rising rapidly and is projected tocontinue to do so in 1985, although at a slower rate than in 1984. Unemployment started to fall in the second halfof 1983 although the rate of9.5 per cent in April 1984 remains very high. Reflecting the economic slowdown and the influence of the pay pause proposed in November 1982, the rise in nominal average earnings has slowed down substantially, and for a short period there was a considerable fall in real wages. More recently the year-to-year rate of inflation has been reduced and is projected in the Secretariat forecasts to be around 6 percent by end-1984 but to reaccelerate slightly in 1985. For two years from October 1983, wage increases will be determined by reference to a set of wage-fixing principles based on the indexation of wages to consumer prices. The Australian Council ofTrade Unions and almost all individual unions have given commitments not to pursue wage increases outside the principles while they are in force. A Prices Surveillance Authority has been established; the Advisory Committee on Prices and Incomes and the Economic Planning Advisory Council have been set up, aimed at improving economic consultation and expanding the information base for economic policy¬ making. The Government is alsocommitted to a firrn non-accommodating monetary policy. After reviewing briefly Australia's comparative economic performance since the early 1960s in Part I of this Survey, Part II examines the wage determination system, the inflationary process and its possible consequences for output and unemployment. Part III describes the economic policy response to inflation. Recent trends in the economy and in fiscal and monetary policies are contained in Part IV together with a review of short-term prospects. The Survey concludes in Part V with a discussion of the main policy consider¬ ations. I. COMPARATIVE ECONOMIC PERFORMANCE During the 1960s and early 1970s Australia experienced more rapid economic growth than in the OECD area as a whole, although on a per capita basis, growth was about the same. This performance masked substantially lower labourproductivity increases than in the remainder of the OECD area. In the period after 1974, the growth rate of GDP moved towards the OECD area average. As the population was still increasing more rapidly than elsewhere, GDP per capita started to fall by about 5 per cent per annum relative to the area. Diagram la. Coanparatireccoaoaklad-Caton % 94 92 L 1961 63 65 67 69 71 73 75 77 79 81 1961 63 65 67 69 71 73 75 77 79 25 |- INFLATION, GDP DEFLATOR 20 h AUSTRALIA 10 - 5 - OECD AVERAGE 0 L 1962 64 66 68 70 72 74 76 78 80 82 Source: OECDStatistics Division and ABS. Diagram lb. Comparativeéconomieindicators PRICE COMPETITIVENESS RELATIVE EXPORT VOLUMES I I I I I I I I I I I I I I I I I I I I I I I 70 3 RELATIVE TERMS OF TRADE Ratio 125 ACTUAL 1ll1b1 ' %\ TREND I\J r A I I 105 I »N.A V V 85 L 1961 63 65 67 69 71 73 75 77 79 81 1961 63 65 67 69 71 73 75 77 79 81 0.32 I(cid:9) INVESTMENT RATIOS 0.30 0.28 0.26 OECD AVERAGE 0.24 0.22 0.20 L 1961 63 65 67 69 71 73 75 77 79 81 Source: OECDStatisticsDivision and ABS. In the post-1974 period, productivity slowed markedly but somewhat less in Australia than elsewhere1. Structural factors may have been important in the relative improvement of productivity growth as the employment pattern ofthe OECD area moved more towards that of Australia (a relatively large service sector and a small high-productivity agricultural sector). In contrast to the previous period, employment grew no faster after 1974 than in the rest of the region. With labour force growth continuing, unemployment worsened both