Table of Contents

Executive Summary..................................................................................................... 2
1.

Introduction........................................................................................................ 4

2.

Current Economic Overview.................................................................................... 4

3.

Unemployment and Jobs Growth..............................................................................6

3.1 TYPES OF UNEMPLOYEMENT...........................................................................6
3.2 Factors Influencing Unemployment Rate...................................................................7
3.3 Polices Control Unemployment...............................................................................7

4.

The Federal Budget............................................................................................... 9

4.1 Budget Revenue.................................................................................................. 9
4.2 Budget Expenses and Priorities............................................................................. 10
4.3 Budget Deficit.................................................................................................. 11
4.4 Associated Risk and Criticism.............................................................................. 12

5.

The Property Market............................................................................................ 13

5.1 Influencing Factors for Investors...........................................................................13
5.1.1 Interest Rate............................................................................................... 13
5.1.2 Dollar Rate................................................................................................ 14
5.2 Factors Affecting Property Market.........................................................................15
5.2.1 Household Income....................................................................................... 15
5.2.2Unemployment............................................................................................ 16
5.2.3 Exposure to Residential Property Debt..............................................................16

6.

Conclusion........................................................................................................ 18

7.

References........................................................................................................ 19

1. Introduction
Nations have been emphasizing on achieving strong and invulnerable economic stability
since long times, international dominance of a nation can only be achieved through good
economic conditions and performance. Australia has been enjoying a very stable economy
since last economic recession in 90s. There are certain factors that are challenging economic
policy makers to handle Australian economy in a very responsible and effective way.
Australia has reported the greatest budget deficit in the financial year 2015, Unemployment
rate is on its slow surge and property market is soaring up which is creating many
reservations from critics of the economy. Government has taken many steps to keep the
economy on the right track but it is still unclear that how these challenges will be dealt on the
real grounds. Reserve Bank of Australia is doing much to stop soaring dollar rate to stable the
exports and enable the government to make such economic policies which impact economic
growth in good way. The current year beheld a rose in the Australian exports due to RBAs
efforts.

2. Current Economic Overview

Australias economy is comprised of many factors at different levels but there are certain
factors which a measured and presented to give an overview of the current economic
condition, this will help the reader to understand the arguments, basis of future predictions
and references from the past regarding facts and figures of the economy. Following are some
essential figures that present the current economic conditions of the Australian economy;

Economic growth 2.0%

Inflation Rate 1.5%
Cash Rate 2.00%
Current variation of AUD vs USD is 1AUD = 0.7130 USD
Australia has a population of 23.7 million with 1.4% of expected annual growth
Unemployment rate is 6.2% with 11.8 million employed human resource
Average weekly Earnings are AUD 1137 while household saving ratio is 8.8%
Average Price of Residential Property is AUD 605, 000
Industry Share in National Output is;
o Services 57%, Mining 9%, Construction 8%, Manufacturing 7% and
Retail Trade 5%

Major Economic Parameters

3. Unemployment and Jobs Growth

Unemployment can be known as the participation of each adult (more than 16 years of age) who are
willing to work, looking for work and did not get work are classified as unemployed. Australian
bureau statistics (ABS) publishes unemployment data in Australia monthly from Labour force survey
(LFS) and is presented by many characteristics such as age, sex, geography, country of birth and
duration of job.

Source: Australian bureau statistics

The above graph shows the trend of unemployment rate in the recent year from October 2014 to
September 2015. The unemployment rate had been approximately 6 percent. The current Australian
unemployment rate in September 2015 is 6.2 percent. The unemployment rate had fallen to 6.0 and
has boomed to 6.3 in the next two months but has now showing a downward sloping in the recent
month.

3.1 TYPES OF UNEMPLOYEMENT

Unemployment has following three different types;

1.

Frictional unemployment is that unemployment which is short term in general as it deals with
searching a new job or changing from the current activity. An example includes if a person has
recently moved to Melbourne because of good job opportunities and is unemployed for few weeks
as it takes time to find god job that period of unemployment is known as frictional unemployment
(Mankiw, 2000)

2.

Structural unemployment is when the wages in labor market do not balance with supply and
demand. The reason for structural unemployment could be laws that restrict low level of wage
rate. An example here includes where an individual has limited job skills and no firm is willing to
give them a job even at the lowest wage rate which they legally offer (Mankiw, 2000).

3.

Cyclical unemployment is associated with the economy. It is short term in nature and depends on
the rise or fall of the economy. When the economy booms unemployment rises whereas when the
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economy depresses the unemployment falls. This deviation was known as cyclical
unemployment. An example includes the workers are laid off when economy depresses and is
expected that they will go back once the economy picks up (Mankiw, 2000).

