Australia

FIRE!! Australians awoke on Monday February 9th to news that wildfires (or “bushfires” as they are called there) raging across Victoria, the country’s second-biggest state in terms of poulation, have killed over 170 people. More than 750 homes have been destroyed, and about 350,000 hectares (864,000 acres) burned out. It is one of the worst natural disasters in Australia’s history. The worst two previous fires took place on “Black Friday” on January 13th 1939, when 71 people died in Victoria; and “Ash Wednesday” on February 16th 1983, which claimed 75 lives in Victoria and the adjoining state of South Australia. Other alarming fires hit Tasmania in 1967, the area around Sydney in 1994 and Canberra in 2003. Already, debate has started about the conflagration’s intensity at a time when some experts are linking Australia’s prolonged drought and heatwave to climate change. Ferocious fires at this time of year have swept the parts of eastern Australia most heavily covered in vegetation periodically for thousands of years. But, arsonists aside, since Europeans settled 221 years ago the fires seem to be more frequent. In a report on climate change delivered late last year to Mr Rudd’s government, Ross Garnaut, an economist, said there had been a “general increase” in the Forest Fire Danger Index across south-east Australia in the 34 years up to 2007.
 * Political structure: ** The Commonwealth of Australia is a democratic federal state within the Commonwealth of Nations. Formally, executive power is vested in the governor-general (who represents Queen Elizabeth II). The legislature consists of a federal parliament comprising a 76-member Senate (upper house) and a 150-member House of Representatives (lower house). Elections are held at maximum intervals of three years, when one-half of the senators (who serve six-year terms) and all the representatives are elected by compulsory ballot. Each of the six states in the federation has its own government, with a governor and a bicameral legislature, apart from Queensland, which has a unicameral legislature.
 * Policy issues: ** Labour market and taxation reform has dominated government policy in recent years, but efforts to reduce Australia's vulnerability to the global financial crisis have recently taken priority. The financial sector has been shored up with deposit and wholesale-borrowing guarantees, and fiscal policy is becoming more expansionary. Various free-trade agreements are still being pursued.
 * Taxation: ** The corporation tax rate of 30% is applied both to retained earnings and to dividends. Shareholders receive credits for corporation tax already paid on dividends. Personal income tax is progressive, with the top marginal rate of 45% levied on earnings over A$150,000 (US$119,000). In addition, the federal government collects a levy of 1.5% of personal taxable income as a contribution towards healthcare.
 * Foreign trade: ** Revenue from exports of goods rose to US$142.1bn in 2007 (IMF data, balance-of-payments basis). The expansion in exports in that year was more than offset by growth in goods imports, which rose to a total of US$160bn. As a consequence, the trade deficit widened to US$17.9bn in 2007, from US$9.6bn in 2006.
 * ** Main exports 2007 ** || ** % of total **  || ** Major imports 2007 ** ||  ** % of total **  ||
 * Metalliferous ores&metal scrap ||  21.1   || Road vehicles  ||  12.9   ||
 * Coal, coke&briquettes ||  12.4   || Petroleum&petroleum products  ||  12.5   ||
 * Non-ferrous metals ||  8.1   || Telecommunications equipment  ||  5.4   ||
 * Petroleum&petroleum products ||  6.7   || Industrial machinery  ||  5.3   ||
 * ** Leading markets 2007 ** || ** % of total **  || ** Leading suppliers 2007 ** ||  ** % of total **  ||
 * Japan ||  18.7   || China  ||  15.6   ||
 * China ||  14.3   || US  ||  14.0   ||
 * South Korea ||  7.9   || Japan  ||  9.9   ||
 * India ||  5.8   || Singapore  ||  6.6   ||
 * US ||  5.2   || Germany  ||  5.6   ||
 * The Labor Party has a large majority in the House of Representatives (the lower house of parliament) and a clear popular mandate to implement its agenda. The opposition Liberal-National coalition needs to take political advantage of the deteriorating economic climate if it is to mount a strong challenge to Labor before the next federal election, which will probably take place in 2010.
 * The prime minister, Kevin Rudd, shares some policy views with the new US president, Barack Obama, and this should help relations between the two countries. He is also well placed to foster trade ties with China, having spent a number of years as a diplomat in the Chinese capital, Beijing. However, he is unlikely to embrace wholeheartedly China's growing influence in Asia.
 * Fiscal stimulus packages and declining tax revenue will lead to a significant deterioration in the government's finances, with the budget deficit forecast to be 3.1% of GDP in 2009-10. Mr Rudd plans to limit growth in spending to 2% a year once GDP growth reaches 3%, but this in unlikely to happen in the forecast period.
 * Real GDP is forecast to fall by 1% in 2009 as the global recession reaches its nadir. Economic growth will recover slowly to average 2% a year in 2010-13, down from an average of 3.1% in 2004-08. Private consumption growth is likely to be weak relative to the rates recorded in the historical period, as households try to reduce their high levels of debt.
 * Inflationary pressures will dissipate as domestic demand shrinks in 2009. Inflation is expected to slip below the 2-3% range targeted by the Reserve Bank of Australia (the central bank), but should return within the range in 2010-13. The Australian dollar is forecast to depreciate against the US dollar in 2009-10, owing to falling interest rates and weakening world commodity prices.
 * The main downside risks to the Economist Intelligence Unit's forecast for Australian GDP growth are a larger than expected fall in international commodity prices, a significant drop in house prices, further turmoil in global financial markets and a more severe global recession than is currently expected.
 * Merchandise exports will be hit hard by the global economic recession in 2009-10, though the trade deficit will narrow as imports contract more sharply than exports in 2009 and recover more slowly in 2010. Large interest payments on foreign debt will ensure that the current-account balance remains in deficit throughout the forecast period.
 * Merchandise exports will be hit hard by the global economic recession in 2009-10, though the trade deficit will narrow as imports contract more sharply than exports in 2009 and recover more slowly in 2010. Large interest payments on foreign debt will ensure that the current-account balance remains in deficit throughout the forecast period.