Economic Analysis
Australia

Australia

Population 23,940 million
GDP per capita 51180 US$
A2
Country risk assessment
A1
Business Climate
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Synthesis

major macro economic indicators

  2014  2015  2016 (e) 2017 (f)
GDP growth (%) 2.8 2.4 2.5 2.5
Inflation (yearly average) (%) 2.5 1.6 1.5 2.1
Budget balance (% GDP) -2.8 -2.7 -2.6 -2.9
Current account balance (% GDP) -3.1 -4.6 -3.9 -3.6
Public debt (% GDP) 34.3 37.6 40.1 43.2

 

(f) Forecast

STRENGTHS

  • Geographic proximity to emerging Asia
  • Mining resources
  • Moderate public debt
  • Specific geographic features which favour tourism

WEAKNESSES

  • Vulnerable to commodities cycle (specifically iron ore and coal) and Chinese demand
  • Substantial household debt (185% of gross disposable income)
  • Shortage of skilled labour
  • Highly exposed to natural hazards
  • Wide disparities between federated States

Risk assessment 

Transition of the economic model sustained by private consumption

Activity is expected to accelerate slightly in 2017. The transition of the economic model will give an impetus to growth by reducing the impact of the Chinese slowdown and the worsening trade terms which affected it in 2016: following the mining boom, the country has been working to diversify its economy in order to offset the fall in mining income. The services sectors (notably tourism and education), as well as the sectors strong in research and development will experience strong investment growth. Residential investment is also likely to continue, thus stimulating the construction sector.
Meanwhile, slower demand from China for iron ore and coal will be partially offset by more intensive exploitation of other commodities and by expansion of the services sector. Private consumption is expected to continue to sustain activity because of the low unemployment rate and the steady rise in property prices. The central bank's accommodative monetary policy (key rate of 1.5%) will also support private consumption despite and already considerable level of household debt (185% of gross disposable income).
Slightly above the central bank target (2%), inflation is expected to rise gradually insofar as certain factors allowing inflationary tensions to be contained are starting to weaken, in particular slower wage rises, the modest oil price recovery and more intense competition on the distribution market in the past.
The risk of a stronger than expected economic downturn in China (Australia's leading trading partner accounting for one third of exports) could hit activity. Nevertheless, the country has room for manoeuvre on fiscal and monetary policy.

 

Abandonment of objective to reduce public deficit

The fiscal consolidation sought by the former prime minister is no longer a priority. Indeed, Prime Minister Turnbull wants to adopt a pro-business policy by lowering taxes and allocating AUD 1.1 billion (0.1% of GDP) to innovation and entrepreneurship. Meanwhile, security issues featured strongly in the debates during the last general elections. The government is, accordingly, planning to invest USD 30 billion in defence over the next 10 years. So, the public deficit is expected to continue to rise, while remaining at a relatively low level compared with other OECD countries.
The current account deficit is expected to narrow slightly, taking into account higher exports of copper and liquefied natural gas, which benefited from the previous depreciation of the Australian dollar. Exports of services also contributed to an improvement in the current account deficit, thus offsetting the rise in imports triggered by private consumption.
Australia is still heavily dependent on Chinese demand (notably for iron and coal, the two leading exports) despite starting to adapt its economic model, a change which could, however, benefit from Asian demand to diversify its exports.

 

Re-elected, Malcolm Turnbull governs with the smallest majority

Following a no-confidence motion passed against former Prime Minister Tony Abbott, current Prime Minister Turnbull called for early elections in July 2016 in order to obtain a bigger majority. Despite being re-elected, this gamble failed, with the (Liberal – National) coalition losing 15 seats compared with the previous parliamentary term (76 seats won of the 150-seat House of Representatives). The political instability which has prevailed since 2010 (five prime ministers in six years) is thus set to continue. New elections before the end of his mandate (2019) cannot be ruled out if Turnbull wants a larger majority or if the more conservative wing of the party (Abbott's supporters) see it as an opportunity to pass a motion of no confidence against Turnbull.
Internationally, Australia's policy is to establish closer economic ties with the Asia-Pacific region (in particular China) while maintaining a special relationship with the United States. However, its membership of the Asian Infrastructure Development Bank (set up by China) could create tensions in its relationship with the United States.

 

Last update: January 2017

A former British colony, Australia’s legal system and legal precepts are broadly inspired by British “common law” and the British court system.

 

There are various levels of court systems in Australia – small claims, local/magistrates, district/county, state/territory and federal. There are also specialist courts (e.g. family, drug, etc.).