3.2 Factors Influencing Unemployment Rate

The graph above depicts the various factors that are influencing unemployment in some manner. This
include deficient labour demand, job specific mismatch, employee specific mismatch and no
difficulties over the period. The main factor that influences unemployment is employee specific
mismatch which varies from 2 to 4.3 percent over the period. The criterion in employee specific
mismatch includes heath issues, family problems, age, under or over experience and other personal
difficulties. The other factor includes job specific mismatch that varies from 0.9 to 3 percent over the
period. In job specific mismatch the criterion included are non-suitable work, lack of skills as required
by the job and no vacancies in work line. The other factor covered here is deficient labour demand
that ranges from 0.5 to 3.2 percent. This factor includes large number of applicants for a particular job
and less or no vacancies for a job. The last factor is no difficulties which is almost under 1.0 over the
period and future too.
Besides the above factors that affect unemployment there are other factors such as demographics
which Australia is facing as a challenge. These challenges include aging population and immigrants of
Australia. The proportion of young population is declining at higher rate whereas increasing for the
older ones thus causing aging in population (Demographics.treasury.gov.au, 2015).

3.3 Polices Control Unemployment

The policy makers are trying best to control the level of unemployment rate by adopting various
strategies to encourage people to participate in workforce. Australian Minister of employment has
taken several steps this year to increase employment:
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Foster entrepreneurship, jobs and innovation: The recent updates in Australian government states
that it has been working with the G20 partners to lead international action and aiming to increase the
potential of economic growth by creating an environment that has 2 million new jobs over the next ten
years. The other strategy that has been adopted by Australian government is strengthening
opportunities for business in order to compete globally (Australian Policy Online, 2015).
Reduce tax obligations: Australian government is working to reduce tax by cutting red and green
tape, abolishing inefficient taxes such as carbon and mining and reducing the company tax rate. The
government is also improving the workplace reforms in order to balance workplace relations.
Improving ESS: The government is concerned on improving the employment services systems where
public employment services are reconstructed in order to have better outcome for the job seekers and
younger generation to be motivated to join education or employment.
Overcome demographic challenge: The government is trying to limit the impact of ageing
population and support economic growth by encouraging more people to participate in workforce. For
such implementation there would be strategies like extending pension age, adjusting eligibility
conditions for disability support family payments and new paid paternal leave scheme that would
encourage more people to work especially females (Australian Policy Online, 2015).
Enhance productivity: Australian government is also thinking to improve skills development by
adopting strategies like meeting employers skill needs, deregulation of university system and
assistance on vocational training programs.

4.

The Federal Budget

Australian Federal Budget is comprised of economic and financial policies, it shows the governments
proposed revenues and expenditures and how it will carry out its economic and financial operations in
the current and forward years. Australia has a very controlled economy where Reserve Bank of
Australia play its rule very responsibly to avoid any economic misadventure. The depreciation of the
Australian dollar during previous year is expected to gain good results for trade based industries such
as manufacturing, tourism and higher education. There are high rates of exports expected from these
industries in few years. Australia is service and trade based economy, any soaring in the dollar rate
affects the exports of its primary industries and resulting in unstable economy. Federal budget of
Australia for the year 2015 was anticipated because of proposed policies of economic recovery and
achieving economic stability. Following are some key findings from Australian Budget;

4.1 Budget Revenue

Government has announced actions to deal with multinational tax avoidance, government has ensured
that Australian Taxation Office should be equipped with anti-avoidance measures in order to protect
Australian tax base. Large multinational have been found in avoiding tax on their profits, it is a very
complex and critical decision to implement such measures. Small business with annual turnover of
less than AUD 2 million will be entitled to the benefits of governments growing job and small
business package in order to grow employment opportunities.
Government has decreased the
company tax rate from 30% to 28.5% for small business corporations to encourage investors in small
companies. Individual or personal income tax rates for Australian residents will remain the same
without any changes. Goods and Services tax (GST) has been revised for digital products and
services, it will entitle the consumer for same tax treatment if they purchase goods or services from
Australian or foreign companies. Government has provided Fringe Benefits Tax (FBT) concessions
for digital equipment used for work by a small business.

