There have been significant changes to Australia’s place in the world economy since 1900. From a marked dependence on the United Kingdom for `men, money, and markets’ down to the 1950s, where the `lucky country’ evolved into a key player in the emerging Asia-Pacific group of dynamic economies by the 1980s. Yet such shifts obscure the fundamental continuities, which have characterised Australian development ever since European settlement began. Australia’s place in the global economy is primarily one of an exporter of primary produce and a heavy borrower.
Australia has always been at the mercy of external elements over which it has little apparent control. Long before the concept of globalisation acquired its modern currency, Australia’s dependence on the outside world made it prone to recurrent economic crises because of a periodic inability to earn export surpluses to pay for capital inflows. It is for this reason that the extent to which external, rather than domestic, forces have shaped the growth of the Australian economy is very evident. This is not to say the peculiar domestic forces have also helped to drive the Australian economy. For much of the twentieth century most Australians lived in a high-income economy with a large service sector, an unusually rapid rate of population growth, and a well-entrenched system of protectionism. Collectively, Australian’s have shown a high propensity to consume, a marked liking for leisure, and a strong preference for owner-occupation and suburban living. Alongside an optimistic belief that, in the long run, `she’ll be right’ lay an assumption that ad hoc government intervention would somehow sort out any short-term problems.
By contrast, Hong Kong, as one of the last remaining colonial outposts, retained a number of similarities with European or British methods of operating, controlling and reporting, to maintain their economic position in the global market place.
As in many fields of study, an understanding of international accounting differences is aided by an examination of evolution. The systems of law and commerce in Australia and Hong Kong all derive historically from the UK. Not surprisingly, therefore, the British accounting system was similarly exported and still feels at home in these environments.
In both economies, there are loose regulatory frameworks provided by Companies Acts. These are supplemented by more detailed accounting ‘standards’ promulgated by committees dominated by accountants. Tax rules are different from accounting rules for certain items (eg. depreciation), which gives rise to deferred tax. For most issues, tax rules follow accounting rules.
A further connected feature is the nature of the financial system. On the whole, one could say that Australia and Hong Kong have a system based on capital markets. There are large numbers of listed companies with widespread shareholdings. By contrast, Japan and Korea (and Germany and Italy) have credit-based financial systems with heavy involvement by governments or financial institutions. It follows that, published financial reporting and external auditors are much more relevant in a capital market system because there are large numbers of external investors to report to.
Gross Domestic Product
The figures above suggest that Australia has entered a prolonged period of growth that will continue well into the next decade, and could even surpass the golden age of the 1950s. In those days, Australia still “rode on the sheep’s back”, with agriculture, especially wool, accounting for much of its prosperity. The biggest change in the 1990s has been a surge in manufactured goods and services which together now contribute twice as much to exports as farming does Australia is seeing the benefits of structural changes over the past 15 years that have made its economy more resilient. The changes started with the former Labor government, which took the crucial decision in 1983 to float the Australian dollar. It dismantled many of the tariffs that had for decades protected inefficient Australian industries from foreign competition, deregulated the financial system and started to privatise transport, communications and utilities.
On the down side, the Hong Kong economy contracted by 4% during the first half of 1998, the stock market crashed to a 5- year-low, and the unemployment level reached a 15-year high, as the region suffered from the financial crisis that had engulfed south east Asia since 1997. This situation was exacerbated as GDP fell by 5% during 1998, as the region endured its worst ever economic recession and unemployment rose to above 5% – an unheard of figure in the days under British control.
However, once the Asian crisis passed by, the resilience of Hong Kong’s economy meant it was quick to recover. Based upon Hong Kong’s huge financial reserves and its pivotal financial position in the world economy and because of the pre-eminent position the Hong Kong Stock exchange has in world financial markets.