OECD Economic Surveys O E C AUSTRALIA D E c o n OECD Economic Surveys are periodic reviews of member and non-member economies. Reviews of member o OECD Economic Surveys m and some non-member economies are on a two-year cycle; other selected non-member economies are ic also reviewed from time to time. Each Economic Survey provides a comprehensive analysis of economic S u developments, with chapters covering key economic challenges and policy recommendations addressing these r v challenges. e AUSTRALIA y s Australia’s economy has enjoyed considerable success in recent decades, refl ecting strong macroeconomic policy, structural reform and the long commodity boom. Living standards and well-being are generally high, though challenges remain in gender gaps and in GHG emissions. The economy is now rebalancing following the end of the commodity boom, supported by an accommodative macroeconomic stance and currency depreciation. The strengthening non-mining sector is projected to support output growth and spur further reductions in unemployment. Low interest rates have supported aggregate demand but are ramping up investor risk taking and putting pressure on the housing market. V MARCH 2017 Improving competition and other framework conditions that infl uence the absorption and development of o lu innovation are key for restoring productivity growth. Innovation requires labour and capital markets that facilitate m new business models. Productivity growth could be boosted through stronger collaboration between business e 2 and research sectors in R&D activity. 0 1 7 Australia’s adjustment to the end of the commodity boom has not been painless. Unemployment has risen, and /6 inequality is rising. In addition, large socioeconomic gaps between Australia's indigenous community and the rest of the population remain. Developing innovation-related skills will be important for the underprivileged and those displaced by economic restructuring and can help reduce gender wage gaps. SPECIAL FEATURES: INNOVATION-DRIVEN PRODUCTIVITY; BOOSTING R&D OUTCOMES A U S T R Consult this publication on line at http://dx.doi.org/10.1787/eco_surveys-aus-2017-en. A L This work is published on the OECD iLibrary, which gathers all OECD books, periodicals and statistical databases. IA Visit www.oecd-ilibrary.org for more information. Volume 2017/6 ISSN 0376-6438 2017 SUBSCRIPTION March 2017 (18 ISSUES) ISBN 978-92-64-27149-4 M 9HSTCQE*chbeje+ a 10 2017 06 1 P r c h 2 0 1 7 OECD Economic Surveys: Australia 2017 This document and any map included herein are without prejudice tothe status of or sovereigntyoveranyterritory,tothedelimitationofinternationalfrontiersandboundaries andtothenameofanyterritory,cityorarea. Pleasecitethispublicationas: OECD(2017),OECDEconomicSurveys:Australia2017,OECDPublishing,Paris. http://dx.doi.org/10.1787/eco_surveys-aus-2017-en ISBN978-92-64-27149-4(print) ISBN978-92-64-27150-0(PDF) ISBN978-92-64-27151-7(epub) Series:OECDEconomicSurveys ISSN0376-6438(print) ISSN1609-7513(online) OECDEconomicSurveys:Australia ISSN1995-3089(print) ISSN1999-0146(online) ThestatisticaldataforIsraelaresuppliedbyandundertheresponsibilityoftherelevantIsraeliauthorities.Theuse ofsuchdatabytheOECDiswithoutprejudicetothestatusoftheGolanHeights,EastJerusalemandIsraeli settlementsintheWestBankunderthetermsofinternationallaw. Photocredits:Cover©skyearth/Shutterstock.com. 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TABLEOFCONTENTS Table of contents BasicstatisticsofAustralia .................................................. 8 Acronyms ................................................................. 9 Executivesummary......................................................... 11 Assessmentandrecommendations........................................... 15 Macroeconomicdevelopmentsandnear-termprospects:post-boom adjustmentcontinues ................................................... 