current microeconomic event

Posted: August 6th, 2013





Microeconomic policy in developed countries

            The process of analyzing the application of economic models and academic knowledge of significant parts of the economy to examine the states’ microeconomic policy allows a student to grasp the procedures of formulating and enacting policy, the major stakeholders and the drawbacks involved. The study of these and other aspects within the course provides the learner with an experience in various aspects of public policy. The course also assists students to develop relevant frameworks and models based on the techniques acquired in class that function when implemented.

Microeconomic policymaking

            Microeconomics is a subsection of economics that deals with studying the trends of individuals, families and organizations in making decisions on the allocation of limited resources within the society. Microeconomics applies to smaller markets where goods and services are traded. One of the key objectives of microeconomics is to study market devices that set up prices amongst goods and services and allocation of limited resources between many users. Micro economic policy making therefore refers to the regulations governing the disbursement and usage of government tax and other public expenditure. These policies are relevant when the three levels of government make choices that will have an effect on the behavior of consumers and producers. Policymaking was central in the Australian governmental reforms that took place starting in 2000.

The government has certain needs that it has to fund by raising revenues. Most of the bulk of the revenue originates from taxes and a little comes from individual fees such as parking fees. Economic policy making issues have arisen when the government has taken up the responsibility for allocating the goods and services. Through policies, the government can have a larger influence over the range of products that can be allocated to the public. Policy influences the qualities, prices and quantities of products in the market and the knowledge that consumers can access.

Price regulation can be regarded as the least common form of regulation. Some regulations are glaring, for example, industry safety standards while others are less obvious. Information on goods and services is also regulated. Agencies such as the Securities and Exchange Commission demand that the public be made privy to the information on stocks and bonds. The objectives and benefits of the microeconomic policies might be obvious, but the costs attached to these expenses are somewhat hidden. An example would be the decision to regulate pollution by utility companies that will lead to the increase in electricity costs. Price regulation was central in the determination of the new controls for the Australian government especially when public fees and other charges were included in the new tax reform system.

The development of the law concerning public policy affects the allocation of resource in a major way. The legislation provides for the definition of property, rights and roles that control the economic agents. Governments use these regulations to control markets. Governments also engage in redistribution of resources to the public. The fairness of the distribution process is a question that has elicited many responses. The common method of redistribution of resources is through tax expenditures that lower the amount of taxes owed by people having special problems such as disabled.

The principle of supply and demand refers to the behavior between the buyers and sellers that affects the availability of certain goods or services. Supply and demand aspects have also been affected in the recent tax reforms proposed by the government. The GST proposals had the effect of lowering the supply of most of the goods and services that were expected to be more expensive after the tax was in place. When citizens heard that the GST taxes would be implemented, most of them rushed to retail and wholesale stores and bought the remaining supplies. This caused shortages in the availability of basic commodities. It is very important to regulate the demand and supply aspects within a society as failure to do so results in the disorganization and imbalance of the market.

Privatization and corporatization are some of the microeconomic reforms in Australia that have affected government public policy. In 2000, most government enterprises were either fully or partially privatized, for example, Qantas, Commonwealth Bank and Victoria electricity projects. Other government businesses underwent corporatisation that involved the adoption of market-type standards for managers such as Melbourne Water Corporation and Australia Post. The macroeconomic reforms also included protection within the international trade environment. Australian tariffs were lowered significantly in the late 19th century and again in early 20th century. The product markets were not forgotten as entry barriers were discarded to pave the way for cheaper costs of trading overseas. Privatization is advantageous to the government as it allows a company to recover through proper management that is spearheaded by professionals. Privatizes firms follow Weberian models of bureaucracy that are very efficient if implemented correctly.

Tariffs and other charges form a major part of fiscal limitations especially at the international level. Sectional tariff reforms within Australia and other countries included agricultural markets and the industrial sector. The reduction of tariffs on imported agricultural goods such as citrus products and sugar as well as the market reforms such as egg production. Reforms within the labor sector included a reduction of the powers of the Industrial Relations Commission and changes in the trade union regulations to reduce the compulsory membership terms. Lastly, the tax and welfare systems in Australia underwent the Goods and Service tax reforms in the year 2000.

The microeconomic policy making process within Australia has been a dominant topic for over a century. These attempts are as a direct result of the increasing public outcry for the state to participate more in regulating and coordinating different aspects of the economy. The large number of economic issues has forced the government to prioritize them to achieve the urgent ones. The main problem that Australia aims to solve using economic policies involves the improvement of operations for companies and industries to control the aggregate levels of supply.

The government has attempted to do this by refocusing its management strategies to accounting for structural supply-side crises that hindered its development. This structural change was achieved through boosting productivity and the improvement efficient production from available resources. Investigations into the nature of Australia’s economic problems reveal the cause as being structural factors that could not be controlled by macro-economic policies for instance the high level of unemployment created by supply-side factors. The government reacted to this analysis by turning their focus on micro economic policy formulation and restructuring.

