OECD Economic Surveys : Australia 1976.

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by  OECD

OECD
ECONOMIC SURVEYS
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AUSTRALIA
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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
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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.
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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