Estimated Revenues for the year 2015-16 (Aph.gov.au, 2015)

Functions

Billion $

Income tax

194.3

47.9

Company & resource rent taxes

71.2

17.6

GST and Sales Tax

61.6

15.2

Fuels excise

17.9

4.4

Other taxes

35.1

8.7

Non-tax revenue

25.3

6.2

Total

405.4

100.0

Individuals Tax

Company & resource rent taxes

GST

Fuel Excise

Other Taxes

Non-Tax Revenue

6%
9%
4%
48%
15%

18%

Figure 1. Estimated Revenues for the year 2015-16 (Aph.gov.au, 2015)

4.2 Budget Expenses and Priorities

The most prioritize spending in the annual budget by Australian government is social security and
welfare, which include childcare. It is the vision of government to provide flexible and affordable
childcare to the people. Government has given second priority to the health for high quality health
services and strengthen the health systems. Following are the other priorities of government included
in the federal budget;

Helping economy to create more jobs, earning opportunities and Growth by assisting small
businesses. Small businesses as created jobs for 4.5 million people in the economy and they
are comprising of 93% of Australias business.
Building infrastructures to increase to the far areas and untapped markets, building
infrastructure will help in generating new jobs, increasing productivity, labour market and
business expansion opportunities.
Government focused on improving the integrity of taxation and welfare system.
Providing assistance to the draught affected farmers.

Estimates of Expenses for the year 2015-16 (Aph.gov.au, 2015)

Functions

$b

Social security & welfare

154.0

35.4

Health

69.4

16.0

Education

31.9

7.3

Defence

26.3

6.1

General public services

22.2

5.1

All other functions

45.0

10.4

Other purposes

85.7

19.7

Total

434.5

100.0

Estim ates of Expenses for the year 2015-16

Social security & welfare

Health

Education

Defence

General public services

All other functions

Other purposes

Other purposes; 20%

Social security & welfare; 35%
All other functions; 10%
General public services; 5%
Defence; 6%
16%
Education;Health;
7%

Figure 2Estimates of Expenses for the year 2015-16 (Aph.gov.au, 2015)

4.3 Budget Deficit

Budget deficit is resulted when governments expenses are more than the income. Australian Federal
budget has reported a huge budget deficit in financial year 2015. Budget deficit for the year 2015-16
was reported AUD 35.1 Billion, it is expected to fall at AUD 7 Billion by the year 2017-18. In 2008,
there was a gross debt of $59 billion which is recorded $430 billion in year 2015. Australia is now
facing highest debt to GDP ratio in last 27 years. Following graph shows the budget deficit in in
percent of GDP in comparison to the previous years.

Underlying cash balance Percentage to GDP (Aph.gov.au, 2015)

4.4 Associated Risk and Criticism

One of the most significant risk is the expected decline in saving ratio because of rise in house hold
consumption, but the situation is quite critical as wage rates are low, unemployment is gradually rising
and high amounts of household debts can turn the situation opposite. House hold spending can
increase inflations and result in high interest rates. It is also expected that non-mining businesses will
be uncertain about their investment recovery. If household consumption could rise then it would help
out the investment recovery of non-mining businesses, otherwise RBA has to use Australian dollar as
a wildcard to recover non-mining investments. Another criticism on the budget is record cumulative
budget deficit as compare to past decades, which can put a lot of question on AAA credit rating of the
economy (Financial Review, 2015).

Debt to GDP ratio (Financial Review, 2015)

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5. The Property Market

Property market in Australia has appeared to be a very substantial asset class for the purpose of long
term and short term investment for both Australian and international investor, accumulated market
value of Australian commercial property by December 2012 was estimated to be AUD 0.681 Trillion
which rose to AUD 0.7 Trillion in 2014 (Yong & Pham 2015). According to the Australian Bureau of
statistics (ABS) total value of residential property in Australia in March 2015 was AUD 5.6 Trillion,
which has risen to AUD 6 Trillion in July 2015 (CoreLogic RP 2015). Total value of residential
property in Australia is larger than the value of listed equities. Australian property market is
immensely concentrated and highly dominated by the big cities. Due to high employment
opportunities, most of the Australians choose big cities like Sydney, Melbourne, Perth and Brisbane to
live, according to ABS estimate 56% of the national population lives in these cities while only Sydney
and Melbourne accommodates 39% of the national population.
tOTAL vALUE OF aUSTRALIAN hOUSING IN Trillions
$6.00
$5.50
$4.60 $4.60

Sharing of Property value by stste & territory

NSW VIC
NT

Qld

WA SA

TAS ACT `

$4.80 $4.90

2%
1%
5%1%

$4.00

11%
38%
14%

28%
2 00 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 01 4 2 0 1 5

Source: CoreLogic RP Data (2015)

5.1 Influencing Factors for Investors

Australia has a great potential for investment in property because of some influencing factors, these
factors are attracting investors all over the world to hedge profits with long and short term variations
in property values. Some of the most substantial factors that has potential of bringing property
investments in Australia are;

5.1.1 Interest Rate

Australia is experiencing lowest interest rate in 2015 as compared to last two decades, RBA is
regulating lower interest rates to encourage investors for investing in different market segments. This
decreasing trend in interest rates makes property investment more attractive for not only investors but
it also encourages first home buyers.

