EX-99 2 standard_disclosure.htm EXHIBIT D standard_disclosure.htm
 


 
EXHIBIT D
 
 
DESCRIPTION OF THE COMMONWEALTH OF AUSTRALIA
 
 

 
 

 
 

 
 
Dated as of 6 October 2010
 

 

 
 

 


 


 
 

 


 
INCORPORATION OF DOCUMENTS BY REFERENCE
 
 
This document is an exhibit to the Commonwealth of Australia's Annual Report on Form 18-K ("Annual Report") under the U.S. Securities Exchange Act of 1934 for the fiscal year ended 30 June 2009. All amendments to such Annual Report filed by the Commonwealth of Australia on Form 18-K/A following the date hereof shall be incorporated by reference into this document. Any statement contained herein, or deemed to be incorporated by reference herein, shall be deemed to be modified or superseded for purposes of this document to the extent that a statement contained herein or in any other subsequently filed document that also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this document.
 

 
i

 

 
TABLE OF CONTENTS
 
 
Page
 
INCORPORATION OF DOCUMENTS BY REFERENCE
i
ABOUT THIS DESCRIPTION OF THE COMMONWEALTH OF AUSTRALIA
iii
Official Documents
iii
Forward-Looking Statements
iii
Presentation of Financial and Other Information
iv
Certain Defined Terms and Conventions
v
THE COMMONWEALTH OF AUSTRALIA
1
Population and Geography of Australia
1
Form of Government
2
THE AUSTRALIAN ECONOMY
5
Overview
5
Domestic Economic Conditions
6
ECONOMIC OUTLOOK
12
Commonwealth Responses to the Global Financial Crisis
12
Forecasts for the Australian Economy
13
MAJOR INDUSTRIES
17
EXTERNAL TRADE AND BALANCE OF PAYMENTS
25
Merchandise Trade
25
Balance of Payments
26
Changes in Official Reserve Assets
28
Exchange Rate
29
Foreign Investment Policy
30
Foreign Financial Relations
31
CURRENCY, MONETARY AND BANKING SYSTEM
33
Australian Currency
33
Monetary Conditions
33
Regulation of the Financial System
34
The Financial System Regulatory Regime
41
GOVERNMENT FINANCE
43
Federal Government Budget
43
Commonwealth Investment in the National Broadband Network
48
Pensions and Superannuation
49
Taxation
50
Commonwealth-State Financial Relations
56
Domestic Issuance of Government Bonds
58
Guarantees and Other Contingent Liabilities
59
PUBLIC DEBT
64
Debt Record
66
Credit Ratings
67


 
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ABOUT THIS DESCRIPTION OF THE COMMONWEALTH OF AUSTRALIA
 
Official Documents
 
Certain financial and statistical information contained in this Description of the Commonwealth of Australia has been derived from official Australian Government sources, including:
 
·
the Final Budget Outcome 2009-10 released on 24 September 2010, which we refer to as the "Final Budget Outcome 2009-10" (included as Exhibit E to the Commonwealth of Australia's Annual Report on Form 18-K for the fiscal year ended 30 June 2010 filed with the Commission on 6 October 2010 and available at http://www.budget.gov.au/2009-10/content/fbo/html/index.htm), the Final Budget Outcome 2008-09 released on 29 September 2009, which we refer to as the "Final Budget Outcome 2008-09" (included as Exhibit E to the Commonwealth of Australia's Annual Report on Form 18-K for the fiscal year ended 30 June 2009 filed with the Commission on 24 November 2009 and available at http://www.budget.gov.au/2008-09/content/fbo/html/index.htm) and the Final Budget Outcome 2007-08 released on 26 September 2008, which we refer to as the "Final Budget Outcome 2007-08" (available at http://www.budget.gov.au/2007-08/fbo/html/index.htm).
   
·
the Pre-Election Economic and Fiscal Outlook 2010 dated 26 July 2010, which we refer to as the "2010 PEFO" (available at http://www.treasury.gov.au/documents/1858/PDF/PEFO_2010.pdf);
   
·
the July 2010 Economic Statement dated 14 July 2010, which we refer to as the "July 2010 Economic Statement" (available at http://www.budget.gov.au/2010-11/content/economic_statement/html/index.htm);
   
·
the 2010-11 Commonwealth Budget dated 11 May 2010, which we refer to as the "2010-11 Budget" (included as Exhibit C to the Commonwealth of Australia's Annual Report on Form 18-K for the fiscal year ended 30 June 2009 filed with the Commission on 24 November 2009 and available at http://www.budget.gov.au), the 2009-10 Commonwealth Budget dated 12 May 2009, which we refer to as the "2009-10 Budget" (available at http://www.budget.gov.au) and the 2008-09 Commonwealth Budget dated 13 May 2008, which we refer to as the "2008-09 Budget" (available at http://www.budget.gov.au/2008-09/); and
   
·
the Mid-Year Economic and Fiscal Outlook 2009-10 Statement released on 2 November 2009, which we refer to as the "2009-10 MYEFO" (included as Exhibit F to the Commonwealth of Australia's Annual Report on Form 18-K for the fiscal year ended 30 June 2009 filed with the Commission on 24 November 2009 and available at http://www.budget.gov.au/2009-10/content/myefo/html/index.htm).
 
Information available on the websites referenced above is not incorporated by reference in this Description of the Commonwealth of Australia.
 
The address of the Commonwealth of Australia is c/o The Treasury of the Commonwealth of Australia, Treasury Building, Langton Crescent, Parkes ACT 2600, Australia, and its phone number is +61 2 6263 2111.
 
Forward-Looking Statements
 
This Description of the Commonwealth of Australia contains forward-looking statements. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms 'believes', 'forecasts', 'estimates', 'projects', 'expects', 'intends', 'may', 'will', 'seeks', 'would', 'could' or 'should' or, in each case, their negative or other variations or comparable terminology, or in relation to discussions of forecasts, policies, strategy, plans, objectives, goals, future events or intentions.
 
Forward-looking statements are statements that are not historical facts, including statements about the Commonwealth of Australia’s beliefs and expectations.  These statements are based on current plans, estimates and projections and, therefore, undue reliance should not be placed on them. Forward-looking statements speak only as of the date they are made.  Although the Australian Government belives that the beliefs and expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such beliefs and expectations will prove to have been correct.
 
Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those expressed in any forward-looking statement.  Factors that could
 

 
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cause the actual outcomes to differ materially from those expressed or implied in forward looking statements include:
 
·
the international economy, and in particular the rates of growth (or contraction) of Australia's major trading partners;
   
·
the effects of the global financial crisis;
   
·
changes in commodity prices and/or global demand for Australia's major export commodities;
   
·
increases or decreases in international and domestic interest rates;
   
·
increases or decreases in domestic consumption;
   
·
increases or decreases in Australia's labour force participation and productivity;
   
·
exchange rate fluctuations; and
   
·
increases or decreases in Australia's rate of inflation.
 
Presentation of Financial and Other Information
 
The fiscal year of the Commonwealth of Australia is 1 July to 30 June.  Annual information presented in this Description of the Commonwealth of Australia is based on fiscal years, unless otherwise indicated.  In this Description of the Commonwealth of Australia, the fiscal year beginning on 1 July 2009 and ending on 30 June 2010 is referred to as "2009-10" and previous and subsequent fiscal years are referred to using the same convention.
 
Any discrepancies between totals and sums of components in this Description of the Commonwealth of Australia are due to rounding.
 
Statistical information reported in this Description of the Commonwealth of Australia has been derived from official publications of, and information supplied by, a number of departments and agencies of the Commonwealth of Australia, including the Treasury of the Commonwealth of Australia, the Department of Finance and Deregulation, the Reserve Bank of Australia (the "RBA") and the Australian Bureau of Statistics ("ABS").  Some statistical information has also been derived from information publicly made available by the International Monetary Fund (the "IMF") and the Organisation for Economic Co-operation and Development (the "OECD").  Similar statistics may be obtainable from other sources, but the underlying assumptions, methodology and, consequently, the resulting data may vary from source to source.  In addition, statistics and data published by a department or agency of the Commonwealth of Australia may differ from similar statistics and data produced by other departments or agencies due to differing underlying assumptions or methodology.  Certain historical statistical information contained in this Description of the Commonwealth of Australia is based on estimates that the Commonwealth of Australia and/or its departments or agencies believe to be based on reasonable assumptions.  The Commonwealth of Australia's official financial and economic statistics are subject to review as part of a regular confirmation process. Accordingly, financial and economic information may be subsequently adjusted or revised. While the Australian Government does not expect revisions to be material, no assurance can be given that material changes will not be made.  The Commonwealth of Australia adheres to the IMF's Special Data Dissemination Standards, which guide members in the dissemination of economic and financial data to the public.
 