The Goods and Service Tax (GST) is a wide scale tax covering most of the transactions and goods that applies within Australia. The GST is a value added tax that is replicated to the parties within the production chain except the final customer. The tax was introduced, in the year 2000, to replace the wholesale sales tax regime that was administered by the federal government.

Political factors have a major influence on the economy within a state. Politics has shaped the way in which the implementation of macroeconomic policies is done. In the 1980s, the proposal for a broad-based consumption tax was introduced by the federal secretary Paul Keating. Much later in the 1990s, the idea was reintroduced by the Liberal-National Coalition, but it was shot down by John Howard of the Liberal party in 1995. The main point argument that prevented most of the legislators from reintroducing the GST bill was that they were the minority in the parliament. The strong point of the GST bill was that all the profits collected from the bill would be allocated to the states. In the 1998 elections, the GST motion was shot down by Democrats unless it exempted books, tourism packages and food.

            The political environment has shaped the way in which the GST bill has been implemented within Australia. The legal framework set out by politicians defined the GST as follows. Division 9 of the Goods and Services Tax Act specifies that the Tax apply to supply of goods, transactions and services that are tied to real estate property. The supply is to consider a pertinent entity registered for GST in the course of enterprise. The categories of supplies that can be taxed include Australian goods, goods from or to Australia as well as housing property within Australia. Examples of supplies include unprocessed food, medical supplies and childcare. When an organization buys goods or services for consumption or reselling, they are bound to receive a refund on the amount of GST in the price that in essence means that there is no GST paid on the supplies. Residential and commercial housing are also subjecting to being taxed by the GST although the re-sale is exempted from the tax.


In the 1999 motion, the Senate passed the GST bill in June amid political differences between the Democrats and the Senators with a section of the Labor politicians who made a campaign to oppose the implementation of the GST bill. Later in the 2006, the New South Wales government launched an advertising campaign concerning GST. A bill was brought to parliament that removed the obligation of the federal government to return the revenue earned by a state to distribute it to non-performing states. These negative campaigns were countered by the federal government that developed their own campaign claiming that the New South Wales had violated the contract in the 1999 GST Agreement. Politicians are important stakeholders as they control the composition of the legislature regulating economic activities. In this particular instance, political factions played a major part in shaping how Australia adopted with the GST tax.

            Consumer choice and demand as a microeconomic principle provides is concerned with providing customer with a variety of products that they might require at the period at which they require it. Economic analysts have argued that the GST is a regressive policy that has a distinct impact on the lower income levels. This meant that the low-income workers spend a large part of their income on paying tax. This presents an obstacle that is not felt by high-income earners. Before the introduction of the GST, the treasurer Peter Costello commented that people were paying no extra tax. The implementation of the GST was preceded by an increase in the purchase of goods that were deemed more expensive with the introduction of the tax. The introduction of the tax resulted in a drop in consumer purchasing power and consequently, economic growth. The citizens who are the main consumers of these overtaxed products have no option to make choices over the best tax schemes they can subscribe.

Ignoring customer demands within the economy creates chaos among customers as they create an excess demand for good over a short period of time. In Australia, after the declaration of the GST bill, the impact of the drop was so intense that, by the first fiscal quarter of 2001, the economy recorded a regressive growth for the first time in over ten years. Although the economy returned to normal over time, the government received criticism by small businesses owners who claimed that the state was responsible for safeguarding the infant industry. Studies done by Curtin University of Technology revealed that the introduction of the GST would result in the raising of real estate prices by up to 8% and reduce demand for houses by about 12%. These political and economic effects of the GST shaped the way in which Australia regulates the economy. Within liberal markets, the consumer plays a large role in determining the behavior of other players in the economy such as suppliers and manufacturers.

           The Coase theory in microeconomics attempts to explain the processes associated with the administration of property rights and their relation to other aspects of the economy. In relation to property and property rights, The Coase theory suggests that property rights should be awarded in the presence of externalities if no transaction costs emerge. This and other theories attempt to explain different aspects of microeconomics that we shall define later.

Rental prices have been most affected by the introduction of the GST within the government. Agencies have predicted that the increase in the price of new housing made the real estate market tighter and more difficult to manage and invest in. This difficult situation was also predicted to escalate until the rise in rents were enough to compensate rental owners for the expensive costs of buying new property. Building activities such as economic modeling estimate that the rising cost of housing will lower the demand for housing services. The road and bridge construction was predicted to improve by 4%. All these estimates were expected to apply after the GST measures were taken into effect.

`           More recently, from December 2012, more legislation concerning taxpayers and the property sector has been made an enacted in Australia. The changes apply to the GST treatment of taxes and other fees as well as non-monetary donations. The old law deals with the problem of compulsory government exactions that were not categorized as fees but which were included into the GST scope. GST considers the payment of any fee or tax as one of that for a supply. This means that in the event that no supply is made, the GST counts it as a supply that exists. The problem lies in the long list of taxes, fees and other charges that are included in the GST. The new legislation seeks to eliminate the long list of charges and transforms it to a set of criteria set out in the new Division of the legislation which specifies when it is payable to the GST.


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