Policy Impact

External Stability

Many aggregate supply side policies have been implemented to assist in the process of improving Australia’s external stability. As such, it is important that you are able to see the way in which changes have been made to assist in the achievement of this goal.

You will recall that one of the strengths of supply side policies is that they can lead to lower costs in infrastructure industries. This has resulted in lower costs of production for all Australian businesses, including export orientated firms. This has meant that there is no upward pressure on prices, and as such Australian industries have been better equipped to cope with fluctuations in the Australian dollar. As the floating of the Australian dollar was an important step in the early deregulation of the financial sector, and any depreciation of the AUD will lead to an increase in demand for our exports, local industries have been in a great position to benefit.

Competition leads to lower prices, and more jobs.

Various other reforms have also added to our external stability. Foreign investment has been encouraged as regulations restricting international access to many areas have been relaxed. When the tax system was reformed in 2000, the government ensured that the GST was not applicable to goods and services intended for export. As such, the cost of these products was not artificially inflated due to a government policy, and demand for them increased.

The development of many new government bodies has also assisted in the process of achieving external stability. The ACCC ensures that competition in the Australian economy is fair, and that means that international firms are able to gain equal access to the Australian market. Although the liberalisation of trade in Australia (such as the gradual decline in tariff protection) has meant some structural unemployment, it has also forced many local firms to find ways to become more efficient. There is evidence to suggest that those businesses which have endured falling levels of protection have also increased their productivity at a faster rate than the national average. This increases the ability of those businesses to sell goods and services overseas.

It is also true that the pursuit of external stability has affected the way in which some reforms are implemented. For example, the delay in implementing a carbon pollution reduction scheme during 2010 was largely due to the fact that many people were concerned that Australia should not impose this tax unless other countries did the same thing. In other words, Australian businesses could find themselve unable to compete in the global economy if they were forced to pay taxes that were not imposed in other countries. This could have resulted in reduced investment from overseas, and could also have resulted in a decline in international competitiveness for Australian exports.

It is very difficult to link any one microeconomic reform to a specific change in Australia’s external stability. However, we can definitely conclude that the process of microeconomic reform has been implemented with an increased awareness of Australia’s need to be integrated into the global economy. It is important that you are aware of several examples of reforms which have been implemented to help in achieving this goal.

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