As required by Form 18-K, the Commonwealth's most recent budget is filed as an exhibit to the accompanying annual report.  In addition, other Australian Government budgetary papers may from time to time be filed as exhibits to amendments to this annual report or subsequent annual reports from time to time.  Those budgetary papers contain forward-looking statements that are not historical facts, including statements about the Australian Government's beliefs and expectations for the forthcoming budget period. Those statements are or will be based on plans, estimates and projections that are current only as of the original date of release by the Australian Government of those budgetary papers and speak only as of the date they are so made.  The information included in those budgetary papers may also have changed since that date.  In addition, these budgets are prepared for government planning purposes, not as future predictions, and actual results may differ and have in fact differed, in some cases materially, from results contemplated by the budgets.  Therefore, you should not rely on the information in those budgetary papers.
 

 
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The fiscal aggregates in the Federal budget are underpinned by a set of forward estimates consisting of short-term economic forecasts and projections based on medium-term assumptions.  In the budget, the Australian Government usually presents two years of economic forecasts and an additional three years of projections.  The forecasts are based on detailed assessments of different sectors of the economy derived from the most recent data outturns, forecasting models and information gathered from business liaison.  Forecasts for the various sectors of the economy are brought together to form a coherent set of forecasts for the macroeconomy.  Projections are used in the latter years and are based on long run averages of broad economic aggregates.
 
In the 2009-10 Budget, the projection methodology was changed from the usual practice of assuming trend GDP growth in the two projection years.  This reflected the expectation that the Australian economy would experience a sustained period of below trend growth in the three-year forecast period.  A corresponding period of above trend growth was assumed in the projections to return the economy to its potential level.  On the basis of forecasts that the economy will return to full capacity within the three-year forecast period, the 2010-11 Budget resumed the traditional methodology of assuming trend GDP growth in the projection years.
 
References in this Description of the Commonwealth of Australia to "Australian dollars," "A$," "dollars" or "$" are to the lawful currency of the Commonwealth of Australia and references in this Description of the Commonwealth of Australia to "U.S. dollars" or "US$" are to the lawful currency of the United States.
 
References in this Description of the Commonwealth of Australia to statutes followed by "(Cth)" are to legislation enacted by the Federal Parliament of the Commonwealth of Australia.
 
Certain Defined Terms and Conventions
 
The terms set forth below have the following meanings for purposes of this Description of the Commonwealth of Australia:
 
ADI
is short for Authorised Deposit-taking Institution.
   
APRA
means the Australian Prudential Regulation Authority.
   
ASIC
refers to the Australian Securities and Investments Commission.
   
Authorised Deposit-taking Institution
means a body corporate that has been granted authority by APRA to carry on banking business in Australia (under section 9 of the Banking Act 1959 (Cth)).
   
Basic price
refers to the amount receivable by the producer from the purchaser for a unit of a good or service produced as output, minus any tax payable plus any subsidy receivable on that unit as a consequence of its production or sale; it excludes any transport charges invoiced separately by the producer.
   
Balance of payments
refers to the total of all of the amounts transacted between residents of Australia and residents of the rest of the world (non-residents) over a specific period of time.
   
Capital account
records the values of the non-financial assets that are acquired, or disposed of, by resident institutional units by engaging in transactions, and shows the change in net worth due to saving and capital transfers or internal bookkeeping transactions linked to production (changes in inventories and consumption of fixed capital).
   
Chain volume measures
refers to measures derived by linking together (compounding) movements in volumes, calculated using the average prices of the previous fiscal year, and applying the compounded movements to the current price estimates of the reference year.  Chain volume measures were introduced in the national accounts in 1998 because, by annually rebasing, they provide price relativities that reflect the current situation, thereby providing better real estimates than constant price measures, especially in times of rapidly changing relative prices.
   
Consumer price index (or headline rate of inflation)
measures quarterly changes in the price of a 'basket' of goods and services which account for a high proportion of expenditure by the CPI population group (i.e., metropolitan households) and is commonly referred to as the headline rate of inflation.
   
Current account
includes the balance of trade (exports of goods and services minus imports of goods


 
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and services), net factor income (income earned by Australia from the rest of the world minus income earned by the rest of the world from Australia) and net transfer payments (including, for example, net outflows of foreign aid payments). The current account excludes capital transfers.
   
Current prices
refers to estimates valued at the prices of the period to which the observation relates. For example, estimates for 2002–03 are valued using 2002–03 prices. This contrasts to chain volume measures where the prices used in valuation refer to the prices of the previous year.
   
Fiscal year
means each year commencing 1 July and ending 30 June.
   
Foreign ADI
means a foreign corporation authorised to carry on banking business in a foreign country that has been granted authority by APRA to carry on banking business in Australia (under section 9 of the Banking Act 1959 (Cth)).
   
Free on board (or f.o.b.)
The value of goods measured on a free on board basis includes all production and other costs incurred up until the goods are placed on board the international carrier for export. Free on board values exclude international insurance and transport costs. They include the value of the outside packaging in which the product is wrapped, but do not include the value of the international freight containers used for transporting the goods.
   
Gross domestic product (or GDP)
means the total market value of goods and services produced in Australia within a given period after deducting the cost of goods and services used up in the process of production but before deducting allowances for the consumption of fixed capital.
   
GDP per capita
means the ratio of the chain volume estimate of GDP to an estimate of the resident Australian population.
   
Gross national income
(formerly gross national product) refers to the aggregate value of gross primary incomes for all institutional sectors, including net primary income receivable from non-residents.
   
Gross value added
means the value of output at basic prices minus the value of intermediate consumption at purchasers' prices.
   
Household saving ratio
refers to the ratio of household net saving (calculated as household net disposable income less household final consumption expenditure) to household net disposable income (calculated as household gross disposable income less household consumption of fixed capital).
   
IMF
means the International Monetary Fund.
   
Implicit price deflator
is obtained by dividing a current price value by its real counterpart (the chain volume measure).
   
Inflation
refers to a continuous upward movement in the general level of prices.
   
Labour force
means, for any group, persons who were employed or unemployed.
   
National net savings
is calculated as national net disposable income less final consumption expenditure.
   
Net domestic product
is calculated as GDP less consumption of fixed capital.
   
Net worth
represents the difference between the stock of assets (both financial and non-financial) and the stock of liabilities.  Because it is derived residually, it can be negative.
   
OECD
means the Organisation for Economic Co-operation and Development.
   
Participation rate
means, for any group, the labour force expressed as a percentage of the civilian population aged 15 years and over in the same group.
   
RBA
means the Reserve Bank of Australia.


 
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Real gross
is calculated by:
domestic income  
 
·
taking the volume measure of gross national expenditure;
     
 
·
adding exports of goods and services at current prices deflated by the implicit price deflator for imports of goods and services;
     
 
·
deducting the volume measure of imports of goods and services; and
     
 
·
adding the current price statistical discrepancy for GDP, deflated by the implicit price deflator for GDP.
     
Real gross national income
is calculated by adjusting real gross domestic income for the real impact of primary income flows (property income and labour income) to and from overseas.
   
Real net national
is calculated by:
disposable income  
 
·
taking real gross domestic income;
     
 
·
deducting real incomes payable to the rest of the world;
     
 
·
adding real incomes receivable from the rest of the world; and
     
 
·
deducting the volume measure of consumption of fixed capital.
     
 
Real incomes payable and receivable are calculated by dividing the nominal income flows by the implicit price deflator for gross national expenditure.
   
Real
means adjusted for the effects of inflation.
   
Seasonal adjustment
involves estimation of seasonal factors in data and adjustment of the data to remove the seasonal effect.
   
