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Q. Australian Microeconomic Reform

·The meaning of microeconomic reform

·The objectives of competition policy

·Microeconomic reforms that have occurred in Australia during the last two decades

·Industries and sectors that face future microeconomic reform and structural change

Microeconomic Reforms are the actions taken by the government to improve resource allocation between firms and industries within the economy, in order to maximise output from scarce resources. Microeconomic reforms have played a central role in economic policy in Australia since the early 10s, as Australian governments recognised that extensive structural change was needed to deal with the structural problems in the economy. If these microeconomic reforms are used well, Australia's economy will experience a shift in the supply curve, which is known as supply side economics. Supply side economics… should have the effect of providing more goods and services at the same prices.

Draw demand supply curve supply curve shift to right

Competition policy refers to policies implemented by the government in order to maximise the level of workable competition in specific markets in the economy. Competition policy aims to reduce barriers to entry in industries by eliminating monopolies and uncompetitive behaviour by businesses. The RBA bulletin from June, 17 says that the initial focus has been in sectors such as electricity, gas, water and road transport and government business enterprises, with the reforms then being addressed in government trading entities, the professions and other entities such as the statutory marketing authorities.

Over the last two decades there have been many actions taken by the government to improve the allocation of goods and services. Some microeconomic reforms include

·Deregulation of markets

·Privatisation of government assets

·Labour Market Reforms

·National Competition Policy

·Industry policy

·Tax Reforms

Microeconomic reforms bring out structural changes in the economy. The most important microeconomic reform the government has implemented was the National Competition Policy in 15 following the recommendations from the Hilmer Report. Although a 5.5% boost in economic growth was expected, the National Competition Policy has contributed to a higher productivity growth since 15 averaging around %. Furthermore individual industries have benefited from the reforms, with most facing lower costs for electricity, water and telecommunications and having access to new markets both overseas and locally. The National Competition Policy removes price fixing, enhances competition within government agencies and encourages privatisation, corporatisation and deregulation of markets. However the competition policy is still unpopular in rural areas of Australia, as they have experienced decreased service levels, higher costs and increased unemployment.

The government has deregulated many markets during the last two decades. Beginning in 18 where the Australian dollar was floated and interest rates were controlled by the financial sector. In 18, the RBA became responsible for the levels of interest rates.

Competition policy reduced barriers to entry and exposed many industries to full competition, such as the telecommunications industry. During the early 10s, the industry was dominated by the government monopoly Telstra and until 17 only Telstra and Optus were allowed to offer a full set of customer services. Since 17, prices have fallen substantially with many more competitors in the industry forcing firms to cut costs and maximise outputs. The fact that competition policy forces Telstra to give other phone companies access to their local call networks its critical in making it possible for them to offer long distance and other services.

But the agricultural industry has experienced adverse effects from the government's national microeconomic reforms. Deregulation in QLD and NSW areas have forced many farmers in the sugarcane, fruit and eggs and dairy industries out of business. The dairy industry is currently going through a major structural change, which is expected to see between a third and a half of dairy farmers exit, their industry. In the short term this leads to an increase in unemployment, but in the long term it leads to the creation of larger and more efficient farms, which are more internationally competitive.

The domestic aviation industry was deregulated in the early 10s, which saw Ansett become Australia's second international carrier. The government privatised many of Australia's airports after breaking the Federal Airports Corporation's monopoly over air terminals. But during the late 10s the outbreak of Virgin Blue and impulse saw airline prices drop to an all time low. But now with Ansett declared bankrupt and Impulse bought by Qantas, once again there remains only two competitors in Qantas and Virgin blue but Qantas is in a virtual monopoly position with over 80% of the aviation market.

An Industry that faces future market economic reforms is the labour market. Although the government has implemented some changes, there is still more to come. The Howard government's current policy to reduce unemployment focuses on the labour market reform, because of the belief that structural problems and inefficiencies plague the labour market. From this, the government have pursued the deregulation of the market to encourage employment. The government have also restructured the employment services market by privatising most of these firms, with the aim of supplying training and employment more quickly. These policies have obviously helped in reducing unemployment, Morgan Mellish from The Financial Review commented, An unexpectedly large surge in new jobs in November has provided more evidence that the Australian employment market is improving. The number of full-time jobs rose by 57, 00 to 6.7 million. The annual rate of jobs growth now stands at .5%… above the long-term average of %.

Taxation reform has had the most extensive changes since the Second World War. The Howard Government's tax reform package, which was implemented in July 000 aim to benefit the entire economy, although they have had different impacts on individual industry sectors. The tax reform package consists of the introduction of the 10% GST with minimal exemptions covering basic necessities such as food, water and shelter, the abolition of the Wholesale Sales Tax and the entire revenue from the GST allocated to state governments. The government claims that it will bring substantial economic benefit such as reducing average business costs by % and reducing costs for exporters by .5%. Ross Gittins says that introducing the GST was to give us a broad and sturdy indirect tax capable of generating revenue as fast as the economy grows and thereby helping to finance growth in the state governments spending on education, health and all the rest.

The major indirect policy initiative to promote exports and trade was the reform of industry assistance. The dismantling of tariffs and quotas aimed to promote import competition, raise efficiency and increase the volume of exports although decreasing the export base. The Mortimer Report recommended that the government adopt an industry policy with a high growth objective as the central focus of all its business programs. The government has to find a balance between encouraging international competitiveness through reforms and ensuring competitiveness by providing protection. The government's new reforms incorporate many of Mortimer's suggestions. Increasing support of business research and development, increasing foreign investment and measures to increase the opportunities for access to global information revolution.

The aims of microeconomic reforms are to increase the effectiveness of the markets in order to

·Maximise output (supply side economics)

·Improve resource allocation

·Increase productivity

·Increase the flexibility of labour

·Increase international competitiveness

·Initiatives to promote structural change

·Increase competition

·Decrease demand for imports

Microeconomic reforms have increased productivity up to 5% during the 10s and enables consumers to buy more and better products. Most importantly, microeconomic reforms increase community welfare and living standards but there are some disadvantages, such as increases in short-term unemployment and an increased inequality in the distribution of income. In order for microeconomic reforms to work effectively, they must be complemented with deregulation, the process of removing protection levels and a flexible labour market.

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