20 Monetaryandfinancial-marketpolicy:copingwithlowinterestrates.......... 29 Fiscalconsolidation,taxandspendingreform .............................. 35 Encouragingbusinessproductivityandinnovationthroughframework conditions ............................................................. 41 EncouragingproductivityandinnovationthroughR&Dpolicy ................ 44 Addressinginequality,enhancinginclusivenessanddeepeningskills .......... 49 Tacklingenvironmentalchallenges:progressingreenhouse-gasemission policy ................................................................. 52 Bibliography............................................................ 55 Annex.Follow-uptopreviousOECDpolicyrecommendations .................... 57 Thematic chapters Chapter1.Creatinggoodconditionsforinnovation-drivenproductivitygains ...... 63 GaugingAustralia’sproductivityperformanceandinnovationcapacity......... 64 Enhancingproductivityshouldbeacoreobjectiveofinnovationpolicy......... 67 Productivity-enhancinginnovationcanstrengtheninclusiveness.............. 70 SpecificpolicyissuesforAustralia......................................... 71 Promotingcompetitionandflexiblemarkets................................ 72 Improvingresourcereallocationthroughfirmdynamics...................... 77 EnsuringSMEsupportisefficientandeffective.............................. 79 Ensuringintellectualpropertylegislationrewardsinnovationwithout compromisingdiffusion.................................................. 81 Facilitatinginternet-platform“disruptors”.................................. 82 Ensuringaccesstolowcost,highspeedICT ................................ 87 Educationandskillsforinnovation:whatspecialmeasurescanbetaken? ...... 92 Public-servicesinnovationhaspotentialtoboostaggregateproductivity andwell-being.......................................................... 93 Recommendationsonframeworkconditionsforinnovation....................... 98 Bibliography............................................................ 99 OECDECONOMICSURVEYS:AUSTRALIA©OECD2017 3 TABLEOFCONTENTS Chapter2.BoostingR&Doutcomes ............................................ 101 Innovationinputisstrongerthanoutput................................... 102 Weakcollaborationbetweenresearchandbusinesssectorsremains akeyissue ............................................................. 110 Policyleversforstrengtheningcollaborationbetweentheresearch andbusinesssectors .................................................... 114 AchievinggreatercommercialimpactfromAustralia’spublic-sectorresearch ... 121 TaxincentivesformthecoreofAustralia’sfinancialsupportforbusinessR&D .. 124 Enhancingcoherenceandco-ordinationinthescience,research andinnovationsystem .................................................. 130 Strengtheningthemonitoringandevaluationofinnovationprogrammes....... 131 RecommendationsonboostingR&Doutcomes................................. 132 Bibliography............................................................ 133 Boxes 1. Progressonclosingtheoutcomegapsbetweentheindigenouspopulation andtherestofthepopulation......................................... 18 2. PredictingdownturnintheAustralianeconomyusingtheOECD’s resiliencedatabase .................................................. 28 3. Themacroprudentialmeasurestakenin2014 ........................... 32 4. TheNationalScienceandInnovationAgenda............................ 43 1.1. InfluencesonproductivitytrendsinAustralia ........................... 65 1.2. LinksbetweenR&DandproductivityinAustraliandata................... 67 1.3. Australia’sfeeonforeigninvestmentapplications........................ 75 1.4. Keyelementsofinsolvency ........................................... 79 1.5. The“InternetofThings”intheAustraliancontext........................ 88 1.6. EducationprogrammesproposedintheNationalInnovation andScienceAgenda ................................................... 92 1.7. Effortstoimprovepublic-serviceinputandoutputmeasurementcontinue.. 