Total gross fixed capital formation
refers to expenditure on new fixed assets plus expenditure on second-hand fixed assets, whether for additions or replacements (but not including repairs), where fixed assets are produced assets that are used repeatedly or continuously in production processes for more than one year. It includes capital formation undertaken by government, public corporations and the private sector.
   
Unemployment rate
means, for any group, the number of unemployed persons expressed as a percentage of the labour force in the same group.


 
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THE COMMONWEALTH OF AUSTRALIA
 
Population and Geography of Australia
 
Australia is located in the Southern Hemisphere. Excluding its external Territories, Australia has an area of nearly 7.7 million square kilometres.  It is the world's sixth largest nation after Russia, Canada, China, the United States and Brazil.  The major portion of Australia's population lives in the eastern and southern coastal regions.  The vast central area of Australia is arid and largely unsuitable for agriculture.  A map showing Australia's States and Territories, major cities and principal geographic features is included on the page following the cover page of this Description of the Commonwealth of Australia.
 
The preliminary estimated resident population of Australia at 31 March 2010 was 22,272,000 persons.  This was an increase of 403,100 persons (1.8%) since 31 March 2009 and 106,400 persons since 31 December 2009.
 
The preliminary estimated resident populations of the six States, the Australian Capital Territory and Northern Territory at 31 March 2010 were as follows.
 
Table 1:  Preliminary estimated resident population of States and Territories
State / Territory
 
Population (as at 31 March 2010)
New South Wales
 
7,220,991
Victoria
 
5,529,441
Queensland
 
4,498,900
Western Australia
 
2,286,057
South Australia
 
1,640,745
Tasmania
 
507,084
Australian Capital Territory
 
357,673
Northern Territory
 
228,527
Source:  ABS Catalogue No.  3101.0.
 
The majority of the population lives in the metropolitan areas of the capital cities of the six States, and in Canberra, the national capital.
 
The growth of Australia's population has two components: natural increase (the number of births minus the number of deaths) and net overseas migration.
 
Preliminary natural increase for the year ended 31 March 2010 was estimated to be 161,700 persons, an increase of 7.0% (or 10,600 persons) on the natural increase for the year ended 31 March 2009 (151,100 persons).  The preliminary estimate for births during the year ended 31 March 2010 (303,500) was 3.1% higher than the figure for the year ended 31 March 2009 (294,500).  The preliminary estimate for deaths during the year ended 31 March 2010 was 141,800.
 
For the year ended 31 March 2010, Australia recorded a preliminary net overseas migration ("NOM") estimate of an increase of 241,400 persons.  This was the difference between 482,100 overseas arrivals that were added to the population and 240,700 overseas departures that were subtracted from the population.  Australia's current migration program allows people from any country to apply to migrate to Australia, regardless of their ethnicity, culture, religion or language, provided that they meet the criteria set out in law.  The Australian Government views Australia's cultural diversity as a source of both social and economic wealth.  The contribution made to population growth by NOM (60%) was higher than that of natural increase (40%).
 

 
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The following table sets forth the estimated resident population of Australia by age group as of 30 June 2009:
 
Table 2:  Preliminary estimated resident population by age group
Age group
(years)
 
Population
(as at 30 June 2009)
 
Males
 
Females
0-4
 
730,430
 
692,194
5-9
 
696,327
 
661,592
10-14
 
720,993
 
684,485
15-19
 
772,228
 
727,168
20-24
 
833,469
 
782,583
25-29
 
816,533
 
791,698
30-34
 
752,562
 
751,566
35-39
 
803,546
 
814,971
40-44
 
759,627
 
769,345
45-49
 
778,982
 
793,905
50-54
 
712,542
 
727,248
55-59
 
647,631
 
659,266
60-64
 
584,423
 
585,637
65-69
 
430,352
 
438,626
70-74
 
330,936
 
355,227
75-79
 
255,877
 
296,159
80-84
 
183,527
 
248,473
85-89
 
93,432
 
162,168
90-94
 
27,696
 
64,837
95-99
 
5,721
 
18,137
100 and over
 
679
 
2,489
All ages
 
10,937,513
 
11,027,774
Source:  ABS Catalogue No. 3101.0.
 
Australia's estimated total fertility rate (the average number of babies that a woman could expect to bear during her reproductive lifetime, assuming current age-specific fertility rates apply) is 1.933 births per woman in the year ended 30 June 2009, a rate higher than the fertility rates in many OECD countries, including Italy, Germany, Japan and Canada, and higher than the OECD average of 1.71 in 2008.  However, Australia's current total fertility rate is below those for New Zealand (2.18 in 2008) and the United States (2.09 in 2008).  Based on recent age-specific fertility trends, the 2010 Intergenerational Report projected Australia's total fertility rate to fall then remain stable at 1.9 births per woman through 2050.
 
Average Australian mortality rates have fallen strongly over the past century. As a consequence, life expectancies have risen for both men and women. Falling mortality rates add to population growth and imply a higher proportion of aged people in the population.  Mortality rates are falling across all age groups, and this trend is projected to continue for at least the next four decades.
 
Australia's NOM helps to reduce population ageing. However, falling fertility and mortality rates are projected to lead to an overall rise in the average age of the population. While many OECD countries share Australia's demographic challenges, Australia is in a stronger position to meet them than most.
 
Form of Government
 
The Commonwealth of Australia was formed as a federal union on 1 January 1901 when the six former British colonies—now the six States of New South Wales, Victoria, Queensland, South Australia, Western Australia and Tasmania—were united in a 'Federal Commonwealth' under the authority of the Commonwealth of Australia Constitution Act enacted by the British Parliament.  In addition to the States, there are ten Territories consisting of the Australian Capital Territory, which contains the national capital (Canberra), the Northern Territory, Norfolk Island, the Ashmore and Cartier Islands, the Australian Antarctic Territory, Christmas Island, the Cocos (Keeling) Islands, the Coral Sea Islands, the Jervis Bay Territory and the Territory of Heard Island and McDonald Islands.  The Northern Territory, the Australian Capital Territory and Norfolk Island have been granted forms of self-government.  The remaining Territories are administered by the Commonwealth Government.
 

 
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Federal legislative powers in Australia are vested in the Federal Parliament (the "Parliament"), which consists of the Queen as head of state, the Senate and the House of Representatives.  The Governor-General represents the Queen throughout Australia.  The Senate and the House of Representatives are both elected by the compulsory vote of all eligible persons (generally, Australian citizens aged 18 years and older).  Twelve senators are elected from each of the six States for a term of six years; half the senators from each State are elected every third year.  In addition, two senators are elected from each of the Australian Capital Territory and the Northern Territory and hold office until the next general election of the House of Representatives.  The House of Representatives consists of 150 members, each elected for a term not exceeding three years.  Each State's representation in the House of Representatives is approximately proportionate to its population.  This representation is reviewed during the life of every Parliament in response to population shifts.  In accordance with established practice, the election for members of the Senate is usually held on the same date as the election for members of the House of Representatives.  Under certain circumstances the Governor-General may simultaneously dissolve the Senate and the House of Representatives.
 
The Senate has equal power with the House of Representatives except in relation to laws appropriating money or imposing taxes, which must originate in the House of Representatives.  Laws imposing taxes and laws appropriating money for the ordinary annual services of the Government may not be amended by the Senate, but may be rejected or returned by the Senate to the House of Representatives with a request for amendment.  Any member of the House of Representatives or the Senate may introduce a proposed law (a "bill").  To become law, bills must be passed by both the House of Representatives and the Senate.
 
Under the Constitution, the Parliament is empowered to make laws on certain specified matters such as defence, external affairs, interstate and overseas trade and commerce, foreign corporations and trading or financial corporations formed within the limits of Australia, borrowing money, taxation (including customs and excise taxes), postal, telegraphic and telephonic services, currency and banking, insurance, immigration, pensions and social services.  Some of these powers are given to the Parliament to the exclusion of the State Parliaments.  Other powers are exercised by the Parliament concurrently with the State Parliaments, but any legislation within the limits of its powers enacted by the Parliament prevails over any inconsistent laws of the States.  Powers not conferred on the Parliament remain with the States, subject to certain Constitutional limitations.
 
