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Australian Government Intervenes in the Economy - Essay Example

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The dominant belief in economics is that "markets are usually the best way to organize economic activity" (Mankiw, 2004). According to this principle, the market system works best in running the economy. However, even though it is deemed the best, it not is without flaws…
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Australian Government Intervenes in the Economy
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"Australian Government Intervenes in the Economy"

Download file to see previous pages Aside from market failures, the government also intervenes to achieve equality through the reallocation of resources and redistribution of income (Stiglitz, 2002). This last impetus for the government to interfere in the market economy is the focus of this paper. We will take a particular look at the Australian government and its various ways of intervening in the market to improve its outcomes: with a specific focus on reallocation of resources and redistribution of income.
A study of the Australian National University's Centre for Economic Policy Research highlighted the income inequality in Australia. "The study revealed that "taken overall, the 60 years from 1921 were apparently a period of major decline" in the share of income going to the wealthiest taxpayers" (Michaels, 2006). By 1980, the share of the top 1% fell from 10% of the total income to 5%, the 0.5% fell from around 9% to 2.95% and the top 0.1% was cut down from 4% to approximately 1% (Michaels, 2006). ...
er the same period and the share of the top 0.1 percent, which had fallen to approximately 1 percent of the total in the 1980s, more than doubled to over 2 percent by the end of the 1990s" (Michaels, 2006). The introduction of the imputation system "in which part of corporation tax paid is treated as a pre-payment of personal income tax" has exacerbated the inequality (Michaels, 2006).
Early Redistribution Activities
Australia government depended on three redistribution methods: "the progressivity of the taxation system; the distribution of government cash payments; and the absolute level of government in-kind and cash payments" (Robinson, 2007).
"From 1910 to 1940 per capita levels current of Australian social expenditure in 1911 prices rose 208% substantially more than Butlin's estimate for GDP growth in 1911-39 of 48%. The introduction of aged pensions, the maternity bonus and repatriation services saw the Commonwealth take a leading position in overall social expenditure, in particular cash payments to individuals, but the states remained dominant in the delivery of in-kind services, particularly education and health and NSW from 1927 introduced widows' pensions and child endowment" (Robinson, 2007)
Australian government has given much in terms of pension and reparation. Excluding the NSW widow pensions, pension and reparation became the government's responsibility in which the distribution is "allocated per capita among the census category of Pensioners as identified in the census" (Robinson, 2007). There were also in-kind government services which is composed mainly of health and education and administered by the state in proportion to their population (Robinson, 2007). The government also resported to cash payments, although it covered only a small ...Download file to see next pagesRead More
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