The Role of Government in Australia

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The Role of Government in Australia

The structure of Government

Australia has a three tiered structure of Government. Under the Australian constitution, the central Commonwealth government and the state governments are independent of each other, and have different roles although they might work together. The constitution sets out the absolute limits on what the government is able to do.

The Commonwealth government has overall responsibility for the economy and has the most influence on economic performance. The power of the

State governments play important roles in developing infrastructure, delivering government services such as health and education, and fostering regional development.

Local governments play a relatively minor role, mainly relating to local government facilities and roles.

The Public Sector

The public sector refers to the parts of the economy that are owned or controlled by the government. It includes all tiers of the government as well as government business enterprises such as State Rail. Two important indicators that can demonstrate this are public sector outlays (spending) as a percentage of GDP and public sector employment as a percentage of total employment.

Taken as a percentage of GDP, total public sector outlays shows the proportion of total annual expenditure by all levels of government compared with the expenditure of the economy as a whole. Total public sector outlays as a percentage of GDP increased steadily in the second half of the twentieth century and have been at around 40% since the 1980s. Public sector outlays increased sharply between 2007-2010 in response to the global financial crisis. This reflects the fact that public sector outlays typically increase in response to downturns in domestic and global activity. In relative terms, the public sector in Australia is small compared with many other industrialized countries especially European countries. Governments have tended to spend less on infrastructure, while spending more on social welfare payments and community services such as health care. Transfer payments are the major item of Commonwealth government expenditure constituting around one third of the total.

Another measure of the size of the public sector is the proportion of Australian employees who work in the public sector. This number grew steadily in the twentieth century however since the peak rate of 31.9% in the 1980s the rate has been slowing declining to the 16.4% it is today. Even though employment levels have declined public sector outlays remained fairly constant due to governments contracting out work to the private sector.

Although it has diminished in recent years the public sectors role remains far more important than it was in the first half of the last century, because of the change in approach to economic management, the provision of government services and the growth of social security.

In the era after world war two governments in industrialized countries adopted a more active role in seeking to influence the economy’s performance. Keynesian theory argued that government spending could accelerate economic activity and help to achieve full employment levels. By the 1980s governments were seeking to reduce their spending, because high government spending required high tax levels and borrowing from the private sector. During this time many government business enterprises were privatized. However in response to the global financial crisis Keynesian theory rose to prominence worldwide and Australia increased spending levels. This was to stabilize the business cycle and support financial institutions at risk of collapse. This fiscal stimulus was successful and when the economy recovered in 2010 government announced spending cuts.

As the economy has grown and living standards have improved, the community has had higher expectations of government, believing that government services should provided improved standards of health...
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