The executive power of the Commonwealth of Australia under the Constitution is formally vested in the Queen and is exercisable by the Governor-General as the Queen's representative.  There is a Federal Executive Council to advise the Governor-General.  This Council is composed of the Prime Minister and other Federal Ministers.  These Ministers are members of either the House of Representatives or the Senate and generally belong to the party or coalition of parties which has a majority in the House of Representatives.  Such Ministers form the Government with the practical result that executive power is exercised by the Prime Minister and the other Ministers.
 
The major Australian political parties are the Australian Labor Party, the Liberal Party of Australia and the Nationals.  Minor parties include the Australian Greens, the Family First Party and the Country Liberal Party. From March 1996 to November 2007, the Government was formed by a coalition of the Liberal Party of Australia and the Nationals (the "Coalition").  A federal election was held on 24 November 2007, following which the Australian Labor Party won a majority of the seats in the House of Representatives and became the Government, with the Hon. Kevin Rudd MP being elected as Prime Minister.  On 24 June 2010, the Hon. Julia Gillard MP was elected federal leader of the Australian Labor Party and replaced the Hon. Kevin Rudd MP as Prime Minister.  On 17 July 2010, the Prime Minister announced that a federal election would be held on 21 August  2010.  As a consequence the House of Representatives was dissolved on 19 July 2010 and the Government operated in caretaker mode from 19 July 2010 until 8 September 2010, when the results of the 21 August 2010 election were clear.
 
In the 21 August 2010 election, the Australian Labor Party and the Coalition each won 72 seats in the House of Representatives, resulting in the first hung Parliament in Australia since World War II.  On 8 September 2010, the Australian Labor Party formed a minority government with the support of three independent members and one Australian Greens member of the House of Representatives.  The four members of the House of Representatives who are in alliance with the Australian Labor Party have agreed only to pass key supply, or appropriation, bills that authorise the Government to spend money and to oppose certain motions of no-confidence against the Australian Labor Party minority government.  They have not committed to supporting all Australian Labor Party minority government legislation, and, as a result, there can be no assurance that legislation put forth by the Australian Labor Party minority government will be passed by the House of Representatives.
 
Half of the Senate was up for election in the 21 August 2010 election. The Senators elected will take office on 1 July 2011.
 

 
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The following tables show the composition of the House of Representatives and the Senate as at 28 September 2010.
 
Table 3:  House of Representatives composition
Australian Labor Party
    72  
Liberal Party of Australia
    44  
Liberal National Party
    21  
The Nationals
    7  
Independents
    4  
Australian Greens
    1  
Country Liberal Party
    1  
Total
    150  

Table 4:  Senate composition
   
Through 30 June 2010
   
From 1 July 2011
 
Australian Labor Party
    32       31  
Liberal Party of Australia
    32       26  
Australian Greens
    5       9  
The Nationals
    4       4  
Liberal National Party
    0       3  
Democratic Labor Party
    1       1  
Country Liberal Party
    1       1  
Independents
    1       1  
Total
    76       76  
 
Judicial power in Australia is vested in the High Court of Australia, other Federal courts and State and Territory courts.  The High Court is a superior court of record and consists of the Chief Justice and six other Justices who are appointed by the Governor-General following consultations with the States.  The Justices are appointed until they are 70 years of age and can be removed by the Governor-General in Council in certain circumstances on the grounds of misbehaviour or incapacity.  In certain limited matters the High Court has original jurisdiction.  It also has appellate jurisdiction in relation to Federal courts, including the Federal Court of Australia, and the Supreme Court of each State and the Northern Territory and other courts of the States exercising federal jurisdiction.  Appeals from the Supreme Court of a Territory (other than the Northern Territory) may be taken to the Federal Court of Australia.  The common law system, as developed in the United Kingdom, forms the basis of Australian jurisprudence.
 

 
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THE AUSTRALIAN ECONOMY
 
Overview
 
Australia is a stable, culturally diverse and democratic society with a skilled workforce and a strong, competitive economy.  Between 1990-91 and 2009-10, Australia's real economy grew by an average of around 3.4% a year.  Australia's GDP in 2009-10 (in value terms) was around $1.3 trillion.  The IMF estimates that in 2009 Australia was the world's 18th largest economy by GDP (in purchasing-power-parity terms).  Based on OECD data, Australia's real per capita GDP (in purchasing-power-parity terms) ranked 10th among OECD nations in 2008.
 
Principal Economic Indicators
 
The following table sets forth Australia's principal economic indicators for each of the 2005-06, 2006-07, 2007-08, 2008-09 and 2009-10 fiscal years.
 
Table 5: Principal Economic Indicators
 
      2005-06       2006-07       2007-08       2008-09       2009-10  
GDP, Chain Volume Measure (A$ millions) (a)
    1,097,866       1,139,256       1,181,750       1,195,707       1,222,802  
Percentage change
    3.1       3.8       3.7       1.2       2.3  
GDP per capita, Chain Volume Measure (A$) (a)
    53,446       54,585       55,583       55,050       55,198  
Percentage change
    1.6       2.1       1.8       -1.0       0.3  
Unemployment Rate (% of labour force) (b) (d)
    4.8       4.3       4.2       5.7       5.2  
Consumer Price Index (% change) (c)
    4.0       2.1       4.5       1.5       3.1  
Wage Price Index (% change) (c) (d)
    4.2       4.0       4.2       3.8       3.0  
Exports, Chain Volume Measure (A$ millions)(a)
    216,254       224,872       233,597       236,320       240,628  
Percentage change
    2.3       4.0       3.9       1.2       1.8  
Imports, Chain Volume Measure (A$ millions)(a)
    207,349       226,355       258,176       250,595       264,018  
Percentage change
    7.3       9.2       14.1       -2.9       5.4  
Balance of Payments – Current Account (A$ millions)
    -54,075       -60,541       -73,980       -40,515       -56,103  
Official Reserve Assets at end of period (A$ millions)
    63,814       79,682       35,857       52,309       43,737  
Commonwealth Government Net Debt (A$ millions)
    -3,743       -29,150       -44,820       -16,148       -42,283  
(a) Reference year for chain volume measures is 2007-08.
(b) As at the June quarter; calculated as an average over the quarter.
(c) Percentage change to the June quarter of each period from the previous June quarter.
(d) Seasonally adjusted.
Source: ABS Catalogue No. 5206.0, 6202.0, 6401.0, 5302.0, 6345.0; Final Budget Outcome 2009-10; Reserve Bank of Australia Bulletin; unpublished ABS and Treasury data.
 
GDP Growth
 
Australia's GDP expanded by 2.3% in 2009-10.  Growth in 2009-10 was broadly-based, with total private business investment decreasing by 3.1%, general government consumption expenditure rising by 4.6% and household consumption expenditure increasing by 2.7%.  The July 2010 Economic Statement estimated GDP growth of 2¼% in 2009-10.  The July 2010 Economic Statement and the 2010 PEFO forecast GDP to grow by 3% in 2010-11 and 3¾% in 2011-12.
 
Major Industries
 
Australia's major industries include financial and insurance services, manufacturing, construction, mining and professional, scientific and technical services. Growth during 2009-10 was recorded in most industries, including health care and social assistance (4.0%), professional, scientific and technical services (3.7%), wholesale trade (3.5%), financial and insurance services (3.0%), electricity, gas, water and waste services (2.9%), mining (2.5%), retail trade (2.3%), transport, postal and warehousing (2.2%), education and training (2.0%), rental, hiring and real estate services (1.4%), information, media and telecommunications (1.2%), agriculture, forestry and fishing (1.1%), construction (0.8%), administrative and support services (0.5%) and manufacturing (0.4%).  Several industries contracted during 2009-10, including accommodation and food services (-3.3%), other services (-2.7%), arts and recreation services (-0.7%) and public administration and safety (-0.1%).
 

 
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During 2009-10, the industry accounting for the largest share of gross value added (at basic prices) was financial and insurance services, with a share of 10.8%.  Manufacturing was the second largest industry with a share of 9.2%.  Prior to 2005-06, manufacturing was the largest industry.
 