 

Payments

 

The “payment system” (arrangements which allow consumers, business and other organisations to transfer funds) includes:

 

a) Cash: widespread payment method used by consumers for low-value transactions (usually payments under AUD 20). Certain entities (i.e. those providing a designated service under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth)) must report cash transactions over AUD 10,000 to AUSTRAC (for AML purposes). In 2013, cash payments accounted for 47% of all transactions.

 

b) Personal cheques (drawn on a personal account) and bank cheques (drawn on the issuing bank): used for domestic and even international transactions. Cheque use in Australia has declined (falling 20% in 2016 alone, and declining almost 60% from 2011).

When cheques are used in commercial transactions, they are generally bank cheques.

 

c) Credit cards: have replaced cash as a payment method across the spectrum – increasing by 57% between 2010 and 2015.

 

d) Electronic transactions: on its way to becoming the dominant payment process in Australia for all transactions, this includes point-of-sale (POS) electronic transactions, as well as mobile apps, electronic funds transfer (EFR) and internet transactions.

 

e) EFT electronic funds and SWIFT bank transfers: the most commonly used payment method for international transactions. The majority of Australian banks are connected to the SWIFT electronic network, offering a rapid, reliable and cost-effective means of payment.

 

f) The Australian dollar, along with the main foreign currencies, is now also part of the Continuous Linked Settlement System (CLS), a highly automated interbank transfer system for processing both legs of foreign exchange transactions simultaneously.

 

Debt collection

Amicable phase

Under the 2011 Civil Dispute Resolution Act (Cth), parties are encouraged to negotiate and take “genuine steps” to settle commercial disputes prior to commencing certain legal proceedings in the Federal Court and Federal Circuit Court. Examples of such steps include notifying the debtor of the issues and offering discussions in view of resolving the dispute, and providing relevant information and documents to the other person in order to solve the dispute. Similar legislation exists across the states and territories.

 

These steps are sometimes successful and largely dependent on the quantum of the claim. Generally, there is greater success in relatively straightforward disputes where the value is less than about AUD 50,000. With larger, more complex matters involving debtor companies with more than one director, attempts by the creditor to enter into settlement negotiations are often ignored or ultimately unsuccessful, as debtors tend to apportion blame for the liability incurred and therefore hold out for as long as reasonably possibly (often immediately prior to or even during a hearing) before engaging in settlement negotiations.

 

Legal proceedings

Australian law does not provide for fast track legal proceedings as such. If the amicable phase fails, ordinary proceedings will take place. However, the New South Wales (NSW) Supreme Court has a special list for commercial disputes: once a matter is identified as being appropriate for that list, it will be proactively managed by the court to try and ensure an efficient resolution – this includes debt recovery matters. This provides for an efficient turnaround with a high degree of judicial management and an early judgment. Similar lists also operate for commercial disputes in the Supreme Courts of Victoria, Western Australia and Queensland.

 

In relation to corporate debtors, if the debt remains unpaid and the creditor’s claim is due for payment, uncontested, and currently over AUD 2,000, the creditor may issue a creditor’s statutory demand for payment of debt (under section 459E of the Corporations Act 2001 (Cth) (Act) demanding payment within 21 days. Unless the debtor settles the claim within the required timeframe to the creditor’s satisfaction, or applies to the Court to have the statutory demand set aside, the creditor may lodge a petition for winding-up of the debtor’s company as the company is presumed insolvent for the three months following the company’s failure to comply with the statutory demand (under section 459C of the Act). For individuals, the process is similar – a bankruptcy notice is issued and bankruptcy proceedings can be commenced thereafter however, proceedings cannot be commenced in the Supreme Court; proceedings are required to be commenced in the Fed Circuit Court.

 

In NSW, under ordinary debt recovery proceedings against an individual or company debtor, a statement of claim must be personally delivered and served to the debtor, who must then pay the debt, or file and serve a defence on the creditor within 28 days. Failure to do so may result in a default judgment being entered against the debtor. It is worth nothing that there are different time frames for different states.

If the debtor does not pay the debt and files a defence, orders will be made by the court to prepare the matter for hearing. This will ordinarily involve activities such as discovery and the preparation and exchange of evidence that will be relied upon at the hearing.

 

During the preliminary phase, the parties may request and exchange particulars of the claim or defence made by the other party. This may involve the exchange of documents referred to in the claim or defence, including but not necessarily limited to copies of the relevant unpaid invoices and statements of account.

 

If discovery is ordered, the parties will be required to exchange all documents that are relevant to their case. Otherwise, all documents which the parties wish to rely upon at the hearing to prove their case must be included in the evidence of the parties. This evidence will usually take the form of witness statements or affidavits.

