Governmental and Reserve Bank Economic Policies in Australia - Essay Example

?Australian Economy in Last 2 years Overview of the Australian economy before the last two years as a comparative Case Study The years before 2009 were periods that were characterized with unstable economic growth rate. This made Donavan (1981; p.277) concluded that “state growth rates have been persistently different to a possibly significant extent” (p. 227). These disparities not withstanding, Harris and Harris (1992) report that the aggregate gross product growth rate was above national growth rate in most parts of the Oceania region and beyond. This analysis speaks of the strong economic history that Australia has possessed over the years. The unstable nature of growth however affected the general economic climate in a way. For instance, because the economic wave stability was generally unpredictable, investors could hardly predict what the future held for them in investing in Australia. Specific Governmental and Reserve Bank Economic Policies that were introduced in the last 2 years - Budget The budget has the tendency of deciding the future economic hopes of a country because it serves as the blueprint economic policy implementer. For this reason, the government of Australia took certain important steps by way of their budget that were directed towards ensuring economic growth. One of such policies through the budget was the fact that the government through the budget encouraged the establishment and opening of new small and medium scale businesses by the introduction of Small Business and General Business Tax Break, which was “expanded to allow a bonus deduction of 50 per cent to small businesses with a turnover of less than $2 million that acquire an eligible asset between 13 December 2008 and 31 December 2009 and install it ready for use by 31 December 2010” (Australian Regulatory Compliance Review, 2010). Again, the budget was highly focused on human resource and labor in general as the pension age was slightly increased to 67 years. This was aimed at retaining and cheering experience in the labor front and ensuring that the human resource base to man Australia’s economic drive was not depleted. Finally, the government saw a lot of hope in the future of the economy of Australia, planted in the need for the country to be self sufficient as far as production is concerned. For this reason, “The Federal Government used the Budget to launch a new paper on innovation that powered ideas paper canvasses proposed improvements and incremental changes to the existing National Innovation System” (Australian Parliamentary Library, 2010). - Interest Rates The last two years were years that the world as a global entity was resurrecting from previous years of economic shock, meltdown, crisis or however it may e described to depict an undeserving situation. For this reason, it was very important that the policies by the reserve bank and government would be centered on the people and empowering them to be investment oriented. For this reason, the periods of 2009 and 2010 was one season that the reserve bank maintained most of its lending and interest rates. The reserve bank with consultation with the government also ensured that the interest rate was generally low and affordable for borrowers. In some cases, there were even downward cuts on the interest rates and reasons for these decisions included the need to boost the demand for credit to undertake investment projects as demand for credit rose just 0.6% (Rate Detective, 2011). Again, there was the need to conform to global trend such as China cutting its official interest rate by 1.08% (Rate Detective, 2011). Such a move was necessary to ensure that investors did not opt for countries with lower interest rates but for Australia. - Export Promotion Policy In times of economic recovery, exports have been identified to be more profitable to countries than imports (Koduah, 2008). This is because exports attract a lot of revenue in the form of taxation. Knowing this, the Australian government over the last two years was not blind on putting measures in place to promoting export into the country. In the case of Australia, Brewer (2009) observes that export promotion policies were intended to “add to employment in a nation, improve the availability of foreign exchange, offer the opportunity for local firms to generate economies of scale and deliver related spin-off effects.” The country Australia took a lot of strategic moves that were directed towards export promotion. For instance there were the organizations of trade exhibitions around the country. These exhibitions were targeted at both investors who were already in the export business and potential exporters. The exhibitions were also taken to international levels in most cases through digital satellite broadcasting and the use of internet in order to attract foreign investors. Again, Brewer (2009) documents that group visits abroad were arranged in order to deliver market information to firms who were interested in exporting. Such visits and briefings were necessary to give exporters idea of the most suitable marketing destination for their goods and services. Two other outstanding policies that were used to promote export were the provision of loan subsidies to exporters by government and the advertisement and publicity of export companies overseas (Brewer, 2009). - Internal Economic Policies Globalization and international trade relations and agreements seem to be bringing countries closer and closer together and generally bridging the gap that hindered the movement of investors from one country to another. All these notwithstanding, the Deutsches Institut fur Urbanistik (2011) notes that “businesses depend on good locational conditions to hold their own in economic competition.” This point speaks volumes about why the Australian government and reserve bank saw the need to put structures in place to promote internal economic growth of the country. Rightly put, the Deutsches Institut fur Urbanistik (2011) states that “local economic policy focuses on corporate investment, jobs, and tax revenue.” In Australia and over the period under discussion, there were efforts not just by the government of Australia but by the reserve bank as well to ensure that corporate investment was enhanced. It has already been said that the stabilization of the interest rate was one way of ensuring the growth of corporate investment. This is because local businesses were put in a position where they could access loans to develop their companies. in the graph below, it can e seen that despite the harsh aftermath of the recession in 2008, the Australian government was still very particular about keeping unemployment low over the last two years. Copied from Trading Economic (2011) From the graph above, it can be seen that in the period under discussion, the unemployment rate never rose above 5.8%. This means that