Net Worth
 
Australia's general government sector net worth, reflecting the difference between total assets and total liabilities, as at 30 June 2010 was -$44,848 million, a decrease of $64,569 million since 30 June 2009.  In the 2010 PEFO, Australia's general government sector net worth was forecast to be -$61,790 million in 2010-11 and -$67,694 million in 2011-12.
 
Budget Balance
 
A sustained period of government budget surpluses in the years prior to 2008-09 enabled the Australian Government to retire large amounts of government debt. Net debt was eliminated for the Australian Government during the year ended 30 June 2006.  The Australian Government general government sector net debt for 2009-10 was $42.3 billion (3.3% of GDP).  In the July 2010 Economic Statement and the 2010 PEFO, net debt was projected to be 5.7% of GDP in 2010-11 and to peak at 6.0% of GDP in 2011-12.
 
The Australian Government's underlying cash deficit was $54.8 billion (4.2% of GDP) in 2009-10.  In the 2010 PEFO, Government underlying cash deficits of $40.7 billion (-2.9% of GDP) and $10.4 billion (-0.7% of GDP) were forecast for 2010-11 and 2011-12 respectively, and underlying cash surpluses of $3.5 billion (0.2% of GDP) and $4.5 billion (0.3% of GDP) were forecast for 2012-13 and 2013-14, respectively.
 
Trade
 
Australia's total trade in goods and services totalled $514.0 billion in 2009-10 and accounted for around 1.2% of world trade in 2008.  Australia's largest trading partners in 2008-09 were China, Japan, the United States, the United Kingdom and South Korea.
 
Domestic Economic Conditions
 
Gross Domestic Product
 
The following table shows chain volume GDP and related measures, real income measures and current price measures for each of the 2005-06, 2006-07, 2007-08, 2008-09 and 2009-10 fiscal years.
 
Table 6:  Key National Accounts Aggregates
      2005-06       2006-07       2007-08       2008-09       2009-10  
Chain volume GDP and related measures(a)
                                       
GDP (A$ millions)
    1,097,866       1,139,256       1,181,750       1,195,707       1,222,802  
GDP per capita (A$)
    53,446       54,585       55,583       55,050       55,198  
GDP market sector (A$ millions)
    859,395       892,331       928,391       932,024       946,861  
Net domestic product (A$ millions)
    934,525       966,210       998,168       999,463       1,014,540  
                                         
Real income measures(a)
                                       
Real gross domestic income (A$ millions)
    1,072,065       1,127,003       1,181,750       1,215,057       1,240,156  
Real gross national income (A$ millions)
    1,031,548       1,078,509       1,132,254       1,171,126       1,193,256  
Real net national disposable income (A$ millions)
    867,098       905,055       948,767       975,523       986,601  
Real net national disposable income per capita (A$)
    42,212       43,364       44,625       44,913       44,536  
                                         
Current price measures
                                       
GDP (A$ millions)
    1,000,787       1,091,327       1,181,750       1,254,651       1,299,963  
GDP per capita (A$)
    48,720       52,288       55,583       57,764       58,681  
Gross national income (A$ millions)
    962,903       1,044,329       1,132,254       1,203,857       1,239,551  
National net saving (A$ millions)
    69,042       76,837       91,665       102,565       66,727  
Household saving ratio
    0.5       1.2       0.5       5.4       2.9  
Notes:  – = nil or rounded to zero.
(a)  Reference year for chain volume measures and real income measures is 2007-08.
Source: ABS Catalogue No. 5206.0.

 
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Following a fall in GDP in volume terms in 1990-91, Australia experienced 19 years of consecutive growth.  In 2009-10, GDP increased by 2.3%, and GDP per capita increased by 0.3% (chain volume measures).  The July 2010 Economic Statement and the 2010 PEFO forecast GDP to grow by 3% in 2010-11 and 3¾% in 2011-12.
 
The table below details the expenditure components of GDP on a chain volume measurement basis for each of the 2005-06, 2006-07, 2007-08, 2008-09 and 2009-10 fiscal years.
 
Table 7:  Expenditure Components of Gross Domestic Product (Chain Volume Measures(a))
      2005-06       2006-07       2007-08       2008-09       2009-10  
   
(A$ millions)
Final consumption expenditure
                             
General government
                             
National—defence
    15,596       16,884       16,838       17,861       20,417  
National—non-defence
    56,742       60,397       62,883       62,852       65,269  
Total national
    72,344       77,299       79,721       80,713       85,687  
State and local
    116,202       118,257       122,093       126,822       131,382  
Total general government
    188,548       195,556       201,815       207,535       217,069  
Households
    604,092       629,741       655,287       661,094       679,245  
Total final consumption expenditure
    792,597       825,272       857,101       868,629       896,314  
                               
Private gross fixed capital formation
                             
Private business investment
                             
Machinery and equipment
                             
New
    72,750       74,965       89,573       89,866       87,070  
Net purchases of second hand assets
    -3,601       -3,869       -4,302       -3,687       -4,259  
Total machinery and equipment
    69,152       71,100       85,271       86,180       82,811  
                               
Non-dwelling construction
                             
New building
    35,519       38,329       42,013       42,163       35,811  
New engineering construction
    28,959       33,952       37,063       43,641       44,457  
Net purchases of second hand assets
    -855       -1,329       -468       -949       -823  
Total non-dwelling construction
    63,639       70,964       78,608       84,854       79,445  
                               
Cultivated biological resources
    3,718       2,959       2,826       3,224       3,369  
Intellectual property products
                             
Research and development
    10,358       11,733       12,984       12,901       13,433  
Mineral and petroleum exploration
    2,855       4,261       5,496       5,944       5,640  
Computer Software
    7,937       8,723       10,080       11,507       13,381  
Artistic originals
    948       1,021       1,098       1,188       1,300  
Total intellectual property products
    22,239       25,756       29,658       31,539       33,753  
                               
Total private business investment
    158,801       170,322       196,363       205,798       199,378  
                               
Dwellings
                             
New and used dwellings
    35,744       35,769       36,016       35,983       35,465  
Alterations and additions
    30,600       31,826       32,437       31,163       32,822  
Total dwellings
    66,341       67,596       68,453       67,146       68,287  
                               
Ownership transfer costs
    19,535       19,354       19,396       16,371       18,192  
Total private gross fixed capital formation
    243,912       256,829       284,212       289,315       285,857  
                               
Public gross fixed capital formation
                             
Public corporations
                             
Commonwealth
    4,967       2,571       1,245       1,354       1,878  
State and local
    14,545       17,199       19,748       23,480       25,585  
Total public corporations
    19,601       19,752       20,993       24,834       27,464  
                               
General government
                             
National—defence
    4,757       5,403       6,196       5,497       8,395  
National—non-defence
    6,388       6,183       6,665       6,818       7,755  


 
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      2005-06       2006-07       2007-08       2008-09       2009-10  
   
(A$ millions)
 
Total national
    11,066       11,563       12,861       12,315       16,150  
                                         
State and local
    20,927       23,341       25,123       27,207       37,049  
Total general government
    32,025       34,885       37,985       39,521       53,200  
                                         
Total public gross fixed capital formation
    51,598       54,645       58,978       64,356       80,663  
                                         
Total gross fixed capital formation
    295,482       311,431       343,188       353,671       366,520  
                                         
Domestic final demand
    1,087,879       1,136,540       1,200,290       1,222,300       1,262,834  
                                         
Changes in inventories
                                       
Private non-farm
    166       3,332       6,284       -2,276       714  
Farm
    657       597       643       -377       767  
Public authorities
    383       31       -891       -2,608       441  
Total changes in inventories
    1,130       3,906       6,036       -5,261       1,922  
                                         
Gross national expenditure
    1,086,966       1,139,656       1,206,326       1,217,039       1,264,755  
                                         
Exports of goods and services
    216,254       224,872       233,597       236,320       240,628  
less Imports of goods and services
    207,349       226,355       258,176       250,595       264,018  
Statistical discrepancy
    0       0       0       -7,056       -18,564  
                                         
Gross domestic product
    1,097,866       1,139,256       1,181,750       1,195,707       1,222,802  
(a)  Reference year for chain volume measures is 2007-08.
Source: ABS Catalogue No. 5206.0.
 
Total private business investment decreased by 3.1% in 2009-10.  Investment in non-dwelling construction and machinery and equipment decreased 6.4% and 3.9% respectively in 2009-10.
 
