Policy Impact

Sustainable Economic Growth

In general, it can be said that the microeconomic reform process should lead to sustainable economic growth in the medium to long term. We have already seen that when properly applied, a microeconomic reform aims to move the supply curve in the affected industry to the right. This should also move the equilibrium point to the right, and so economic growth results.

We can assess whether or not this has happened in the Australian experience by looking at the output of those policies that have resulted in some structural reform.

Trade – According to the Department of Foreign Affairs and Trade, Australia's consistent results in regards to economic growth have been due to our involvement in the global economy. Australia has been a world leader in lowering trade barriers, and also in seeking out trade agreements. These factors have combined to ensure that the Australian economy is resilient during periods of global uncertainty. For example, our close trading relationship with China helped to ensure that the impact of the global financial crisis was minimised, and the domestic economy avoided a technical recession as a result.
National Competition Policy – When the National Competition Policy was introduced in 1995, it was estimated that this one change would add almost 5% to GDP. As a direct result of this new law, we have seen large increases in output in Agriculture, Mining, Manufacturing and the Service sector. More than fifteen years later these reforms are still ensuring that there is no duplication of infrastructure, and that competition in the economy is fair.
Labour Market Reforms – The Australian labour market has been through many changes over the last decade, but the goal has been consistent; an increase in participation and productivity will help to ensure that economic growth is sustainable. The Fair Work Act preserved many of the productivity based gains that were made under the previous legislation, while also ensuring more protection for workers.
Immigration – There are many who have argued that Australia must "populate or perish". Although there is considerable debate about the "ideal" size for the Australian economy, it is certainly true that the immigration that has occurred has added to Australia's economic growth. An increase in the population adds to the productive capacity of the Australian economy, especially as the majority of people who migrate here arrive with a strong skill base. This acts to increase aggregate supply, and hence economic growth.

These are just some examples of the way in which the process of microeconomic reform has added to economic growth in Australia. However, it is worth noting that to gain the benefits of the reforms, the Australian economy may experience some negative fluctuations in the short term. For example, although the automotive industry has increased production recently, the restructuring of the tariff protection in regards to passenger motor vehicles has resulted in discussions about the closure of several plants in Australia. While Australian based manufacturers find ways to compete with producers in South East Asia, further closures are possible as tariffs fall in the near future.

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