A score of 82.6 out of 100 meant that Australia was bettered only by Singapore (89.3) and Hong Kong (88) on the worldwide index, and placed just ahead of its neighbour New Zealand (81.4).
In the rule of law category, Australia scored an impressive 90 out of 100 for its property rights and the report praised the government for protecting Australian property.
"Australia's judicial system operates independently and impartially," it said. "Property rights are secure, and enforcement of contracts is reliable. Expropriation is highly unusual."
The country also scored particularly highly for business (95.5) and financial freedom (90), but scored only 62.8 out of 100 for government spending.