Household final consumption expenditure increased 2.7% and contributed 1.5% to GDP growth in 2009-10. Within household final consumption expenditure, rent and other dwelling services (up 2.9% over 2009-10) and insurance and other financial services (up 3.8% over 2009-10) were the largest contributors to GDP growth in 2009-10.
 
General government expenditure increased by 4.6% and contributed 0.8% to GDP growth in 2009-10.
 
From an industry perspective, growth during 2009-10 was recorded in most industries, including health care and social assistance (4.0%), professional, scientific and technical services (3.7%), wholesale trade (3.5%), financial and insurance services (3.0%), electricity, gas, water and waste services (2.9%), mining (2.5%), retail trade (2.3%), transport, postal and warehousing (2.2%), education and training (2.0%), rental, hiring and real estate services (1.4%), information, media and telecommunications (1.2%), agriculture, forestry and fishing (1.1%), construction (0.8%), administrative and support services (0.5%) and manufacturing (0.4%).  Several industries contracted during 2009-10, including accommodation and food services (-3.3%), other services (-2.7%), arts and recreation services (-0.7%) and public administration and safety (-0.1%).
 

 
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The following table identifies the income components of GDP on a current price basis for each of the 2005-06, 2006-07, 2007-08, 2008-09 and 2009-10 fiscal years.
 
Table 8:  Income Components of Gross Domestic Product (Current Prices)
      2005-06       2006-07       2007-08       2008-09       2009-10  
   
(A$ millions)
 
Compensation of employees
                                       
Wages and salaries
    433,084       474,351       512,670       542,665       554,109  
Employers' social contributions(a)
    54,073       59,385       62,739       66,347       67,916  
Total compensation of employees
    487,157       533,736       575,409       609,012       622,025  
                                         
Gross operating surplus
                                       
Non-financial corporations
                                       
Private non-financial corporations
    180,367       194,617       218,690       238,351       232,495  
Public non-financial corporations
    20,820       16,408       13,317       16,181       19,991  
Total non-financial corporations
    201,187       211,025       232,007       254,532       252,486  
                                         
Financial corporations
    39,799       55,408       58,593       59,563       62,239  
Total corporations
    240,986       266,433       290,600       314,095       314,725  
                                         
General government
    21,431       22,864       24,038       26,416       28,543  
Dwellings owned by persons
    59,999       64,830       75,315       83,830       93,787  
Total gross operating surplus
    322,417       354,126       389,952       424,340       437,054  
                                         
Gross mixed income
    84,541       89,461       93,645       95,148       103,549  
                                         
Total factor income
    894,115       977,323       1,059,006       1,128,500       1,162,628  
                                         
Taxes less subsidies on production and imports
    106,672       114,005       122,744       120,763       126,147  
Statistical discrepancy
    0       0       0       5,388       11,188  
                                         
Gross domestic product
    1,000,787       1,091,327       1,181,750       1,254,651       1,299,963  
(a)  Includes contributions to superannuation made by employers and payments of workers' compensation premiums.
Source:  ABS Catalogue No. 5206.0.
 
For the income components of GDP in 2009-10, there was growth in compensation of employees of 2.1% and growth in gross operating surplus ("GOS") of 3.0%.  The growth in GOS in 2009-10 was driven by growth in public non-financial corporations GOS (23.5%) and growth in dwellings owned by persons (11.9%).
 
Prices
 
Headline inflation was 3.1% through the year to the June quarter 2010, up from 2.9% through the year to the March quarter 2010 and 2.1% through the year to the December quarter 2009 and 1.3% through the year to the September quarter 2009.  Over the year to the June quarter 2010, the increase in prices was mainly due to increases in the prices of housing, alcohol and tobacco, transport and financial and insurance services.  For further information about the Reserve Bank of Australia's medium-term inflation target, see "Currency, Monetary and Banking System—Monetary Conditions" in this Description of the Commonwealth of Australia.
 
The following table details the through the year change for the consumer price index and the implicit price deflator for non-farm gross domestic product to the final (June) quarter of each of the fiscal years 2005-06, 2006-07, 2007-08, 2008-09 and 2009-10.
 
The implicit price deflator for non-farm gross domestic product corresponds to a broader set of prices in the economy than the consumer price index, including non-consumption goods and services, such as those used by businesses, and exports.
 

 
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Table 9:  Prices
   
All Groups
Consumer Price Index
(original)
 
Implicit Price Deflator for
Non-farm Gross Domestic Product
(seasonally adjusted)
   
(Percentage change through the year)
Year (a):
       
2005-06
 
4.0
 
4.4
2006-07
 
2.1
 
4.3
2007-08
 
4.5
 
6.6
2008-09
 
1.5
 
0.0
2009-10
 
3.1
 
6.9
(a)  Percentage change to the June quarter of each period from the previous June quarter.
Source:  ABS Catalogue No. 6401.0, 5206.0.
 
Wages
 
The preferred measure of wages in Australia is the wage price index, which measures changes in the price of a unit of labour unaffected by changes in the quality or quantity of work performed.
 
Annual wages growth has been elevated since the beginning of 2005 but has remained below 4½% throughout this period.  This is despite the fact that wage growth has been strong in industries (mining and construction) and States (Western Australia and Queensland) associated with the resources boom.
 
The following table details the through the year change for the wage price index to the final (June) quarter of each of the fiscal years 2005-06, 2006-07, 2007-08, 2008-09 and 2009-10.
 
Table 10:  Wages
 
Wage Price Index
 
(Percentage change through the year,
seasonally adjusted)
Year (a):
 
2005-06
4.2
2006-07
4.0
2007-08
4.2
2008-09
3.8
2009-10
3.0
(a)  Percentage change to the June quarter of each period from the previous June quarter.
Source:  ABS Catalogue No. 6345.0.
 
The July 2010 Economic Statement forecast the wage price index to rise to 3¾% through the year to June quarter 2011 and 4% through the year to the June quarter 2012.
 
Labour market
 
The Australian labour market has been remarkably resilient in the face of the global downturn and is now staging a rapid recovery.   In the twelve months to June 2010, employment rose by around 311,000 persons.  After peaking at 5.8% in June 2009, the unemployment rate fell to 5.1% in June 2010.
 
The following table identifies key labour force statistics as at the June quarter in each of the referenced years.
 
Table 11:  Labour force statistics(a)
   
June quarter 2006
   
June quarter 2007
   
June quarter 2008
   
June quarter 2009
   
June quarter 2010
 
Total Employment ('000)
    10,211       10,545       10,860       10,925       11,185  
Total Unemployment ('000)
    519       473       480       657       616  
Unemployment Rate (%)
    4.8       4.3       4.2       5.7       5.2  
(a) As at the June quarter; calculated as an average over the quarter.
Source:  ABS Catalogue No. 6202.0.

 
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The July 2010 Economic Statement forecast employment growth of 2¼% through the year to the June quarter 2011 and 2% through the year to the June quarter 2012.  The unemployment rate is forecast to reach 4¾% by the June quarter 2012.  The July 2010 Economic Statement forecast the participation rate to rise slightly to 65½% by the June quarter 2011 as labour market conditions improve.
 

 
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ECONOMIC OUTLOOK
 
Commonwealth Responses to the Global Financial Crisis
 
The Government of Australia and the Reserve Bank of Australia engaged in substantial fiscal and monetary policy responses to the global financial crisis.
 
Between September 2008 and April 2009, the Reserve Bank of Australia reduced its target cash rate by a cumulative 425 basis points (and since October 2009 has gradually increased its target cash rate).  For further information regarding the Reserve Bank of Australia's target cash rate, see "Currency, Monetary and Banking System—Monetary Conditions" in this Description of the Commonwealth of Australia.
 