efforts were made to promote local economic growth by creating jobs for local dwellers. Finally, it has already been seen that the budget catered for reduction of taxes so that local businesses would be urged to establish themselves. The rate of achievement of introduced policies over the last two years Having discussed the specific macro economic policies that were put in place by government and reserved bank to ensure economic growth the last two years, it is very important to assess the impact of the policies through their rate of achievement. In economics, success achievements are commonly judged with the use of specific indicators. - How policies affected Inflation Price stabilization is very important in macroeconomics. It is for this reason that inflation is being discussed in this context. Inflation has been identified as a very potential indicator for determining economic growth. For instance the Investor Guide (2011) notes that “growth is often thought to be unsustainable and a precursor to high inflation.” This means that high inflation rates would generally not be a good sign for economic growth. To determine therefore; whether or not the economic policies put in place by both the Australian government and reserved bank worked perfectly, it would be prudent to quantitatively compare inflation rates in the periods within which the macro economic policies were put in place as against periods when such policies were not in place. Copied from Trading Economics (2011) From the graph above, it could be said that the policies were very instrumental in reducing inflation in Australia in its first half and that is in 2009. However even though inflation rates were relatively low in 2010 as compared to 2008, they were not lower than rates in 2007: before the macro economic policies were introduced. The implication is that the government needs to continue to review the policies to ensure that their essence do not get dwindled with time. - How policies affected Exchange Rate One may argue that exchange rates do not have direct bearing with macroeconomics but this assertion is very erroneous. The Britannica Concise Encyclopedia (2011) defines macroeconomics as the “study of the entire economy in terms of the total amount of goods and services produced total income earned, level of employment of productive resources, and general behavior of prices.” This means that amounts of goods and services produced are very important in macroeconomics. Meanwhile, production of these good and services are very much dependent on the exchange rate as most production companies are import oriented and so depend so much on the strength of a country’s currency to stay in business. For this reason, the exchange rate of the Australian dollar will be compared for the periods before the macroeconomic policies were introduced and in the period that the macroeconomic policies were introduced to see the trend of change. Quantitative Representation of Australian Dollar to the US Dollar 2007 2008 2009 2010 January 1.2775 1.13407 1.48406 1.09488 February 1.27697 1.09565 1.54289 1.12773 March 1.2611 1.08464 1.50306 1.09682 April 1.20881 1.07436 1.40145 1.07924 May 1.21195 1.05301 1.30977 1.14979 June 1.1872 1.05146 1.246 1.17277 July 1.15352 1.03972 1.24265 1.14253 August 1.20712 1.13486 1.19719 1.11143 September 1.18264 1.22224 1.16099 1.06755 October 1.11184 1.46382 1.10306 1.0192 November 1.11545 1.51825 1.08781 1.0115 December 1.14717 1.4884 1.10785 1.00632 Average 1.1951 1.1967 1.2822 1.08998 Ranking 3rd 2nd 1st 4th Source of Data: X-Rate (2011) The four years were selected to represent two years before the policies and two years of the policies. Broadly, it can be seen that the initial stages of the policies were very influential in pegging the strength of the Australian dollar against the United States Dollar. This because the early parts of 2009 recorded unprecedentedly higher rates in favor of the Australian currency as compared to months before the policies. There was therefore a highest annual average for 2009. It is however unfortunate to note that the strength of the impact of the economic policies in strengthening the currency was slowed down in 2010 as 2010 recorded the weakest rating against the US dollars. - How policies affected the GDP The measure of gross domestic product growth rate is another important indicator for the success or performance of the Australian economic over the past two years in relation to the macroeconomic policies that were introduced. As usual, the gross domestic product growth rate is compared among four years in a quantitative manner. Copied from Trading Economics (2011) From the graph, it would be said that the macroeconomic policies were highly non-achieving in terms of the GDP growth rate of Australia. This is because the rates of growth in years of the policies were no better than rate of growth in years before the policies. What is even sad is that there were instances in the years of the policies that the GDP growth rate actually negated. CONCLUSION The future holds for Australia now is to sustain the steady economic growth it is presently enjoying as a result of the macroeconomic policies. The need for sustainability is advocated because the discussions have revealed that the impact of the economic policies have been reducing with time. If possible, newer policies should be introduced as older ones are reviewed and replaced. REFERENCE LIST Australian Parliamentary Library, 2010, ‘Budget 2009–10: Science and innovation’, accessed October 30, 2011 Australian Regulatory Compliance Review, 2010, ‘2009-10 Budget details for business’ accessed October 30, 2011 Brewer, P., 2009, ‘Australia's export promotion program: Is it effective?’, Australian Journal of Management (ERA 2012 Listed) (ERA 2010 Rank A). Vol. 34 No. 1. Sage Publications. Britannica Concise Encyclopedia, 2011, ‘Macroeconomics’, accessed October 31, 2011 Deutsches Institut fur Urbanistik 2011, ‘Local Economic Policy’, accessed October 31, 2011 Donovan, J.B. 1981, ‘Social accounting measures of regional growth’, in R.L. Mathews (ed.) Regional Disparities and Economic Development, Centre for Research on Federal Financial Relations, Australian National University, Canberra, 221-254. Harris, P. and Harris, D., 1992, ‘Interstate differences in economic growth rates in Australia, 1953-54 to 1990-91’, Economic Analysis & Policy, 22 (2), 129-148. Investor Guide, 2011, ‘Leading Economic Indicators Explained’, accessed October 31, 2011 Koduah, G. A, 2008, ‘Export Review for Global Giants’, London: PrintMark Group Limited Rate Detective, 2011, ‘Interest Rate Updates’, accessed October 30, 2011 Trading Economic 2011, ‘Australia GDP Growth Rate’, accessed October 30, 2011 Trading Economic 2011, ‘Australia Inflation Rate’, accessed October 30, 2011 Trading Economic 2011, ‘Australia Unemployment Rate’, accessed October 30, 2011 X-Rates, 2011, ‘Australian Exchange Rate’, accessed October 30, 2011 Read More