Role Of Government In Mixed Economies Such As Australia

Role of Government in Mixed Economies Such As Australia


What role do governments have in modern mixed economies such as Australia? Using

appropriate indicators (macro economic aggregates) outline the present state of

the economy. In what ways is the Commonwealth government using fiscal and

monetary policies to influence the Australian economy? What are the main

features of the government's micro economic policy? Why is the government

concerned about microeconomic reform?


Synopsis:


The role of government in Australia today has less influence on the market than

they did a decade ago. It function now is to provide a stable internal and

external balance under which the market can function. This is achieved through

the use of fiscal, monetary and microeconomic reform.


Australia currently operates under a mixed economic system. This means that the

government has partial control over the economy and has the ability to influence

the markets. Recent moves by the government that shows the government's role in

the economy to be shrinking includes the privatisation of government business

enterprises (GBE) and deregulation of the financial market. The main roles that

the Australian government plays today are to ensure:


        1)  The efficient and even distribution of income (though CSSB, tax)

        2)  Provide a limited range of goods and services (Aust post)

        3)  General economic management through macro and micro economic

policies.


In 96/97 the CAD fell to $20.9bn from the $27bn blowout during 95/96. This was

largely due to a fall in domestic spending which lead to a slight rise in

national savings. Inflation remained low and fell between the RBA's 2-3% target.

This gave way to the RBA's 3 consecutive drops in interest rates to stimulate

the economy. Economic growth has stabilised between 3-4%. Although this is a

reasonable figure, a higher growth rate is required if unemployment is to fall

from the 8.6% is has averaged for the past year. Overall economic performance

has been reasonable but current figures show the problems with our external

balance and unemployment will not be solved any time soon.


Fiscal policy is the government's use of the Budget to achieve its economic

management goals. This is done through revenue collection and government

spending. In recent years there has been a shift away from the Keynesian view

that fiscal policy is used to stabilise short-term fluctuations in demand. This

refers to a contractionary stance during a boom period to dampen economy and an

expansionary stance during a bust period to stimulate the economy. Current

fiscal policies are aimed at the medium and long-term goals of resource

allocation, income distribution and external balance. This is because fiscal

policy is relatively inflexible and is adjusted on an annual basis.


One of the government's objectives in using fiscal policy is to reduce the

Public Sector Borrowing Requirement (PSBR).  To do this the government has had a

$3.9bn cut in discretionary spending during the 96/97 budget. This cut may be

the first of several in a bid to achieve a budget surplus. One reason behind

this goal is to maintain external stability. For the past decade (except for the

late 80's boom) the public debt has been on a continual rise. This was largely

due to a succession of budget deficits. The result of this was a large increase

in net income as a component of the current account, which in turn became a

burden on the next budget. A surplus budget can be used to pay of the public

debt thereby easing interest obligations.


At the same time a reduction in the deficit will increase national savings. By

reducing the deficit, the government does not need as much national savings in

order to finance the budget. This will leave a larger pool of savings to fund

investment. Although a contractionary fiscal stance will increase public saving,

they may decrease private savings. Cuts in government spending to programs aimed

at increasing private savings (such as AThis is ONLY a preview of the article. If you would like to view the entire document, you must subscribe to Electronic References. Please register below now!


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