The Australian Government announced a number of fiscal stimulus measures, including:
 
·
the Government's Economic Security Strategy, a $10.4 billion discretionary fiscal stimulus package announced on 14 October 2008, focused on household consumption and dwelling investment;
   
·
the Council of Australian Governments' $15.2 billion job creation stimulus package announced on 29 November 2008;
   
·
the Government's $4.7 billion Nation Building package announced on 12 December 2008, providing for investment in road, rail and education infrastructure, as well as tax changes encouraging capital investment by Australian businesses;
   
·
the Government's $42 billion Nation Building and Jobs Plan announced on 3 February 2009, providing for payments to low- and middle-income Australians, investment in schools, housing, energy efficiency, community infrastructure and roads and support to small businesses; and
   
·
the Government's $22 billion Nation Building Infrastructure package announced on 12 May 2009, investing in the quality, adequacy and efficiency of transport, communications, energy, education and health infrastructure across Australia.
 
In addition, in April 2009 the Australian Government established a new company, NBN Co Limited ("NBN Co"), to build and operate a new National Broadband Network.  For further information regarding the National Broadband Network, see "Major Industries—Information Media and Telecommunications—Telecommunications" and "Government Finance—Commonwealth Investment in the National Broadband Network" in this Description of the Commonwealth of Australia.
 
Other action the Australian Government has taken to promote financial system stability and ensure the continued flow of credit throughout the economy includes implementation of:
 
·
the Financial Claims Scheme establishing:
   
 
measures under Division 2AA of the Banking Act 1959 (Cth) to:
     
   
:
protect account-holders' deposits made with eligible ADIs (other than foreign ADIs), and interest accrued on such deposits, to a total maximum value of $1,000,000 per account-holder per ADI; and
       
   
:
facilitate prompt payout of deposits protected under the Financial Claims Scheme to account-holders in the event that an ADI fails; and
       
 
measures under Part VC of the Insurance Act 1973 (Cth) to facilitate the payment of moneys payable under valid claims made by eligible claimants against a general insurer that has become insolvent; and

 

 
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·
the Guarantee Scheme for Large Deposits and Wholesale Funding, which we refer to as the "ADI Guarantee Scheme", a voluntary scheme allowing:
   
 
ADIs (other than foreign ADIs) to apply to have deposit balances of greater than $1,000,000 per customer per ADI and certain non-complex senior unsecured debt instruments with maturities of up to 60 months; and
     
 
foreign ADIs to apply, subject to satisfaction of certain conditions, to have certain deposits held by Australian residents at call or with maturities up to and including 31 December 2009 and certain non-complex senior unsecured short-term debt instruments having maturities up to 15 months,
     
 
in each case that satisfied the eligibility criteria set out in the scheme rules relating to the ADI Guarantee Scheme, guaranteed by the Commonwealth of Australia.  The ADI Guarantee Scheme closed to new issuance of wholesale liabilities and acceptance of additional deposit funds on 31 March 2010.
 
For further information regarding the ADI Guarantee Scheme and the Financial Claims Scheme, see "Government Finance—Guarantees and Other Contingent Liabilities—Commonwealth Initiatives to Enhance the Stability of the Australian Financial System" and "Currency, Monetary and Banking System—Regulation of the Financial System—Australian Prudential Regulation Authority—APRA's Main Powers" in this Description of the Commonwealth of Australia.
 
In addition, on 24 July 2009, in order to support the capacity of Australian State and Territory governments to access credit markets, the Government of the Commonwealth of Australia implemented the Australian Government Guarantee of State and Territory Borrowing, which we refer to as the “State Guarantee Scheme”.  The State Guarantee Scheme will close to new issuance of guaranteed liabilities on 31 December 2010.  For further information with respect to the guarantee of the liabilities of States and Territories in respect of specific debt securities issued in respect of borrowing of such State or Territory, see "Government Finance—Guarantees and Other Contingent Liabilities—Commonwealth Guarantee of State and Territory Borrowing" in this Description of the Commonwealth of Australia.
 
Forecasts for the Australian Economy
 
The Australian economy slowed significantly during the global downturn, but weathered the crisis better than most other advanced economies, supported by timely and substantial policy stimulus.  The economy grew by 2.3% during 2009-10.  The labour market held up remarkably well, with Australia having one of the lowest unemployment rates among the advanced economies.
 
The shallower downturn meant that Australia largely avoided the business failures and large scale employment losses that occurred in many other countries, providing a solid foundation for recovery.
 
The Australian economy is expected to grow by 3% in 2010-11 and 3¾% in 2011-12, returning to around full capacity over 2010-11.  Fiscal and monetary stimulus is being withdrawn, and there are early signs that private sector activity is picking up, although the transition to private sector led activity is proving to be a little slower than expected.  Business investment – particularly mining investment – and exports are expected to strengthen over 2010-11 and 2011-12, driven by a substantial boost in the terms of trade and ongoing strong demand for Australian non-rural commodities.
 
The global economy is continuing to recover, although the pace of growth remains uneven, with emerging economies, particularly in Asia, growing much more strongly than advanced economies.  The world economy is expected to grow by 4½% in 2010 and 4% in 2011.  Looking forward, there are a number of vulnerabilities to the global outlook.  In the major advanced economies, the ability and willingness of authorities to respond to financial market stress or weak growth is constrained due to already near zero interest rates and high fiscal deficits.  In the United States, growth is moderating as temporary support from fiscal stimulus and the inventory cycle fades.  In Europe, poorly capitalised banks and sovereign debt problems remain a source of vulnerability.  Fiscal consolidation plans announced by a number of major European governments may hamper prospects for stronger growth in 2011 and beyond.  China has the challenge of managing high liquidity, which may generate unsustainable growth in house prices and constrain its capacity to offset the impact on the global economy from any slowing in growth in the US and Europe.
 

 
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Despite the heightened global uncertainty, robust growth in the Asian region is expected to continue to generate strong demand and high prices for non-rural commodities. The terms of trade are forecast to increase by 17% in 2010-11, to around record levels, before declining in 2011-12.  In line with this, nominal GDP is forecast to grow by 9¼% in 2010-11 and 5¼% in 2011-12, providing a substantial boost to incomes.  However, there are substantial risks around the profile of the terms of trade, with considerable short-term volatility in spot commodity prices and uncertainty about the timing, pace and extent of their decline as increased global supply capacity comes on line.  Sustained volatility in the terms of trade could impact income and associated tax receipts.
 
Employment is expected to grow strongly with the unemployment rate declining to 4¾% in late 2011-12.  Inflation is forecast to be 2¾% through the year to the June quarter in both 2011 and 2012.  Inflationary risks are on the upside, with the labour market reaching full capacity over 2010-11 and the strong incomes boost from the terms of trade expected to see demand increasingly stretch the economy's supply capacity.
 

 
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Table 12: Domestic economy forecasts(a)
     
Outcomes(b)
     
Forecasts
 
      2009-10       2010-11       2011-12  
   
(Percentages)
 
Panel A - Demand and output(c)
                       
Household consumption
    2.7       3        
Private investment
                       
Dwellings
    1.7              
Total business investment(d)
    -3.1             12½  
Non-dwelling construction(d)
    -6.5             14  
Machinery and equipment(d)
    -3.1       7       13½  
Private final demand(d)
    1.5       4        
Public final demand(d)
    9.5             -1¾  
Total final demand
    3.3             4  
Change in inventories(e)
    0.6       ½       0  
Gross national expenditure
    3.9             4  
Exports of goods and services
    1.8             6  
Imports of goods and services
    5.4             8  
Net exports(e)
    -0.8       -1        
Gross domestic product
    2.3       3        
Non-farm product
    2.3              
Farm product
    1.1       0       1  
Nominal gross domestic product
    3.6              
Panel B - Other selected economic measures
                       
External accounts
                       
Terms of trade
    -1       17       -4½  
Current account balance (% of GDP)
    -4.3       -3       -4½  
Labour market
                       
Employment (labour force survey basis)(f)
    2.4 (i)           2  
Unemployment rate (%)(g)
    5.2 (i)     5        
Participation rate (%)(g)
    65.3 (i)     65½       65½  
Prices and wages
                       
Consumer Price Index(h)
    3.1 (j)            
Gross non-farm product deflator
    1.5              
Wage Price Index(f)
    3.0             4  
(a)
Percentage change on preceding year unless otherwise indicated.
(b)
Calculated using original data from ABS Catalogue No. 5206.0, unless otherwise indicated.
(c)
Chain volume measures, except for nominal gross domestic product, which is in current prices.
(d)
Excluding second-hand asset sales from the public sector to the private sector.
(e)
Percentage point contribution to growth in GDP.
(f)
Seasonally adjusted, through the year growth rate to the June quarter 2009, 2010, 2011 and 2012.
(g)
Seasonally adjusted for the June quarter 2009, 2010, 2011 and 2012.
(h)
Through the year growth to the June quarter 2009, 2010, 2011 and 2012.
(i)
Outcome calculated using seasonally adjusted data from ABS Catalogue No. 6202.0.
(j)
Outcome calculated using original data from ABS Catalogue No. 6401.0.
Source:  ABS Catalogue No. 5206.0, 5302.0, 6202.0, 6345.0, 6401.0; unpublished ABS data; Treasury.
 
