Quick questions on Microeconomic reform and Australia's aggregate supply (HSC Economics Topic 4)

Microeconomic policy consists of measures by government to improve the efficiency with which individual markets allocate resources. While macroeconomic policy (fiscal, monetary) operates on aggregate demand, microeconomic policy operates on aggregate supply by lifting the economy's productive capacity.

The 1980s case for reform rested on three observations:

Microeconomic reform shifts long-run aggregate supply (LRAS) rightward. The economy can produce more without inflationary pressure. Concrete impacts:

Productivity is the central long-run determinant of living standards. Reform contributions:

Reform improved Australia's competitiveness:

Phased reduction of tariffs on motor vehicles, textiles, clothing and footwear. Average tariff fell from around 15 percent in the late 1980s to around 1 percent today. Domestic firms had to become globally competitive or exit.

Floating the AUD (December 1983), removing exchange controls (1983-85), allowing foreign banks to operate (1985). Cost of capital fell; financial markets deepened.

A coordinated reform agenda agreed between federal and state governments: - Competition Principles Agreement: review and reform all anti-competitive regulation. - National Access Regime: third-party access to essential infrastructure (rail track, pipelines). - Trade Practices Act extension: competitive conduct rules to apply to all businesses including state-owned enterprises.

Capital gains tax (1985), dividend imputation (1987), GST (introduced 1 July 2000 at 10 percent). The GST broadened the tax base, reduced reliance on inefficient state taxes, and was paired with personal income tax cuts.

Move from centralised wage-fixing (1980s) to enterprise bargaining (1991), Workplace Relations Act 1996, Fair Work Act 2009. Greater flexibility in wage-setting at the firm level. Award modernisation reduced the number of federal awards from over 2,200 to 122.

Commonwealth Bank (1991-96), Telstra (1997-2006), Qantas (1995), state electricity assets (1990s-2000s). Government-owned business enterprises forced to operate commercially or be sold.

National Electricity Market (1998), interstate rail network deregulation, port reform. The Productivity Commission's economic regulation framework.

Standing independent advisory body on microeconomic issues, replacing the Industry Assistance Commission and the Industry Commission.

Reform displaces workers and firms in protected industries. Tariff cuts ended Australian car manufacturing; coal mining will decline through the 2030s.

Reform tends to widen the gap between high-skilled winners and low-skilled losers. Markers reward responses that acknowledge this.