94 2.1. Australia’sresearchsystem ........................................... 103 2.2. ExplainingchangesinAustralia’sR&D,intensityversuscomposition ....... 106 2.3. Australia’sCooperativeResearchCentresprogramme:anexample ofstrongcollaborativeresearch........................................ 113 2.4. Themainfeaturesofthereformofthehighereducationresearch arrangements....................................................... 115 2.5. Theprosandconsofa“useitorloseit”schemeforpubliclyfundedIP inuniversities....................................................... 120 2.6. CSIRO:mainfeatures................................................. 122 2.7. R&DTaxIncentive:mainfeatures...................................... 124 2.8. InnovationandScienceAustralia ...................................... 130 Tables 1. Macroeconomicindicatorsandprojections.............................. 25 2. ExtremevulnerabilitiesfortheAustralianeconomy ...................... 29 3. PastOECDrecommendationsonmonetaryandfinancialstability.......... 33 4. Fiscalindicators..................................................... 36 5. PastOECDrecommendationsonmaintainingfiscalprudence andensuringefficienttaxandpublicspending .......................... 38 4 OECDECONOMICSURVEYS:AUSTRALIA©OECD2017 TABLEOFCONTENTS 6. Selectedtaxmeasuresproposedinthe2016-17Budget ................... 39 7. PastOECDrecommendationsonframeworkconditionsforbusiness........ 49 8. PastOECDrecommendationsonemployment,healthandwelfare ......... 51 9. PastOECDrecommendationsonenvironmentpolicy..................... 54 1.1. RecentmeasurestosupportinnovativeSMEs............................ 80 1.2. Examplesofsize-criteriainSMEsupport................................ 81 1.3. NotableelementsoftheProductivityCommission’sdraftreport onIntellectualProperty (releasedApril2016)............................ 81 1.4. DevelopmentofAustralia’smobilenetworkoperators .................... 91 1.5. Examplesofpublic-servicepolicyinitiativesinAustralia.................. 93 Figures 1. GDPpercapitaishighandwell-beingindicatorscomparefavourably....... 17 2. Productivitygrowthhasslowed........................................ 18 3. Inequalityhasbeenrising ............................................ 19 4. Australia’sgenderwagegapislargerthanmany......................... 20 5. Outputgrowthhasweakened,unemploymentisup,investmentisdown.... 21 6. Rebalancingisseeninservicesexports,employmentandmigration........ 22 7. Consumer-priceinflationandwagegrowthareslowing................... 23 8. Australia’sgrossforeignliabilitiescontinuetogrowbutremainlargely denominatedinAUDorarehedged .................................... 23 9. Totaldebthasincreasedandhouseholddebtisaboveaverage ............. 24 10. ChinaisAustralia’slargesttradingpartner.............................. 26 11. Non-commodityinvestmenthasyettopickup .......................... 26 12. Macro-financialvulnerabilitieshaveeasedsincetheglobalfinancialcrisis .. 27 13. Recentdatasuggestthereissomeriskofadownturn..................... 28 14. Monetarypolicyremainsaccommodative,whilefiscaldeficits aredeclining........................................................ 30 15. Housingmarketindicatorsshowhintsofaslowdown .................... 31 16. Indicatorsofcostsandrisksinhousingcredit ........................... 32 17. Banking-sectorresilienceisbeingbolstered............................. 34 18. Governmentexpenditure,taxationandpublic-debtarecomparativelylow .. 35 19. Consolidationinthefederal-governmentbudget......................... 36 20. Underthegovernment’soperationalgoalthedebt-to-GDPratiowillbeput onadownwardtrack................................................. 37 21. Increasesinpublicspendingcomparedwithpre-crisislevels .............. 37 22. ThestandardrateofGoodsandServicesTaxislowininternational comparison......................................................... 40 23. Australia’sgovernmentinvestmentisbelowtheOECDaverage............. 