Professional Documents
Culture Documents
ID
Name
Surname
Mobile
4502461
Arun
Dharmarajan
0450235344
4487867
Ning
Wei
0430479079
4498486
Ashishdeep
Singh
0426700001
Tutorial Time
Thursday
14:00 15:00
Business Economics
Victoria University
Contents
Introduction ..................................................................................................................................... 1
Property Market .............................................................................................................................. 1
Overview: .................................................................................................................................... 1
Government Policies and Property Market ................................................................................. 2
Foreign Buyer is not the only reason .......................................................................................... 4
Property market and economy .................................................................................................... 5
Federal Budget ................................................................................................................................ 6
Overview: .................................................................................................................................... 6
Analysis: ..................................................................................................................................... 7
Increasing productivity: .......................................................................................................... 7
Tax Evasion: ......................................................................................................................... 10
Strengthening foreign investment: ........................................................................................ 10
Free Trade Agreements: ........................................................................................................ 11
Unemployment .............................................................................................................................. 12
Overview: .................................................................................................................................. 12
Current conditions:.................................................................................................................... 13
Challenges:................................................................................................................................ 14
Inflation:................................................................................................................................ 14
Social instability: .................................................................................................................. 14
Income support: .................................................................................................................... 15
Job search:............................................................................................................................. 15
Economic slowdown: ............................................................................................................ 16
Jobs Growth: ............................................................................................................................. 16
Conclusion .................................................................................................................................... 19
Business Economics
Victoria University
References ..................................................................................................................................... 20
Group Activity Log ....................................................................................................................... 23
Business Economics
Victoria University
Introduction
Since the global financial crisis in 2008, many developed countries have experienced
downturn and some of them have not been fully recovered even now. However, Australian
economy was showing the strong performance responded to the crisis to avoid the recession. The
strength of our banking system, the quality of our regulators and our fiscal position ensured the
minimum impact from the global financial crisis. In addition, the solid export, property investment
increase and a well projected national infrastructure improvement plan also helped Australia
becoming one of the best performing economies since crisis. Nonetheless, Australia has been
continually facing many challenges; and some economic policies have been made by government
departments to response these challenges in 2015. In this report, three major challenges will be
investigated including the property market, the federal budget, and unemployment and jobs
growth. The overviews of current conditions will be discussed and followed by the critical analysis
of each factor could affect Australian economy.
Property Market
Overview:
Australian property market has grown dramatically since June 2012, increased 22.2%
through to January 2015 (CoreLogic 2015). Two major cities Sydney and Melbourne are showing
the strong growth than other cities. New dwelling approvals have increased along with the
population growth. Total residential property market is about $5.7 trillion (CoreLogic 2015).
However recently, the economists, experts, policymakers and investors have shown the concern
under the record high housing price. It is forecasted that the price will have 7.5% decline from
earlier next year. To avoid the bubble burst and hard landing, government has been introducing
some new policies and regulations, banks started to adjust their financial settings.
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Dharmarajan, Wei, Singh
Business Economics
Victoria University
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Dharmarajan, Wei, Singh
Business Economics
Victoria University
Business Economics
Victoria University
In the current 2015-16 Victoria State Budget, it is seen that some tax policies have been
made to control the house price. Form 2016, foreign house buyers need to pay a 3% surcharge in
addition to other stamp duty payable if they are buying residential properties in Victoria. Moreover,
the foreign landowners will be liable to pay an absentee landowner surcharge of 0.5% in addition
to other land tax payable (2015-16 State Budget 2015). These two new policies are expected to
raise $279 million and $53 million respectively over four years.
Foreign Buyer is not the only reason
National Australia Bank says the demand of new property for foreign buyers has increased
from 5% in 2011 to more than 30% in the end of 2014. That means now one of three property
buyers in Victoria are from overseas. Figure1.1 shows the extremely strong demand of foreign
property purchasing in Victoria (Jon 2015).
Fig. 2: Demand for new properties from overseas buyers in different states (Jon 2015)
Property professionals show that foreign buyers spent over $14 billion in property market
in Victoria in the 2014-15 financial year, compared with only $5.8 billion in 2013-14. The FIRB
(Foreign Investment Review Board) has approved the new houses for overseas buyers more than
double in 2014-15 (Willingham 2015). Most of the foreign buyers are from China due to the fast
economic growth and rapidly dropped exchange rate. It is undoubling that overseas buyers have
become a significant factor driven the house price rise, however experts still insist that it was
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Victoria University
wrong to completely blame the foreign buyers. Actually some other reasons have been linked with
the high property price in Australia, including negative gearing, first home buyers grants, the
lower lending standard of banks and monetary settings from RBA (Berg 2015).
