"More than two-thirds of the country receives less than 500 mm of annual rain, making it an arid region. The Outback, located in the middle of the continent, is especially affected by this dry climate, making it inhospitable for human habitation." This may be why. 😊
Yes a little bit....but there are people out there. Massive cattle stations (a few of the boarders at my school had 1,000,000 plus acre stations) and there's towns dotted around.
Some parts aren't much different from places like Arizona etc....just people want to live near the coast mostly or at least where its green 
Oh, come on now Jim and fess up.
The real reason Australia is so thinly populated is that Great Britian just didn't have any more convicts than that to send!?!? ;c)
As I see it, getting kicked out of England (or most any of Europe for that matter) and sent to Australia is about the best trade any sane person could ever hope for. I would have defaulted on my taxes in a heartbeat ..... just so I'd get sent there!!!
We didn't have a 'War of Independence' like you fella's did, but Mother England is long gone!