41 24. Australia’sadvantageinlighterregulationshasbeeneroded............... 42 25. Collaborativeresearchislimited....................................... 45 26. Commercialimpactcouldbestrengthened.............................. 46 27. TaxsupportplaysanimportantroleinR&Dpolicyandthecostisrising rapidly ............................................................. 47 28. AustraliaisfallingbehindleadingcountriesinPISAresults................ 51 29. GreengrowthindicatorsforAustralia................................... 53 30. Australia’sgreenhouse-gasemissionreductionisnowfocused onthetargetfor2030 ................................................ 54 OECDECONOMICSURVEYS:AUSTRALIA©OECD2017 5 TABLEOFCONTENTS 1.1. Australiahasjoinedtheproductivityslowdown.......................... 64 1.2. Investmentinknowledge-basedcapital(KBC)iscomparativelylow......... 66 1.3. Influencesonbusiness-sectorinnovationandproductivity................ 68 1.4. Spendingonimportedintellectualpropertyhasbecomeincreasingly important .......................................................... 69 1.5. Structuralfactorsandlearningfromtheglobalfrontier................... 70 1.6. Australia’sleadinlighterproductmarketregulationhasnarrowed......... 74 1.7. Australia’sservicestradeisleastopenintransport-relatedsectors ......... 75 1.8. IndicatorssuggestAustralia’sexportandimportcompliancecosts maybeheavy ....................................................... 76 1.9. SkillmismatchiscomparativelyhighinAustralia........................ 77 1.10. Policyreformscanhelpreduceskillmismatches......................... 78 1.11. Ride-sharinghaspromptedfallsintaxi-licencesvalues................... 84 1.12. Australia’sAirbnbmarketiswelldeveloped ............................. 85 1.13. Australia’smobiletelephonypricescomparemorefavourably thanitsbroadbandprices............................................. 88 1.14. Broadbandspeedandpenetrationareinthebottomhalf oftheOECDdistribution.............................................. 89 1.15. Publicprocurementspendingaccountsforasignificantshare ofpublicspending................................................... 94 1.16. Australiahasalreadymadegoodprogressinmakinggovernmentdata widelyavailable ..................................................... 96 1.17. OECDRecommendationonDigitalGovernmentStrategies ..................... 97 2.1. Thereisscopetobettermatchinnovationinputandoutput............... 102 2.2. AustralianGovernmentsupportforscience,researchandinnovation bysector,2016-17.................................................... 103 2.3. Researchqualitycompareswellinternationally.......................... 104 2.4. R&Dtrendsandinternationalcomparisons ............................. 105 2.5. DecompositionanalysisonbusinessR&Dintensity ...................... 106 2.6. R&Dexpenditurebysourceoffunding.................................. 107 2.7. Somecriticalinnovationoutcomesarelowininternationalcomparison .... 107 2.8. Australia’spatentperformanceisbelowaverage......................... 108 2.9. Commercialisationoutcomesarelaggingbehind......................... 109 2.10. Collaborativeresearchinlimited....................................... 111 2.11. Internationalcollaborationperformanceismixed........................ 112 2.12. TrendsinCRCandfundingcompositionofCO2CRC ...................... 113 2.13. HighereducationR&Dexpenditurebysourceoffunding,2014............. 116 2.14. UniversityR&Dexpenditureonengineeringandtechnologyislow ......... 117 2.15. Thecommercialimpactofpublic-sectorresearchcouldbestrengthened.... 123 2.16. GovernmentsupportforbusinessR&D:trendsandinternational comparisons........................................................ 125 2.17. CostdevelopmentsoftheofR&DTaxIncentive.......................... 