Economics (Year 12)
Areas of Microeconomic Reform
The Government achieves productivity growth through microeconomic reform (MER). MER can be market-orientated where the reforms aim to make a free market and subject firms to the consequences of the changing economy. MER can also be interventionist to which they aim to remove market failure from the economy. The areas of microeconomic reform can be memorised by the abbreviation PILOT, to which MER can be categorised as Product, Infrastructure, Labour, Overseas or Taxation.
Product Market Reform
There are several types of product market reform, the common ones are outlined below:
Privatisation (market-orientated) - Privatisation aims to make government business enterprises more efficient by subjecting them to market forces. Recent privatisation includes the privatisation of Medibank Private in 2015 and the proposed sale of Western Power in 2017
Deregulation (market-orientated) - Deregulation aims to make industries more efficient by removing red tape. Recent deregulation includes the removal of the Western Australian Potato Marketing Corporation and the proposed deregulation of the taxi industry.
Competition laws (interventionist) - Enforced through the ACCC which aims to remove market failure of anti-competition behaviour such as cartels.
Infrastructure measures provide the building blocks for the private sector to invest further in productivity measures:
National Broadband Network - Encourages the private sector to invest in new ICT equipment and processes to improve productivity.
Transport infrastructure - Aims to improve productivity by reducing the commute and delivery times. By reducing the time waiting in traffic, workers have more time to complete more productive tasks, increasing productivity. See below examples of infrastructure projects across Australia
Metronet (WA) - Metro rail expansion project.
NorthLink WA - Highway extension in North-East Perth.
Sydney Metro - Subway train project in Sydney.
Westport (WA) - New cargo port terminal in Kwinana, WA.
Health and education - Ensures workers are healthy, fit and well-skilled, increasing productivity.
Labour Market Reform
Types of labour market reform includes:
Workplace bargaining (market-orientated) - labour wage increases being linked to productivity growth rather than inflation. Provides an incentive for workers to be more productive rather than expect mandatory wage increases from inflation.
Workchoices (market-orientated) - although failed to pass, this reform aimed to reduce the influence of unions and allow employers to more easily dismiss employees.
Overseas Market Reform
Unilateral action (market-orientated) - removal or reduction in tariffs and subsidies to increase competition with imports. Unilateral means policy reform by one country - doesn't require the participation of the other.
Free trade agreements (market-orientated) - such as those with China, Japan, Korea and Singapore
GST to replace the 3 tier wholesale system.
Decreases in small business tax rates to 27.5%
Self-assessment taxation - allows the ATO to spend more time assessing the legimacy of taxation claims.
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