Examples of government intervention in australian economy

The Australian government intervenes to alter how Australian economic resources are allocated. This is done to keep the economy running smoothly rates and price rises (inflation). Governments aim to maintain a of economic downturn (depression) and periods of extreme economic boom, which create high inflation rates.

Government provides public goods and other essential products that the private sector would not provide. Some sectors such as health and education have both private and public ownership.

Governments must allocate resources towards non-profit-making activities. These resources are used to provide structures, institutions and services that are considered essential to a modern society.

These services help support our economic growth and stability, and improve our standard of living. Public libraries and sporting facilities are examples of this.

Advantages of living in a mixed economy

• Individuals are free to own property and operate businesses.
• A government-funded social safety net exists. This means that all people are guaranteed a minimum standard of living. Pensions and welfare payments protect us from what is known as absolute poverty.
• Governments provide services like health and education to protect the most disadvantaged Australians from absolute poverty.

Living in a mixed economy means we have:

• access to health care at public hospitals
• an entitlement to minimum wages and conditions (awards) under employee relations laws
• access to unemployment benefits
• access to pensions.

A pure market system would see none of these things available.

During times of economic emergency governments can intervene to minimise severe economic downturn.

RESEARCH 22.2

Use the Centrelink website (via www.cambridge.edu.au/hass8weblinks) to find out who is entitled to each of the following benefits and how much each is entitled to receive:

1. the age pension
2. the disability pension
3. unemployment benefits
4. the single parent payment.

In your opinion, should these payments be increased or decreased? Justify your answer. Present your views to the class in a class discussion.

Reasons for government intervention

Public goods

Some essential products would not be produced if left up to the free market. Essential products such as roads and defence forces are either too expensive for private investors, or it is too difficult to collect payment for them (for example, street lighting). Governments therefore provide essential products and collect taxes to pay for them. The Australian government intervenes to ensure essential services and products are provided.

To achieve a more equal distribution of wealth

A market economy leads to an inequitable distribution of wealth. Some people end up extremely wealthy while others have very little.

Large numbers of extremely poor people create social problems like crime and a strain on the health system. The Australian government uses a progressive taxation system where wealthier people, who can afford it, pay a greater percentage of their income in taxes. This money is redistributed to low-income earners in the form of pensions and other social welfare or transfer payments. This is known as wealth redistribution. Government also provides basic services such as health services (Medicare) and public education to ensure that all Australian citizens have access to a reasonable standard of living and enough resources to meet their needs.

DEVELOPING YOUR UNDERSTANDING 22.5

Using the website of the Australian Taxation Office (via www.cambridge.edu.au/hass8weblinks):

1. Identify how much a person on each of the following incomes levels is required to pay in income tax.
   • $55 000
   • $100 000
   • $8000
   • $2 million
2. Calculate the amount each would have left over as net income after income tax has been paid.

Examples of government intervention

Laws are created to regulate the economy. Businesses in the private sector must abide by these laws and pay tax on income earned.

Laws restrict types of products a business can produce. Businesses in Australia are not totally free to produce whatever they want, in any manner. If a product is dangerous or potentially harmful to society it may be illegal to produce and sell.

Australians believe governments have a responsibility to protect citizens from dangerous products, so laws do the following:

• Laws ensure that quality of products produced and sold are of an acceptable standard (consumer protection laws).
• Laws ensure that products sold meet certain safety standards, such as seatbelts in cars or healthy dietary standards in foods.
• Laws ensure warnings appear on dangerous products.

Legal bodies and institutions (for example, the Australian Securities and Investment Commission and Fair Work Australia) are established by government to oversee and enforce laws.

Fiscal policy intervention

Every year the Australian government outlines how much it intends to collect in revenue, like taxes, and how it intends to spend this money (the budget). If the government spends more than it collects in revenue, there is a budget deficit. When the government collects more than it spends, there is a budget surplus. A budget deficit has the effect of putting money into people’s pockets, so spending increases. This stimulates the economy. Governments do this when unemployment is rising and spending is low. But when the prices are rising (inflation) a government will often choose to have a budget surplus. This takes money out of circulation and slows the economy, reducing demand for goods and services. Governments use their budgets ( fiscal policy ) in order to keep the economy running smoothly.

not-for-profit goods or services that are provided to members of society by the government or a private organisation

a system where the rate of tax paid increases as income rises

a policy which deals with the budget