The above estimates are based on forecasts of the economic outlook by the Treasury of the Commonwealth of Australia.  Treasury generally conducts two major rounds of forecasting each year, in connection with the Budget each May and the Mid-Year Economic and Fiscal Outlook issued between October and January.  Additional forecast updates, the July 2010 Economic Statement and the 2010 PEFO, were released in response to rapid changes in Australia's terms of trade and the issue of the writ for a general election, respectively.
 
Treasury's forecasting approach encompasses a broad range of information.  The national accounts form the framework for the forecasting exercise.  Insight is also gathered from liaison visits with large, medium and small businesses, industry organisations and State Treasuries and Treasury's International Economy Division's latest assessment of the world outlook.  Any changes to fiscal policy are also incorporated.
 
The forecasts are based on several technical assumptions. It is assumed that interest rates will rise in line with market expectations over 2010-11 and 2011-12, and that exchange rates and oil prices will remain around recent average levels.
 

 
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Treasury's Domestic Economy Division assesses the implications of these inputs using a mix of single-equation econometric models, partial indicators, leading indicators, business surveys and advice from specialist agencies.  Forecasting judgments are informed by economic theory and assessments of recent economic analysis.  Forecasts are discussed both within Treasury and with other government agencies.
 

 
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MAJOR INDUSTRIES
 
In 2009-10, the industry with the largest share of gross value added (at basic prices) was financial and insurance services, with a share of 10.8%.  Manufacturing ranked second, with a share of 9.2%.
 
The following table identifies the percentage of gross value added by industry at basic prices for each of the 2005-06, 2006-07, 2007-08, 2008-09 and 2009-10 fiscal years.
 
Table 13:  Percentage of Gross Value Added (Basic Prices)
Industry
    2005-06       2006-07       2007-08       2008-09       2009-10  
   
(Percentages)
 
Agriculture, forestry and fishing
    2.9       2.4       2.4       2.8       2.8  
Mining
    7.1       7.4       7.2       7.4       7.4  
Manufacturing
    10.2       10.1       10.1       9.3       9.2  
Electricity, gas, water and waste services
    2.6       2.5       2.4       2.6       2.6  
Construction
    7.3       7.4       7.6       7.6       7.6  
Wholesale trade
    5.0       4.9       4.9       4.8       4.9  
Retail trade
    4.7       4.8       4.9       4.9       4.9  
Accommodation and food services
    2.6       2.6       2.5       2.4       2.3  
Transport, postal and warehousing
    5.3       5.4       5.5       5.4       5.4  
Information media and telecommunications
    3.1       3.1       3.2       3.1       3.1  
Financial and insurance services
    10.3       10.9       11.0       10.6       10.8  
Rental, hiring and real estate services(a)
    3.5       3.3       3.2       3.3       3.3  
Professional, scientific and technical services
    6.3       6.2       6.3       6.4       6.5  
Administrative and support services
    2.6       2.7       2.7       2.6       2.5  
Public administration and safety
    5.4       5.4       5.3       5.5       5.4  
Education and training
    4.5       4.5       4.4       4.4       4.4  
Health care and social assistance
    5.9       5.9       6.0       6.2       6.3  
Arts and recreation services
    0.9       0.9       0.9       0.9       0.9  
Other services
    2.0       2.0       2.0       2.0       1.9  
Ownership of dwellings
    7.7       7.7       7.6       7.7       7.8  
Gross value added at basic prices
    100       100       100       100       100  
(a)  Excludes ownership of dwellings.
Source:  ABS Catalogue No. 5206.0.

 
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The table below identifies employment share by industry for each of the 2005-06, 2006-07, 2007-08, 2008-09 and 2009-10 fiscal years.
 
Table 14:  Employment share by industry
Industry
    2005-06       2006-07       2007-08       2008-09       2009-10  
   
(Percentages)
 
Agriculture, forestry and fishing
    3.5       3.4       3.3       3.3       3.3  
Mining
    1.3       1.3       1.4       1.6       1.6  
Manufacturing
    10.2       9.9       9.9       9.4       9.1  
Electricity, gas, water and waste services
    1.1       1.0       1.1       1.3       1.2  
Construction
    8.7       9.1       9.1       9.2       9.1  
Wholesale trade
    3.7       3.9       3.7       3.7       3.8  
Retail trade
    11.7       11.4       11.6       11.3       10.8  
Accommodation and food services
    6.7       6.7       6.6       6.6       6.8  
Transport, postal and warehousing
    5.0       5.0       5.2       5.5       5.2  
Information media and telecommunications
    2.4       2.4       2.2       2.1       1.9  
Financial and insurance services
    3.8       3.9       3.8       3.7       3.6  
Rental, hiring and real estate services
    1.9       1.9       1.9       1.8       1.7  
Professional, scientific and technical services
    7.1       7.2       7.3       7.2       7.6  
Administrative and support services
    3.5       3.4       3.3       3.2       3.4  
Public administration and safety
    6.1       6.2       5.9       6.2       6.2  
Education and training
    7.4       7.2       7.4       7.4       7.5  
Health care and social assistance
    10.3       10.3       10.3       10.6       11.0  
Arts and recreational services
    1.8       1.7       1.8       1.9       1.8  
Other services
    4.1       4.0       4.3       4.2       4.1  
Total
    100       100       100       100       100  
Source:  ABS Catalogue No. 6291.0.55.003.
 
Rental, Hiring and Real Estate Services
 
Rental, hiring and real estate services includes companies mainly engaged in renting, hiring, or otherwise allowing the use of tangible or intangible assets (except copyrights) and companies providing related services.  The major portion of this division comprises companies that rent, hire, or otherwise allow the use of their own assets by others.  The assets may be tangible, as in the case of real estate and equipment, or intangible, as in the case with patents and trademarks.
 
This category also includes companies engaged in providing real estate services such as selling, renting and/or buying real estate for others, managing real estate for others and appraising real estate.
 
Rental, hiring and real estate services contributed 3.3% of gross value added (at basic prices) in 2009-10.
 
Manufacturing
 
The manufacturing industry has historically been the largest industry in Australia.  However, the gross value added contribution of manufacturing (at basic prices) has been decreasing over the past three decades.  In the late 1970s, manufacturing value added contributed around 17% of gross value added (at basic prices), while in 2009-10 the manufacturing industry contributed 9.2% of gross value added (at basic prices).  Although the manufacturing industry currently contributes a smaller percentage of gross value added (at basic prices) than it did twenty years ago, output in the industry has had an upward trend over the same time period.
 
The manufacturing sector accounted for around 9.1% of total employment in 2009-10.
 

 
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The following table provides a breakdown of gross value added (chain volume measures) by the manufacturing industry for each of the 2005-06, 2006-07, 2007-08, 2008-09 and 2009-10 fiscal years.
 
Table 15: Industry Value Added (Chain Volume Measures)
Industry Subdivision
    2005-06       2006-07       2007-08       2008-09       2009-10  
   
(A$ millions)
 
Food, beverage and tobacco products
    20,895       21,103       21,077       20,434       21,697  
Textile, clothing and other manufacturing
    5,553       5,501       5,761       5,160       4,254  
Wood and paper products
    7,283       7,079       6,804       6,289       6,549  
Printing and recorded media
    4,246       4,290       4,399       3,630       3,480  
Petroleum, coal, chemical and rubber products
    18,760       18,415       18,879       16,989       17,386  
Non-metallic mineral products
    5,059       5,174       5,407       5,375       5,280  
Metal products
    21,691       23,839       26,533       25,678       24,223  
Machinery and equipment
    20,424