 

Before handing down its judgment, the court will examine the case and hold an adversarial hearing in which the witnesses of each party may be cross-examined by the other parties’ lawyers. In most cases, straightforward claims are likely to be settled within two to four months of the commencement of proceedings but disputed, more complex claims may last more than a year.

 

If a party is not satisfied with the judgment awarded by the court, that party may appeal the decision. As a general rule, appeals lodged against Supreme Court decisions are heard by the Court of Appeal in that state/territory. Any further appeal thereafter is heard by the High Court of Australia, located in Canberra. However, there is no automatic right of appeal to the High Court and the party seeking to appeal must seek leave and persuade the court in a preliminary hearing that there is a special basis for the appeal, as the High Court will only re-examine cases of clear legal merit.

 

Local Courts or Magistrates Courts (depending on the state/territory) hear minor disputes involving amounts ranging up to a maximum of AUD 100,000 (NSW, Victoria, South Australia, Northern Territory, Western Australia, and Tasmania), AUD 150,000 (Queensland) or AUD 250,000 (Australian Capital Territory).

 

Beyond these various thresholds, disputes involving financial claims up to AUD 750,000 in New South Wales, Western Australia, South Australia or Queensland, for example, are heard either by the County Court or District Court, depending on the state/territory. There is no County Court or District Court in Tasmania, Northern Territory or Australian Capital Territory.

 

Claims greater than AUD 750,000 in NSW, Queensland, Southern Australia, and Western Australia are heard by the Supreme Court of each State. In the other states and territories, the Supreme Court hears claims greater than:

 

(a) AUD 100,000 in the Northern Territory;

 

(b) AUD 250,000 in Australian Capital Territory; and

 

(c) AUD 50,000 in Tasmania.

 

The Victorian County Court and Supreme Court have an unlimited jurisdiction.

 

Enforcing court decision

A judgment is enforceable as soon as it is entered by the court. The plaintiff has up to fifteen years following the entry of judgment to pursue enforcement of an Australian judgment through Examination Notices, Garnishee Orders or Writs of Execution.

 

Examination Notices are tools that force the debtor to provide information on its financial situation and assets, helping to establish a recovery strategy. It must be requested from the court after judgment has been entered.

 

The Garnishee Order allows the creditor to recover its debt directly from the debtor’s bank account or salary as well as from the debtor’s debtors, until the principal and interest are paid off.

 

Finally, the Writ of Execution orders a sheriff to seize and sell the debtor’s property to the benefit of the creditor in payment of the debt (together with interest and costs) owing to the creditor.

 

As for foreign awards, enforcement in Australia is governed predominantly by statutory regimes (Pt 6 of theServiceandExecution of Process Act 1992(Cth) for judgments given in Australia andForeign Judgments Act 1992(Cth) for judgments given outside Australia) and common law principles, such as the exequatur procedure. Furthermore, recognition depends on whether a reciprocal recognition and enforcement agreement exists between Australia and the issuing country.

 

Insolvency procedures

(a) Administration: A debtor company can be placed into administration either voluntarily, by its directors, or involuntarily by creditors that are owed money. The administrator will take full control of the company, and investigate and report to creditors as to the company’s business, property, affairs, and financial circumstances. There are three options available to creditors:

    1. end the administration and return the company to the director(s);
    2. approve a deed of company arrangement through which the company will pay all or part of its debts; or
    3. wind up the company.

 

(b) Receivership: This constitutes a first settlement possibility. A receiver is appointed by a secured creditor who holds security or a charge over some or all of the company’s assets. The receiver’s primary role is to collect and sell enough of the company’s assets to repay the debt owed to the secured creditor. If the process fails, a liquidation procedure may be initiated.

 

(c) Liquidation: Creditors or a court may wind up a company, and appoint a liquidator who collects, protects, and realises the company’s assets into cash, keep the creditors informed about the company’s affairs and distribute any proceeds of sale of company assets. Upon completion of the liquidation, the company is then deregistered.

 

In 2016, a new insolvency law reform bill passed both legislative houses. It will provide directors with a safe harbour from personal liability for wrongful trading when they engage restructuring advisors to pursue an out-of-court restructuring. They will be able to consider value-saving options. Another change will be the prevention of contractual counterparties from terminating their contracts for a default based on the commencement of insolvency proceedings. While the reform has passed both houses of parliament, it has not yet been enacted into law (but, as at 26 October 2017, it was expected to become law shortly and come into operation on 1 July 2018 – though this could be subject to delay).

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