Policy Approach

Policy Weaknesses

The government has committed itself to a program of aggregate supply policies. However, at each step along the way there have been those who have felt that the suggested reforms were either unnecessary, or would be detrimental to the Australian economy. These are some of the general weaknesses that you will be able to use in your responses:

Political Obstacles: The microeconomic reform process can be very subjective. For example, in Victoria, many jails have been privatised. There are some who argue that the government should be obliged to provide us with jails, and as such they should not have been privatised. This can result in delays, as necessary reforms are debated in parliament. Some may only be passed with a change of government. For example, part of the reason that Kevin Rudd was ultimately removed as Prime Minister was because of his inability to secure the passage of an Emissions Trading Scheme through parliament.
Implementation Lag: Given the slow political process, it can take even longer to actually implement a microeconomic reform. The process of privatising Telstra started in 1996, and was only completed when the Liberal Party gained a majority in the Senate in 2005. Given that Australia is already lagging behind in some areas, this can result in other countries getting even further ahead. As was mentioned above, although many people believe that there is a need for a carbon pollution reduction scheme, and the Kyoto Protocol was signed in December 2007, no such scheme has been implemented yet.
Recognition Lag: The process of microeconomic reform is reactive in nature. That means that a problem has to be identified before it can be solved. (At first this may sound strange, but remember that when implementing monetary policy the RBA aims to be 18 months ahead.) It can take quite a while for the government to recognise problems. It can also take many years to formulate a suitable reform process.
Impact Lag: In this case, the flow on effects can take many years to reach the Australian public. In fact, in the short term the impact may even be negative.
Structural Unemployment: Perhaps the most important weakness of an aggregate supply policy is that it can result in short term structural unemployment. Evidence suggests that in the medium to long term lost jobs will be regained, however this is no comfort to the many thousands of people who must endure the loss of a job while the industry “settles” in the wake of a microeconomic reform process.

You will need to be able to use these weaknesses when assessing the role of microeconomic reforms in achieving the goals of the Australian government. For example, we will consider the weaknesses of aggregate supply policies in achieving full employment.

Both immigration policies and environmental policies will affect the unemployment rate in Australia. For example, a large immigration intake will mean that there is increased competition for certain jobs. While this can help to minimise wage pressures, it can also mean that "someone misses out". Australia's immigration policy attempts to target those positions that the economy is struggling to fill, but this will not always be the case. Similarly, many people are concerned that a move away from carbon based fuels will mean job losses in Australia. If the government does act to put a tax on carbon, the increased cost seems certain to mean that some people lose their jobs. This can lead to a far more inequitable distribution of income. The process can lead to an increase in structural unemployment, and as a result the distribution of factor income will be less equitable.

Current Page: Policy Weaknesses