The development cost is another important reason. According to the survey, about 44% of
the price of a new house in Sydney is attributable to some kinds of federal, state and local taxes
(Kirchner). The developers had also borne the cost of connecting utilities to the new building, and
they will sure pass these costs to the property buyers. The government has actually planned to put
some efforts to help controlling house price instead of just blaming overseas buyers. NSW
government has promised to develop 10,000 houses in the next few years in order to improve the
water, sewerage and roads leveraging by those profits. They also projected to ensure the
infrastructure is in place to serve the new residential areas. The Federal government also planned
to invests more than $450 million to reduce the cost of new homes and improve the supply
(Gardiner 2011).
Property market and economy
Dwelling construction is very important part of countrys economy and source of
employment. Housing investment contributed almost 5% of Australias GDP in 2013 (Mulligan
2015). Now the property market plays significant role for Australias economy especially in the
post mining boom phase. Recently the large housing oversupply in VIC (123,000) and NSW
(40,000) shows the recession risks. Economists also believe that the high level of house price to
income ratio and house debt to GDP ratio will burst the property market bubble (Mulligan 2015).
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Dharmarajan, Wei, Singh
Business Economics
Victoria University
Fig. 3: House price to income ratio and house debt to GDP ratio (Mulligan 2015)
However, the government is still trying to avoid the Hard Landing as the property
investment and constructions are critical at this moment to help Australias economy continue
growth after the mining boom. Final goal of the government is to ensure the property market
growing healthily and control the property price in a reasonable range.
Federal Budget
Overview:
Budgets are about trade-offs, how the expenditure initiatives contribute to the well-being
of the economy. With increasing living costs, the individual expectation on the budget is growing
every year. The Federal Budget of Australia for the year 2015 concentrates on increasing the
productivity and driving growth by supporting small businesses and by encouraging workforce.
With the economy growing at 2.75%, which is less than the previous year, it is expected to increase
around 3.25% with the various business investments. The key overviews of this budget are budget
deficit is at $35.1 billion, which will move to surplus by 2018 and the unemployment rate is at
6.5% (PwC 2015). With budgets being multi-faceted, we look at ways the budget helps in
improving the economic status of the company.
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Business Economics
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Analysis:
Increasing productivity:
The productivity of nation is improved by increasing investments, providing tax
benefits to local businesses, increasing depreciation threshold, cutting red tape,
encouraging entrepreneurship and increasing employment opportunities.
Small businesses account for employment for 4.5 million people and contribute
$330 billion to the economy. The $5 billion tax relief for businesses with less
than $2 million turnover, tax cut of 1.5% and 5% tax discount for
unincorporated small businesses will encourage more people to get in and also
increase the overall revenue (Budget 2015 | Jobs and Small Businesses 2015;
Growing Jobs and Small Businesses 2015).
Fig. 4: Tax cuts for Australian Businesses (Budget 2015 Overview 2015)
Tax deductions for assets less than $20,000 and reduction of red tape for small
businesses, deduction of professional expenses for startups encourages
investment, which pumps more money into the economy (Budget 2015 | Jobs
and Small Businesses 2015; Growing Jobs and Small Businesses 2015).
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Business Economics
Victoria University
Packages to help people to access skills and opportunities to make them job
ready and subsidies for business to employ more workers will help in reducing
unemployment whose relation with the economic growth is discussed in the
subsequent sections (Budget 2015 | Jobs and Small Businesses 2015; Growing
Jobs and Small Businesses 2015).
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Dharmarajan, Wei, Singh
Business Economics
Victoria University
Fig. 6: Connecting workers with Small Businesses (Budget 2015 Overview 2015)
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Dharmarajan, Wei, Singh
Business Economics
Victoria University
Tax Evasion:
Each year, the government is losing at least $8.4 billion due to corporate tax
avoidance by many MNCs. Compared to the statutory 30% corporate tax, almost 1/3rd of
the ASX 200 companies pay 10% or less by exploiting the various loopholes (Aston &
Wilkins 2014). To prevent this, amendments were carried out in the Part IVA of Income
Tax Assessment Act, 1936 also referred to as the Permanent Establishments Avoidance
Rule. By closing the digital loophole and levying GST on products and services imported,
revenue is increased. Also the creation of a new taskforce with coordination from law
enforcement and financial agencies will help in curbing finance related crimes and nab tax
evaders (PwC 2015).
