Microeconomic Reform Finian O’Driscoll Alexander Montano Joshua Sandy Taylor Cook

National Competition Policy 1992 Federal Government Inquiry – Hilmer Report – Crown immunity doctrine gave government a competitive advantage 1995 COAG signs agreements to introduce NCP – Competition Principles Agreement – Conduct Code Agreement – Agreement to implement the National Competition Policy and Related Reforms 1997/99, Multi-jurisdictional assessments of progress – To determine competition payments to states & territories

Impact of Reforms Legislation review & reforms – Established Gatekeeping mechanisms – ensuring effective & efficient regulation, guarding against regulation not in public interest – Removed legislation restricting competition and efficiency – Barriers remained where there was net benefit to public Competitive Neutrality – Establishment of competitve neutrality complaint units – Numerous major PTEs had been corporatised – Other large PTEs exposed to competitive neutrality

Impact of Reforms Establishment of independent prices oversight arrangements – ACCC (National) – Independent Pricing & Regulatory Tribunal (NSW) – Other states & territories National access regime – Competing businesses could access monopoly of national infrastructure Electricity, Gas, Water reforms – National free & fair trade of gas, full retail contestability – Better water resource management – Interstate water trading, water planning

Summary of NCP Benefits Contributed to the productivity surge that has underpinned 13 years of continuous economic growth, and associated strong growth in household incomes Directly reduced the prices of goods and services such as electricity and milk Stimulated business innovation, customer responsiveness and choice Helped meet some environmental goals, including the more efficient use of water.

Taxation Reform By the end of the Second World War, taxation revenue had grown to over 22 per cent of GDP. The further increase in taxation largely reflected Australia’s involvement in the war and the introduction of government support programmes, such as the widows’ pension in 1942 and unemployment relief in Tax revenues tended to fall in the middle of the twentieth century and by the tax take was around 18 per cent of GDP. It then increased significantly between 1973 and 1975, largely as a result of increased funding for social programmes. There has since been a modest rise in Australia’s tax take, similar to the experience of many other OECD countries. Australia’s tax to GDP ratio is currently the eighth lowest among the 30 OECD countries. Throughout the twentieth century, federal government reliance on direct taxes as the primary tax base has increased (see chart ). The latter part of the twentieth century saw significant base broadening in the income tax system with, for example, changes to the tax treatment of fringe benefits, the introduction of a capital gains tax and the removal of accelerated depreciation. Base broadening in both personal and business taxation has been accompanied by declining rates of taxation.

Other Key Reforms (GST) Other key areas of tax reform over the past 25 years include the interaction between personal and business taxation and other reforms to business taxation, changes to the taxation of retirement savings and incomes, and the introduction of a broad based goods and services tax in The goods and services tax (GST) replaced a range of less efficient federal and state indirect taxes. Although it was introduced by the federal government, all revenue from the goods and services tax is paid to the states.

Financial Deregulation Deregulation involves the simplification or removal of rules that constrain the operation of market forces; it aims to improve the efficiency of industries Important role of assuring businesses can access funds for investment and growth Microeconomic Policy- aimed at making the sector more efficient and competitive First Step – Removal or direct RBA monetary control over banks – Floating the Australian Dollar Second Step – Removal of barriers to foreign banks entering Australia More competitive for many financial services – Consumers and businesses pay lower prices for their access to finance GFC highlighted the need for government to regulate the financial sector but also allow lee way for efficiency and competition Australian sector is highly commended for its balance between the two as we avoided the bulk of the GFC

Labour Market Reform The major labour market reform recently has been the shift away from centralised wage fixing to decentralised wage fixing. This has been greatest in the shift from awards to enterprise agreements. This has allowed allocative efficiently to take place, in that wages are allocated more to efficient firms and less towards inefficient firms. The implementation of Fair Work Act has acted to centralise wage fixing and conditions in comparison to Workchoices, this centralisation has acted to reduce efficiency but has increased worker rights.

Evaluating Labour Market Reform The overall trend of decentralisation has been mostly successful in achieving the government’s economic goals because decentralisation promotes efficiency. The effect of this decentralisation have been little to no wage push inflation, increased productivity, especially in the 1990s where productivity grew annually by 3%, but has since slumped to 1% in the 2000s. It has also reduced unemployment through flexibility increases allowing underemployment. However the current trend is increasing wage inequality as wage is determined by the profitability of specific firms.