Printer Friendly

Executive summary.

The performance of the Australian economy has remained remarkable in most respects. However, after more than a decade and a half of rapid growth the economy has bumped into capacity constraints, while facing a renewed rise in its terms of trade. In the short term, this new shock represents a challenge for macroeconomic policy which has to stave off inflationary pressures. Monetary and fiscal policies will need to remain relatively tight to ease demand pressures and reduce inflation. Over the medium term, favourable income developments reflecting terms of trade gains and the vitality of Asian markets provide opportunities to improve performance further and catch up with the living standards of the most advanced countries. Against this background, policy should focus on the following priorities:

Controlling demand pressures. Monetary policy will need to stay relatively tight until a significant easing in inflation is in prospect. The medium-term fiscal strategy should avoid a pro-cyclical stance. Recent improvements in the quality of public spending should be sustained.

Raising public investment in infrastructure and education. The programmed increase in physical and human capital is needed to overcome bottlenecks. Higher spending has to be accompanied by reforms in these priority sectors.

Strengthening labour supply. Efforts to increase labour market participation among women and older workers must be continued. In addition to providing better day care facilities, this should involve further cuts in marginal tax rates for secondary earners, families with children and single parents. The tighter eligibility and participation requirements that apply to those entering the disability pension scheme since July 2006 should be extended to all recipients.

Improving the performance of the education system. While the school system compares well in terms of PISA scores, school heads should be given greater freedom to recruit the best teachers to work in difficult areas. There is considerable room to improve the pre-school and child-care sectors. They should be better integrated and quality services at affordable prices need to be expanded, especially for the disadvantaged. Also, occupational training and higher education need to better meet the demands and requirements of students and employers.

Continuing the reform of product markets and industrial relations. The current reform of industrial relations has to preserve wage flexibility by not extending collective bargaining beyond the company level. It is also important to reduce product market segmentation caused by the regulatory differences between the states. These affect, for example, consumer protection, the environment and occupational health and safety provisions, as well as sectors such as energy, freight and water management. The substantial improvements that should derive from the Water for the Future reform need to be pursued to strengthen market mechanisms and water rights trading, while prices should reflect the scarcity of water. Climate change policy should be carefully designed to be cost efficient.

The government is putting a wide-ranging reform programme in place. It is largely in line with these policy priorities. The implementation of reforms is in most areas a shared responsibility between the states and the federal government. Implementation is backed up by measures to achieve better co-ordination of cross-jurisdictional policies in the Council of Australian Governments (COAG). It is promising, for example, that there are now financial incentives for the states to move this process forward.
COPYRIGHT 2008 OECD Publications and Information Centre
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2008 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Publication:OECD Economic Surveys - Australia
Date:Oct 1, 2008
Previous Article:Basic statistics of Australia (2007).
Next Article:Assessment and recommendations.

Terms of use | Privacy policy | Copyright © 2020 Farlex, Inc. | Feedback | For webmasters