Fig. 7: Coordinated Approach to avoid tax evasion (Budget 2015 Overview 2015)
Business Economics
Victoria University
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Dharmarajan, Wei, Singh
Business Economics
Victoria University
Unemployment
Overview:
Job plays a vital role in an individuals life as it defines the living standard of the person.
During the economic crisis people encounters job loss, which causes anxiety about the future and
low self-esteem. There are many determinants of a countrys standard of living however the
amount of unemployment typically experienced by any country is the major determinant.
The amount of unemployment varies substantially over time as well as across various countries
around the world. The current unemployment rate in Australia is 6.20%. In the following sections,
we will talk about current conditions, challenges in Australia and the steps taken by government
policies to overcome the issues.
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Dharmarajan, Wei, Singh
Business Economics
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Current conditions:
According to International Labour organisation (ILO) people who are without job and have
devotedly searched for work within the past four weeks is known to be unemployed. Measuring
the unemployment rate is not an easy task. In economy it might seem straightforward assignment
however it is not. Australian Bureau of statistics (ABS) measures the unemployment rate by
conduction random survey on 0.33% of population. The rate of unemployment can be compared
with the previous year Oct 2014 till Aug 2015 in below column chart:
The unemployment rate in Oct 2014 was 6.3% and it declined for the next two months and
was recorded as 6.1% in December (end of the year). Interestingly the unemployment rate was
again back to 6.3% just by start of the next year (Jan) 2015. From January till July 2015 in-between
that period there was fluctuation between percentages of unemployment. By this month the rate of
unemployment was decreased to 6.20% in August from 6.30% in July of 2015. With the available
statistics, the unemployment from Aug 2014 to Aug 2015 has risen from 6.10% to 6.20% (Husna
2015b).
Employed
11,698.3 (000)
(Population 15+)
Labour Force
Unemployment
761.4 (000)
(Population 15+)
Labour Force
6852.1 (000)
(Population 15+)
----------
Table 1: Classification of population (6202.0 - Labour Force, Australia, Sep 2015 2015)
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Dharmarajan, Wei, Singh
Business Economics
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Social instability:
Crime in society is directly connected with the long term unemployment. People
who couldnt find the job (after school/university) go through frustration and end up getting
involved into criminal activities. Statistics in show that 10% increase in household income
resulted 18.9% reduction in property crime and 14.6% reduction in violent crime. So
increase in severity of punishment exercises very minimal effect on reduction of crime rate
(Raphael & WinterEbmer 2001)
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Business Economics
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Income support:
People who are unemployed for more than 9 months can claim income support
which is a burden on the budget expenses. Government pays the financially challenged to
avoid the low living standard and reduce crime rate. In order to maintain that, government
opportunity cost is reduction in financial support to education, industries etc. (Income
Support Bonus 2015).
Youth allowance Age 16-21
New start Allowance Age 22+ $501.00 (Per fortnight) single or/if ($452.30 couple)
Rent Assistance
Fig. 12: Allowance Projected Expenditure (9.11 Unemployment benefits and the minimum wage 2015)
Current New start allowance is $8.4 Billion Per Annum and is expected to increase
to $8.7 Billion by 2016-17, which means the unemployment rate during that period would
be high (9.11 Unemployment benefits and the minimum wage 2015).
Job search:
People claiming from government centre link, after receiving income support,
they stop searching for jobs and rely on centre link. In a research it was revealed that more
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Dharmarajan, Wei, Singh
Business Economics
Victoria University
the effort to search for job, higher the chances to get the job. On the flip side, few people
abuse the system in which they claim to be unemployed in government records however
they work for cash in small cafes and shops (Reporting fraud 2015).
Economic slowdown:
GDP has increased by 0.2% by the second quarter of 2015, however there is
significant decline in trade if compared with previous quarter as well as in previous year
2014 it was recorded (-10.6%). This decrease is encountered due to fall in export majorly
reported from mining sector and this has resulted in people losing jobs (Holden et al. 2015).
Some of the other challenges in employment creation are:
Outsourcing jobs (Overseas) due to lower wages.
Perceived lack of experience or work readiness.
Mismatch between qualification and skill required.
Lack of opportunities and facilities for dropped out students to complete their
education successfully.
Lower wage growth: If wages are cut then there is a fall in consumer spending this
causes a fall in aggregate demand, therefore this makes the unemployment situation
worse.
Jobs Growth:
The policy makers and regulators deal with unemployment and challenges that are posed
in each areas when the budget is drafted. In the 2015 Budget, to decrease the unemployment rate,
initiatives are developed to provide opportunities for unemployed people to start up new small
businesses. Budget includes an appraisal of the value of alternative policy or regulatory
approaches. Following are the glimpse of the 2015 budget:
Government will cut tax $1 Billion for next four years to small incorporated businesses.
