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Role Of Government In Mixed Economies Such As Australia

1590 words - 6 pages

Role of Government in Mixed Economies Such As Australia

What role do governments have in modern mixed economies such as Australia? Using
appropriate indicators (macro economic aggregates) outline the present state of
the economy. In what ways is the Commonwealth government using fiscal and
monetary policies to influence the Australian economy? What are the main
features of the government's micro economic policy? Why is the government
concerned about microeconomic reform?


The role of government in Australia today has less influence on the market than
they did a decade ago. It function now is to provide a stable internal and
external balance under which the market can function. This is achieved through
the use of fiscal, monetary and microeconomic reform.

Australia currently operates under a mixed economic system. This means that the
government has partial control over the economy and has the ability to influence
the markets. Recent moves by the government that shows the government's role in
the economy to be shrinking includes the privatisation of government business
enterprises (GBE) and deregulation of the financial market. The main roles that
the Australian government plays today are to ensure:

1) The efficient and even distribution of income (though CSSB, tax)
2) Provide a limited range of goods and services (Aust post)
3) General economic management through macro and micro economic

In 96/97 the CAD fell to $20.9bn from the $27bn blowout during 95/96. This was
largely due to a fall in domestic spending which lead to a slight rise in
national savings. Inflation remained low and fell between the RBA's 2-3% target.
This gave way to the RBA's 3 consecutive drops in interest rates to stimulate
the economy. Economic growth has stabilised between 3-4%. Although this is a
reasonable figure, a higher growth rate is required if unemployment is to fall
from the 8.6% is has averaged for the past year. Overall economic performance
has been reasonable but current figures show the problems with our external
balance and unemployment will not be solved any time soon.

Fiscal policy is the government's use of the Budget to achieve its economic
management goals. This is done through revenue collection and government
spending. In recent years there has been a shift away from the Keynesian view
that fiscal policy is used to stabilise short-term fluctuations in demand. This
refers to a contractionary stance during a boom period to dampen economy and an
expansionary stance during a bust period to stimulate the economy. Current
fiscal policies are aimed at the medium and long-term goals of resource
allocation, income distribution and external balance. This is because fiscal
policy is relatively inflexible and is adjusted on an annual basis.

One of the government's objectives in using fiscal policy is to reduce the
Public Sector Borrowing Requirement (PSBR). To do this the government has had a
$3.9bn cut in discretionary spending during the...

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