Quick questions on Australia's balance of payments explained: HSC Economics Topic 2

The balance of payments is the statistical record of all economic transactions between Australian residents and the rest of the world over a given period, prepared by the Australian Bureau of Statistics (cat. no. 5302.0, quarterly). It has two main accounts:

The current account has four sub-components:

The capital and financial account records changes in ownership of assets and liabilities between Australian residents and non-residents.

The balance of payments must balance:

For most of the post-1980 period, Australia ran current account deficits of 3 to 6 percent of GDP, financed by net capital inflow. The deficits reflected:

Long-run drivers of Australia's CA deficit:

1. Commodity price boom. Iron ore averaged USD 115/tonne in 2021-22, more than double the long-run average. 2. Mining investment phase complete. Less import-heavy capex needed; mature export production.

Exports minus imports of goods (merchandise) and services. Australia's BOGS is heavily influenced by iron ore, coal and LNG prices.

Income payments to and from non-residents: interest, dividends, profits and compensation of employees. Australia runs a persistent net primary income deficit (around 4 percent of GDP) because of its large stock of net foreign liabilities.

Transfers without a corresponding good or service: foreign aid, workers' remittances, pension transfers.

A small balancing item covering capital transfers and acquisition of non-produced, non-financial assets (patents, copyrights). Often included with the financial account.

The CA records goods, services and income flows. The financial account records ownership changes of assets.

Markers reward responses that link the CA to the S-I gap.

Make clear it depends on continued high commodity prices and household savings.