Incorporated businesses with turnover under $2M per year will avail tax reduction
(Growing Jobs and Small Businesses).
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Dharmarajan, Wei, Singh
Business Economics
Victoria University
Fig. 13: New company registrations (Growing Jobs and Small Businesses 2015)
The above figure shows that in Australia, the number of new businesses registered were
high with few ups and down from 2005-2009. Interestingly from 2009-2015, there was a gradual
growth in numbers without any drop. With this budget the number of businesses would increase
and with the unemployment would be reduced (Budget 2015 Overview 2015).
Budget has provided over $331 million in targeted spending on new jobs initiative by
targeting employers and young job seekers. This will eventually help to decrease the rate of
unemployment. The Government is also focusing on early school leavers aged 15-21 years. It has
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Dharmarajan, Wei, Singh
Business Economics
Victoria University
allocated $13.5 million for four years to strengthen activities to improve their employment as well
as education. For example, from 1 January 2016, all early school leavers will be required to
actively look for work if they are not in fulltime education or a combination of education and
parttime work of 25 hours per week. Early school leavers will also be required to meet their
activity requirements of 25 hours per week until they turn 22 or have achieved a Year 12 or
Certificate III qualification (Budget 2015 Overview 2015).
Outreach services would be provided to help disengaged young people to provide them
with the work experience opportunities along with building practical skills. Job seekers who fail
to undertake adequate job search will be subject to income support payment suspension until they
demonstrate genuine job search efforts. These job seekers would also no longer be able to have
the financial penalty waived by agreeing to undertake a compliance activity (Budget 2015
Overview 2015).
A list of all the initiatives planned by the government in 2015 is shown below. By
implementing such policies, it is expected that GDP will increase and this bring unemployment to
minimum.
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Conclusion
A countrys economy is dependent on many factors and it is important for the Government
to frame policies which will look both developing the economy and at the same time increase its
revenue. GDP, unemployment, inflation, balancing expenses and revenue, increasing investments
are few of the concerns that needs to be addressed by the Government on a regular basis to keep
its economy on track. Compared to many countries, Australia has made sure they are on the path
to development consistently over a long period of time. In recent times, the rise of property prices,
manufacturing plants shutting down, increased wages have become an issue. In this report, we
looked at these scenarios and how the Government is tackling them in their budget. The results
might not be immediate, but it will help in the long run for Australia to be one of the most
successful economy in the world.
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Dharmarajan, Wei, Singh
Business Economics
Victoria University
References
9.11 Unemployment benefits and the minimum wage 2015, Australian Government, viewed
October 8 2015.
2015-16 State Budget 2015, Victoria State Government, viewed October 14 2015,
<http://www.dtf.vic.gov.au/State-Budget/2015-16-State-Budget>.
6202.0 - Labour Force, Australia, Sep 2015 2015, Australian Bureau of Statistics, viewed October
8 2015, <http://www.abs.gov.au/ausstats/abs@.nsf/mf/6202.0>.
Aston, H & Wilkins, G 2014, ASX 200 company tax avoidance bleeds Commonwealth coffers of
billions
a
year,
report
finds,
SMH,
viewed
October
10
2015,
<http://www.smh.com.au/business/the-economy/asx-200-company-tax-avoidance-bleedscommonwealth-coffers-of-billions-a-year-report-finds-20140927-10n3n3.html>.
Berg, C 2015, You can't blame foreigners for high house prices, ABC, viewed October 14 2015,
<http://www.abc.net.au/news/2015-02-17/berg-you-cant-blame-foreigners-for-high-houseprices/6125500>.
Budget 2015 - Fairness in Tax and Benefits - Foreign Investment 2015, Australian Government,
viewed October 14 2015, <http://budget.gov.au/2015-16/content/glossy/tax/html/tax-09.htm>.
Budget 2015 | Jobs and Small Businesses 2015, Australian Government, viewed October 11 2015,
<http://budget.gov.au/2015-16/content/highlights/jobsandsmallbusiness.html>.
Budget 2015 | The Economy 2015, Australian Government, viewed October 11 2015,
<http://www.budget.gov.au/2015-16/content/highlights/economy.html>.
Budget 2015 Overview 2015, Australian Government, viewed October 10 2015,
<http://budget.gov.au/2015-16/content/overview/download/Budget-2015-Overview.pdf>.
