Government Intervention In Australia

Under a market economy all decisions are made by individuals and private firms that are driven by self- interest. Without government intervention the Australia prone to the market failure in the allocation of resources efficiently. This market failure arises in the provision of certain goods and services and the inequitable distribution of income. The Australian government must intervene and address issues like those stated above to achieve desirable economic and social outcomes
The need for government intervention is portrayed through the market failure in the provision of certain goods and services. Public goods have two characteristics that prevent it from being supplied by the free market despite being highly demanded, examples include:
The price mechanism does not take into account the cost and benefits arising outside the market, known as externalities. Education is a merit good as it has socially desirable positive externalities such as improving student’s ability to obtain better-paying jobs though increased skills thus increasing productivity, GDP and overall standards of living of Australia. However due to consumers not taking into account positive externalities to Australian society therefore there is an under consumption of education resulting in allocative inefficiency, as illustrated below. Government intervention is necessary to encourage consumption so that positive externalities of merit goods can be achieved. The Australian government recognises the overwhelming positive externality of education on society thus subsidises private schools while providing free public education, which reduced equilibrium price and increase equilibrium quantity as shown below. In 2014-2015, government funding for a student going to a public school was over $16,000 per year, while the support for a student attending an non-government school is $9,300. Without subsidies some people would not be able to afford education and society would on the positive externalities of
Inequality in the distribution of income is the result of the market economy distributing factor incomes according to the marginal productivity of the factors of production. Subsequently, wealthy people generating a much greater factor income while poorer people receive substantially less wages. Income inequality causes relative poverty as exhibited through Australia’s Gini coefficient of 0.33 with 14% of the population living in relative income poverty, both of which are above the OECD average. High-income inequality creates class division among society creating a subclass of low-income workers, which has limited access to educational opportunities. This reduces the ability to gain further education to improve employment prospects creating a self-perpetuating cycle of disadvantage. Inequality is embedded in the market economy that is generational, limiting social mobility within society. Consequently people who are born into a particular socio-economic class are likely to stay in it all their