Role Of Government In Mixed Economies Such As Australia

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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?


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 fluc...

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... the economy. Significant improvements have been made in particular areas such as maintaining a highly skilled future workforce, and productivity improvements in the waterfront and shipping industry.
There is a down side to MER. Job loss has risen as reforms are implemented; displaced workers usually lack the skills required for employment in other industries. This leads to a growth in the rate of structurally unemployed.
Reforms will also increase inequalities in income distribution; workers relying on safety net wage rises will be disadvantaged to those who have formal agreements. The government is concerned about these factors but believe that MER was not designed to fix social issues. They believe its function is to improve productivity in key industries that will benefit the economy as a whole.

In the 90's, the government's role in the economy is shrinking. Its main function is to provide a stable environment in which the market can function. To achieve this, the government uses a policy mix containing fiscal, monetary and
MER which implemented in conjunction with one another will provide a platform where Australian firms can compete successfully in the international market.