I think micro would be a definite possibility- there's SO much you can talk about. I was expecting a micro q when I did my exam last year. So disappointed when there wasn't.
Benefits of Micro-Economic Reform
(a) Micro-economic level- technical dynamic and Allocative efficiency as firms raise productivity and use competitive advantage to export to global markets. The non-tradeable goods sector (government infrastructure) should improve its efficiency and assist the traded goods sector to become more competitive
(b) Macro-economic level
(1) Raise national productivity by improving allocation and efficiency of labour+capital
(2) Lower I and I expectation through competitive markets
(3) Reduce CAD by increasing X
(4) Increase sustainable economic growth
(5) Reduce U
(6) Overcome structural problems such as low savings
(7) Higher standard of living through increasing real income
Costs of Micro-Economic Reform
(a) Structural unemployment. This occurs in tariff protection industries and also due to privatisation. High labour and capital productivity also leads to this
(b) Cost of retraining and relocations must be paid for by the government
(c) The greater improvements in productivity, efficiency and portability have come from PTE whose dividend payments to the government owners have also increased dramatically without a similar magnitude of savings being passed on to the private sector in the form of lower prices for inputs and output.
Key micro-economic policy changes
(a) National competition policy in 1995 to improve efficiency and reduce prices
(b) From 1998 reduction of tariffs to increase competitiveness of Australian industries
(c) Improve efficiency of public trading enterprises which provide infrastructure. Increasing privatisation, deregulation, commercialisation and corporatisation.
(d) Increased productivity of labour and capital through reform to capital and labour markets such as financial deregulation and productivity based wage bargaining.
(e) The strengthening of the incentives to work, save and invest through the introduction of the new tax system
Productivity commission which was formed in 1996 co-ordinates micro-economic reform policies. The objectives of micro-economic reform are also linked to macro-economic objectives. Micro-economic reform will contribute to better macro-economic performance by helping to overcome structural constraints to sustaining higher growth. The type of economy wide or macro-economic gains include
(a) Lower I through a system of more competitive domestic markets
(b) Lower U through reforms in the labour market, through more efficient work and management practices and greater flexibility in the mobility and deployment of labour
(c) Higher national S through compulsory superannuation and the new tax system which included stronger incentives for private savings (tax cuts) and the reform of commonwealth-state financial relations to assist public savings
(d) A reduction in CAD through tariff reforms to raise export competitiveness and improve Australia’s trade performance
(e) Increased levels of productivity (through labour Market reforms) which help to support a rise in Australia’s long-term sustainable rate of economic growth
Reforms in Product Markets.
(a) National competition policy 1995 reforms to PTEZ and Infrastructure Industries e.g. addressing anti-competitive behaviour and monopoly positions (electricity and telecom markets have been opened up) will result in a 5.5% increase in GDP
5.9 billion Boost to commonwealth resources
3% rise in level of real wages
9 billion dollar gain to consumers through lower prices
(b) Trade and Industry Policy. Dismantling of industry protection in the form of tariffs and quotas was on a large scale to promote import competition, raise industry efficiency and increase the volume of exports (Uruguay and Doha Rounds). Industry policy includes increased support for R and D and increased Australian attractiveness to foreign investment.
(c) Taxation reforms to increase incentives
(1) GST to replace indirect taxes and state taxes in 2000
(2) Less distortion of relative prices will increase Allocative efficiency as the GST is a flat tax compared to sales tax for different items.
(3) All GST revenue to states
(4) Lower marginal tax rates and increased threshold for different tax rates
(5) Lower company tax rates from 36% to 30% over 2000-2002
Reforms in Factor Markets
(a) Labour Market- Since 1985 when productivity based bargaining system. Workplace Relations Act 1996 led to greater choice, limited award systems, ended compulsory unionism and led to training and employment programs. Establishment of Centrelink occurred in 1998.
(b) Reform of Financial System- It is important to ensure that capital resources are allocated efficiently and costs are minimised through financial innovation and technological improvement. Deregulation in 1983 led to:
(1) The abolition of all direct reserve bank control over R
(2) RBA conducts monetary policy
(3) The floating of ER
(4) Entry of 16 new foreign banks
These changes resulted in more efficient allocation of capital resources. Other benefits included access to overseas capital markets and more efficient conduct of monetary policy by RBA. Prudential Regulation of the financial system shifted from RBA to APRA
