(1) Examine Australia’s recent economic performance and provide an overview of the current economic outlook. Critically review the governments’ policy approach to meeting the key domestic challenges identified.
(2) There is often a tension in setting macroeconomic policies, where some policies can have undesirable consequences. In the context of the governments’ current policy approach, examine the following and discuss how these countervailing forces might constrain desired policy settings and outcomes.
a) Providing incentives for work and innovation via a reduction in company and income tax (which are high by international standards), in the context of a large budget deficit
b) Lowering interest rates to stimulate economic activity, while moderating housing price growth and improving housing affordability.
The government existing in Australia has over the last decade aimed at reinforcing triangular schemes in order to foster the economic growth and expansion, national dignity and explicit poise within the economy. However, the economists when take the three into consideration, that replicates the nationalized economic growth within the country, contradictorily keeping hold of the inflationary effects along with the debt liabilities of the common people residing within the country. Even though the economic growth is fluctuating, still these fluctuations are often prejudiced by the global business cycles. Prior to the onset of the global economic crisis of 2009, the Australian economy has come across viability and expansion in terms of the GDP growth (Australia, 2005). Until the affects of the financial crisis had flown away, the macro-economic policies were customized in directing the rate of inflation and maintain stability and expansion of the country economically. Macro-economic Policies are predefined policies that are framed to manage the structure, governance, behaviour and the decision making perspectives for benefitting the entire economy. However, with the passage of time, the consistency of the steady economic atmosphere existing in Australian economy after the onset of the global financial crises somehow led to come up with undesirable outcomes and certainly could not lend benefits to the society. Problems that arose as a result of the setting up of the macro-economic policies were as follows:
o Undesirable inflationary rates
o Credit crunch in the banking sectors
o Short terms slow down of the economy
o Restrictions in widening the scopes for the economic expansion of the country’s economy
The issue of the policy failure in Australia is considered as the policy failure that directly influenced the pressures and upsetting situations to arise within the economy. As a result of this upsetting situation, the macro-economic policies in Australian economy like as fiscal policy and monetary policies structured by the Reserve Bank of Australia (RBA) and the Australian Government have however led to inflict the interest rates and thus off-putting the investment and even disfiguring the investment patterns.
Over the last year, the Australian government came up with new policy frameworks thus enabling to recognize and intriguing the roles and the responsibilities of the Reserve Bank of Australia thus impeding to overcome the effects of the inflationary downturn (Newell & Sieracki, 2010). This was however expected to have positive and direct influence on declining the inflation rates and thus crafting sound investment ambiance within the country.
When one looks into the large structural current account deficit of Australian economy, it is visible that it reflects insufficient national savings and scarce returns generated from overall economy. Yet, the government has tried to overcome and retrieve from these countervailing effects of structuring and setting up of the policies through the fiscal consolidation program and has made adequate efforts to set the policy frameworks that would abide by the adequacy of the commonwealth contribution to the savings generating from the public. With effect from this time onwards, the Australian government has come up with the setting up of the revised and sound fiscal policy to continue and retain the economic growth rates unlike other developing economies of the world. This however integrated with the effects like as increase in the trade facilities with the neighbouring countries like as China and India and from this time onwards the Australian economy started to experience economic reformation through the setting of the economic policies, regulatory frameworks and appropriate governance structures on behalf of the government.
As per the virtues of Glenn Stevens, the governor of Reserve Bank of Australia and stated that the monetary policy prevalent in Australia has evenly stimulated the economic growth of Australia. In economic terms, it is quite inevitable that if there is a boom in the interest rates, the housing or the real estate market would cool down like it did in the FY 2013 (Real estate in Australia, 2013). Steven believed that only lowering the interest rates cannot be the only answer to the credit crunch or bubble, but there are something more to add. That is moderating the prices of the houses and real estate market. He eventually believed that bank lending at lower interest rates on mortgage or house loans thus avoiding the heating up the real estate and property market of Australia. Australia’s housing market seems to rise and there has been an increase in the house prices by 11.4% in Australia. Sydney and Queensland experienced these credit plunges surging 19.9% on the property prices. The housing market in Australia was overvalued by 40% (Reed, 2010). But to strengthen the economic situation of the country, the RBA decided to cutback the interest rates and lower by 1.75% on the house properties to bounce the household debts and credits.
Despite of the reduction in unemployment rate in Australian labour market, there was a reduction in the consumer price index (CPI) by 0.2% to reduce the interest rates optimally. As a result, there was a decline in the inflationary rate stated by Glenn Stevens, the governor of RBA. Currently, the real estate sector and the housing market are passing by a downward trend. The decision of revised fiscal and monetary policy making strategies undertaken by RBA will actually surge pressure on the Australian banks to decrease the lending rates at present by 0.25%. As a result of this, the Australian economy came up with strength to grow by 3% in 2015-2016. However, this indicates that there would be tough growth in the coming years, actually at a moderate rate by 2020. House prices remained at the front position of the policymaker’s mind (Simons, et al., 2008). Alongside, recent calmness in the real estate market and growth and prosperity however led to Reserve Bank of Australia to configure the fact that these countervail risks has been tapered. Moreover, the RBA’s decisions for policy making somehow created resilient business opportunities and boosted up the confidence of the mass and thus that indicated a decline in the unemployment rate by 2.5% a low of 5.7% in April 2016 and would even lower by 2020 by 0.2%.
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