The Commonwealth of Australia is a federal system with 6 states, 2 domestic territories, and a number of overseas territories, the latter consisting of small islands and a part of Antarctica. (However, the United States and many other countries do not recognize Australia's or any other country's territorial claims in Antarctica.) The 6 states are New South Wales, Victoria, Queensland, Tasmania, South Australia, and Western Australia. The 2 domestic territories are the Northern Territory and the Australian Capital Territory, the last of which, a small district containing the national capital, Canberra, is similar politically to the District of Columbia in the United States.
Australia is a constitutional monarchy with Queen Elizabeth II of England as the formal head of state. She is represented in Australia by a governor general. In practice, the political system is headed by the prime minister and the Australian parliament, which resembles that of Great Britain or Canada. Australia's parliament has 2 houses: the lower is the House of Representatives and the upper is the Senate. Australia is a member of the British Commonwealth. This organization of former British territories should not be confused with the formal name of the country, the Commonwealth of Australia. Australia's national government is usually called the Commonwealth government.
The major political parties in Australia are the Australian Labor Party, Australian Democratic Party, Liberal Party, National Party, and Green Party. The current Commonwealth government is a coalition of the conservative Liberal and National parties. The economic goals of these 2 parties are the promotion of free enterprise through reducing government regulation, privatization of government enterprises, and decentralization of government services, policies similar to those of the Republican Party in the United States. The leading opposition party, Labor, advocates policies similar to those of the Democratic Party in the United States.
Australia has a federal system, like that of the United States, which means that government income and expenditure is divided between the Commonwealth and state governments. Approximately half of the national government's revenues derive from a national income tax . Other leading sources of the national government's income include company taxes, sales taxes, excise duties , interest and dividends on investments, and various other taxes. The principal expenditures of the national government include social security programs, which account for about 37 percent of expenditures, followed by health care at about 15 percent, assistance to state governments at about 12 percent, defense at about 7.5 percent, general public services at about 7 percent, and education at about 7 percent, with other expenditures making up the remainder.
For state governments, most revenue (about 52 percent) is derived from various state taxes, followed by transfers and payments from the national government (40 percent), and income from public utilities (8 percent). The major state government expenditures are on health, education, general services, transportation, law and order, community services, and other matters including cultural and environmental issues.
The Commonwealth government has played a very active role in the development of the economy towards reduced regulation, lowering of taxation rates, and the privatization of government corporations such as Telstra, the largest telephone company. Foreign investment is generally unrestricted and the United States is the largest source of foreign direct investment . The government does not usually interfere with the takeovers of domestic enterprises by foreign investors, nor does it offer any tax incentives for foreign investment. The Federal Treasury, however, regulates foreign investment through the Foreign Investment Review Board (FIRB). This regulation is a screening process to ensure conformity with Australian law and policy. As with many government controls, the greater part of regulating, promoting, and developing investment has been handed down to the control of the Australian states. Recent tax reform has introduced a 10 percent Goods and Services Tax (GST) nationwide, which replaced former taxes such as payroll and wholesale taxes. Most goods and services are now taxed through the GST at the flat rate of 10 percent. Corporate income, capital gains, and branch tax rates are all 36 percent. Personal income taxes are progressive, meaning that the rates increase with the taxpayer's income.
The Australian Defense Force, comprising army, navy, and air force branches, has 54,000 personnel currently serving, and in 1997 recorded an expenditure of US$8.4 billion. The Australian Defense Force is apolitical and does not play any role in economic development. The government has recently sought to increase funding for the Defense Force because of political instability in neighboring countries such as Fiji and Indonesia.