Policy Impact

Standard of Living

Aggregate supply side policies can have both a positive and a negative impact on our standard of living. Once again it is important to remember that a policy will only be implemented if the government genuinely believes that the long term impact will be a higher standard of living for the majority of Australians, and so any “costs” will generally be short term.

A Lower Standard of Living

We have already explored the fact that some supply side reforms could result in an increase in structural unemployment. When this occurs the people who become unemployed will undoubtedly find that they suffer from a lower standard of living. For example, when the pricing structure for the dairy industry was deregulated between 2000 and 2008, the net impact was that fewer people chose to continue to operate their dairy farms. Some of these people may have decided to retire, while others may have found work in other areas. But some would have become unemployed as a result of this change.

In addition, any attempt to implement a large scale emissions trading scheme could also result in a lower standard of living for some people. For example, new energy generation plants are being asked to meet strict new conditions in regards to their carbon output. To achieve this may mean finding ways to become more efficient. This has created uncertainty in the industry, which may ultimately lead to unemployment. It is also true that this would be a new tax. While the goal is to reduce pollution (which would lead to higher non-material living standards), it is also forecast to cause a short term increase in the rate of inflation. Economic modelling suggests that a carbon tax would increase inflation by about 0.9%. This may seem like a small figure, but the truth is that it would result in an erosion of real wages, and a decrease in the international competitiveness of our exports. Inflation tends to have a much larger impact on low income earners, and so the full impact of this change would not be evenly distributed throughout the economy.

A Higher Standard of Living

As was stated above, these changes have only been put in place to ensure the greatest good for the greatest number; the government doesn’t always get it right, but they implement policies to try and make our lives better.

For example, although fewer people ended up owning dairy farms, it is also true that the price of dairy items is lower today (in real terms) than it was ten years ago. This means that more people can afford to purchase these items, helping to satisfy our needs and wants (especially as milk is a staple product!). It was also noted above that environmental policies will lead to higher non-material living standards. Considering an even longer term view, if global action in this regard helps to reduce the impact of climate change, it may result in millions of lives from all over the world being saved.

Immigration policy can also lead to higher living standards. There is a direct impact on the people who move to this country; they are obviously choosing to come here because they believe that their standard of living will be higher in Australia. It also increases the productive capacity of the entire country, and helps to ensure that we have access to the skills that we need to complete certain jobs. The reduced pressure on wages (due to the increase in the supply of labour) can help to lower inflationary pressures. In the long term all of these policies should result in higher levels of economic growth.

Although they may be contentious, these policies are designed to ensure that living standards continue to increase in the long term.

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