CoreLogic 2015, Capital Markets Report | CoreLogic RP Data, CoreLogic, viewed October 13
2015, <http://www.corelogic.com.au/research/capital-markets-report.html>.
Gardiner, S 2011, How to make Sydney homes affordable: Symond, Domain, viewed October 13
2015,
<http://www.domain.com.au/news/how-to-make-sydney-homes-affordable-symond20110331-1chkz/>.
Growing Jobs and Small Businesses, Australian Government, viewed October 11 2015,
<http://budget.gov.au/2015-16/content/highlights/jobsandsmallbusiness.html>.
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Dharmarajan, Wei, Singh
Business Economics
Victoria University
Growing Jobs and Small Businesses 2015, Australian Government, viewed October 11 2015,
<http://www.budget.gov.au/201516/content/glossy/sml_bus/download/Growing_Jobs_and_Small_Business.pdf>.
Holden, R, Carmignani, F, Dixon, J, Guest, R & Makin, T 2015, Australia's Economy Is Slowing:
What
You
Need
To
Know,
lifehacker,
viewed
October
10
2015,
<http://www.lifehacker.com.au/2015/09/australias-economy-is-slowing-what-you-need-toknow/>.
Husna, R 2015a, Australia Inflation Rate 1951-2015 | Data | Chart | Calendar | Forecast, Trading
Economics, viewed October 7 2015, <http://www.tradingeconomics.com/australia/inflation-cpi>.
2015b, Australia Unemployment Rate 1978-2015 | Data | Chart | Calendar, Trading
Economics,
viewed
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7
2015,
<http://www.tradingeconomics.com/australia/unemployment-rate>.
Income Support Bonus 2015, Australian Government, viewed October 8 2015,
<http://www.humanservices.gov.au/customer/services/centrelink/income-support-bonus#a3>.
Jon 2015, Is property headed for 1.5% p.a?, Knowledge Source, viewed October 14 2015,
<http://knowledgesource.com.au/is-property-headed-for-1-5-p-a/>.
Kirchner, S Don't blame foreigners for rising house prices, The Age, viewed October 14 2015,
<http://www.theage.com.au/comment/dont-blame-foreigners-for-rising-house-prices-20140319352nn.html>.
LMIP | Labour Market Information Portal 2015, Australian Government, viewed October 8 2015,
<http://lmip.gov.au/default.aspx?LMIP/LFR_SAFOUR/LFR_ParticipationRateTimeSeries>.
Mulligan, M 2015, Housing bust now the greatest recession risk, say investment banks, The
Sydney Morning Herald, viewed October 14 2015, <http://www.smh.com.au/business/theeconomy/housing-bust-now-the-greatest-recession-risk-say-investment-banks-20151012gk6pjz.html>.
PwC 2015, PwCs analysis of the 2015-16 Australian Federal Budget, PwC, viewed October 10
2015, <http://budget.gov.au/2015-16/content/overview/download/Budget-2015-Overview.pdf>.
Raphael, S & WinterEbmer, R 2001, 'Identifying the effect of unemployment on crime*', Journal
of Law and Economics, vol. 44, no. 1, pp. 259-83.
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Dharmarajan, Wei, Singh
Business Economics
Victoria University
Reporting
fraud
2015,
Australian
Government,
viewed
October
<http://www.humanservices.gov.au/customer/information/fraud-and-security>.
2015,
Supply, demand and government involvement in the housing market 2015, Australian Government,
viewed October 13 2015, <https://federation.dpmc.gov.au/supply-demand-and-governmentinvolvement-housing-market>.
Willingham, JGR 2015, State Budget: Labor's new tax will slug foreign property buyers, The Age,
viewed October 14 2015, <http://www.theage.com.au/victoria/state-budget-labors-new-tax-willslug-foreign-property-buyers-20150501-1my5b9.html>.
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Dharmarajan, Wei, Singh
Business Economics
Victoria University
Date
Activity
Description
members
Reflective Learning Notes
who
completed
activity
24/09/2015
Assignment
Arun, Ning,
Discussion
Ashishdeep
28/09/2015 to
Material
07/10/2015
Gathering
08/10/2015
Current
conditions of
unemployment
participation rate
Arun, Ning,
Ashishdeep
Ashishdeep
Budget
Arun
preventive
14/10/2015
measures
taken by
Ashishdeep
Government
18/10/2015
19/10/2015
Final Draft
Assignment
submission
Arun, Ning,
arriving at a consistency
Ashishdeep
Arun, Ning,
Ashishdeep
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Dharmarajan, Wei, Singh
Business Economics
Victoria University
24
Dharmarajan, Wei, Singh