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5.1.2 Dollar Rate

Australian dollar has experienced soaring exchange rates in last 5 years, RBA push Australian dollar
downwards to boost exports of the country. Lowering dollar rate makes property investment even
more attractive when relative costs are improved specially for overseas buyers.

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5.2 Factors Affecting Property Market

There are number of factors which are affecting Australian property market and are considered to be
very critical, these factors are;

5.2.1 Household Income

Housing prices are increasing at a very high speed in the densely populated metropolitan areas, while
household income is increasing at a very slow rate. Household saving trends are also expected to
decrease in future, this situation will leave consumers with low purchasing power and inability to pay
off their debt on time. National housing price has been increased by almost 12.5% in 2015 while
household saving ratio has declined by nearly 2%, following graphs shows this scenario in detail;

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5.2.2Unemployment
Unemployment rate in Australia has been increasing gradually, in August 2015 RBS has reported
6.2% of unemployment rate which is expected to be on increase. Higher unemployment rates are
leading people to work as under employed which means that people are willing to work more to
earn more at a lower wage rate. This leads to low household income and lower the chances of an
individual to buy a house. This scenario involves lots of uncertainty at the with decision making
power of a consumer. Low earnings and low savings can lead individual to default and fail to pay their
financial obligations.

5.2.3 Exposure to Residential Property Debt

Residential mortgages in Australia are ranked highest in the world according to IMF, following chart
shows that most of the Australian banking systems lending consist of residential loans and as
compare to other countries;

Australia has the highest household debt to disposable income ratio which is 153.8%, while house
debt ratio to disposable income ratio stands at 140.3%, this shows that most of the household debt in
Australia consist of house debt which stands almost 91% of the total household debt (Cameron
Kusher, 2015). Following chart shows that the level of household debt has been relatively consistent
since December 2005. While most of the mortgage holders are quite relaxed with paying their
obligations on time because a mortgage is usually a long term commitment, it is important to notice
that economic conditions changes with time and interest rates can substantially fluctuate over time. It
is a great concern for the economists that what will happen when mortgage rates will be return to
normal, further rate cuts are encouraging the leverage in property investment.

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6. Conclusion
Australian economy is a strong and effective economy which has made the country to represent itself
around the world. There have been few downfalls over the year but it has made itself to come out of
the challenges it has faced. The rate of unemployment has been approximately at 6 percent which is to
be taken care of. If not it might increase in future. The property market is increasing but the
government has to take proper policies in order to make it not a major issue and make the debt holder
to pay their debts on time. The federal budget is deficit in nature around 35.1 billion dollar which can
be taken care over the coming year. At last, the policy maker that is the government has to implement
such policies which help in economic growth and sustainability.

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7. References
Aph.gov.au, (2015). Overview Parliament of Australia. [online] Available at:
http://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/rp
/BudgetReview201516/Overview [Accessed 16 Oct. 2015].
Australian Policy Online,. 'Long-Term Unemployment In Australia'. N.p., 2015. Web. 15 Oct. 2015.
Australian Real estate news,. 'Three Things That Could Trigger A House Price Crash: Interest Rates,
Unemployment, The Dollar'. N.p., 2015. Web. 14 Oct. 2015.
Demographics.treasury.gov.au,. 'AustraliaS Demographic Challenges Australia's Demographic
Challenges'. N.p., 2015. Web. 16 Oct. 2015.
Financial Review, (2015). Federal budget 2015: worst cumulative deficits in 60
years. [online] Available at: http://www.afr.com/news/policy/budget/federalbudget-2015-worst-cumulative-deficits-in-60-years-20150505-gguuug [Accessed
16 Oct. 2015].
Mankiw, Gregory. Gregory MankiwS Principles Of Macroeconomics. 2nd ed. South-Western College
Pub, 2000.
Rba.gov.au,. 'RBA: Bulletin September Quarter 2014-Unemployment And Spare Capacity In The
Labour Market'. N.p., 2015. Web. 13 Oct. 2015.
Tradingeconomics.com. 'TRADING ECONOMICS | 300.00 INDICATORS | 196 COUNTRIES'.
N.p., 2015. Web. 11 Oct. 2015.

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