126 6 OECDECONOMICSURVEYS:AUSTRALIA©OECD2017 This Survey is published on the responsibility of the Economic and Development Review Committee (EDRC) of the OECD, which is charged with the examinationoftheeconomicsituationofmembercountries. The economic situation and policies of Australia were reviewed by the Committeeonthe12thofDecember,2016.Thedraftreportwasthenrevisedinthe light of the discussions and given final approval as the agreed report of the whole Committeeonthe3rdofJanuary,2017. The Secretariat’s draft report was prepared for the Committee by Philip HemmingsandVassilikiKoutsogeorgopoulouunderthesupervisionofPirittaSorsa. Statistical research analysis was provided by Taejin Park. Administrative assistancewasprovidedbyAnthonyBoltonandBrigitteBeyeler. ThepreviousSurveyofAustraliawasissuedinDecember2014. 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OECDECONOMICSURVEYS:AUSTRALIA©OECD2017 7 BasicstatisticsofAustralia (NumbersinparenthesesrefertotheOECDaverage)* LAND,PEOPLEANDELECTORALCYCLE Population(million) 23.9 Populationdensityperkm2 3.1 (35.1) Under15(%) 18.9 (18.0) Lifeexpectancy(years,2014) 82.4 (80.9) Over65(%) 14.9 (16.3) Men(2013) 80.1 (77.8) Foreign-born(%,2014) 28.1 Women(2013) 84.3 (83.1) Latest5-yearaveragegrowth(%) 1.4 (0.4) Latestgeneralelection July2016 ECONOMY Grossdomesticproduct(GDP) Valueaddedshares(%,2014) Incurrentprices(billionUSD) 1229.6 Primarysector 2.6 (2.4) Incurrentprices(billionAUD) 1633.8 Industryincludingminingandconstruction 25.4 (26.6) Latest5-yearaveragerealgrowth(%) 2.7 (1.9) Services 72.0 (70.9) Percapita(000USDPPP) 46.7 (4.1) GENERALGOVERNMENT PercentofGDP Expenditurea 35.7 (41.7) Grossfinancialdebta 44.2 (111.6) Revenue 34.2 (38.5) Netfinancialdebta -14.6 (72.7) EXTERNALACCOUNTS Exchangerate(AUDperUSD) 1.329 Mainexports(%oftotalmerchandiseexports) PPPexchangerate(USA=1) 1.462 Crudematerials,inedible,exceptfuels 31.8 InpercentofGDP Mineralfuels,lubricantsandrelatedmaterials 25.3 Exportsofgoodsandservices 19.3 (5.5) Foodandliveanimals 14.3 Importsofgoodsandservices 21.6 (5.1) Mainimports(%oftotalmerchandiseimports) Currentaccountbalance -4.8 (0.2) Machineryandtransportequipment 39.6 Netinternationalinvestmentposition -56.8 Miscellaneousmanufacturedarticles 15.1 Manufacturedgoods 12.2 LABOURMARKET,SKILLSANDINNOVATION Employmentratefor15-64year-olds(%) 72.2 (66.2) Unemploymentrate,LabourForceSurvey(age15andover)(%) 6.1 (6.8) Men 77.5 (74.1) Youth(age15-24,%) 13.1 (13.9) Women 66.8 (58.5) Long-termunemployed(1yearandover,%) 1.4 (2.2) Participationratefor15-64year-olds(%) 76.9 (71.2) Tertiaryeducationalattainment25-64year-olds(%) 42.9 (35.7) Averagehoursworkedperyear 1665 (1766) GrossdomesticexpenditureonR&D(%ofGDP,2013) 2.1 (2.4) ENVIRONMENT Totalprimaryenergysupplypercapita(toe) 5.5 (4.1) CO2emissionsfromfuelcombustionpercapita(tonnes,2014) 15.8 (9.4) Renewables(%oftotal) 6.5 (9.6) Waterabstractionspercapita(1000m3,2011) 0.6 Fineparticulatematterconcentration(PM2.5,µg/m3) 6.7 (14.5) Municipalwastepercapita(tonnes,2011) 0.6 (0.5) SOCIETY Incomeinequality(Ginicoefficient,2014b) 0.337 (0.31) Educationoutcomes(PISAscore) Relativepovertyrate(%,2014b) 12.8 (11.0) Reading 503 (496) Medianequivalisedhouseholdincome(000USDPPP,2014) 31.3 (22.4) Mathematics 494 (494) Publicandprivatespending(%ofGDP) Science 510 (501) Healthcare,currentexpenditure 9.3 (9.1) Shareofwomeninparliament(%,August2016) 31.9 (27.8) Pensions(2014b) 6.9 (9.1) Netofficialdevelopmentassistance(%ofGNI) 0.27 (0.39) Education(primary,secondary,postsec.nontertiary,2013) 3.9 (3.7) Betterlifeindex:www.oecdbetterlifeindex.org a) 2014fortheOECDaggregate b) 2013fortheOECDaggregate. c) 2011fortheOECDaggregate. * Datareferto2015unlessotherwisestated.WheretheOECDaggregateisnotprovidedinthesourcedatabase,asimpleOECDaverage oflatestavailabledataiscalculatedwheredataexistforatleast29membercountries. Source: Calculationsbasedondataextractedfromthedatabasesofthefollowingorganisations:OECD,InternationalEnergyAgency, WorldBank,InternationalMonetaryFundandInter-ParliamentaryUnion. 8 OECDECONOMICSURVEYS:AUSTRALIA©OECD2017