Why Australia Survived the Global Economic Recession - Assignment Example

Why Australia Survived the Global Economic Recession? China’s economic boom: Australia is blessed with natural resources. Developing countries like China and India frequently import raw material from Australia. “Indian and Chinese demand for resources from Australia, world’s largest exporter of coal, iron ore and alumina, has helped the A $ 1.2 trillion economy skirt recession during the global financial crisis.” (www.phongpo.com, 2010). In turn, these countries have managed to be cheap exporters of good quality products.

Australia imports the final products from China and India. Since China is in the developing phase, it would keep purchasing metals from Australia to build factories and machineries. The economy of developed countries is largely based on the services, while that of the developing countries depends on the materialization of sources to generate those facilities. Therefore, to construct those sources, the developing countries like China have to import raw materials to build the sources. Mining: In order to satisfy the growing dependence of the world on Australia’s natural resources and to meet the demands of the developing countries, Australia has put large emphasis on the mining.

This called for an increase in the working-age population ratio. Australia has planned strategically to tackle the laborer deficiency that might surface as a result of the growing need of workers in the mining sector. The market flexibility allowed an increase in the working hours. The wages of workers were also enhanced as an incentive so that the workers would work for longer periods. The migrated workers also played a big role in mitigating the labor deficiency. In fact, the deficiency has largely been overcome by the immigrants who had no difficulty in shifting to the states of concentrated mining operations as compared to the local workers who were reluctant to move to those states given the high traveling and living expenses.

Fiscal policy: Australian government structure enjoys a high political stability that facilitates a continuous exploration of mineral resources. Besides, the Australian government’s fiscal strategy also tends to eliminate the economic imbalances likely to emerge as a result of an increase in the ageing population in Australia by constraining the expenditures. The fiscal strategy also serves to enhance national saving. Despite the concentration of mining operations in few regions, the benefits drawn are evenly distributed among all regions through a sound political structure.

State governments charge tax on the resources in their respective regions and the revenues are shared with the governments of other states. Also, the tax-transfer mechanism is designed in a way that would ensure equal distribution of revenues in the states. This serves to eliminate the differences among the states and stabilize the political and social structure which is vital for the stable economy of a country. Investment: Mineral resources require infrastructure development that requires policy change.

Sound policies require flexible markets and public investment. Large investment in mining which is vital for high resource productivity has led to an account deficit that calls for a foreign investment. Investment has caused economic deficit which is likely to increase even further in 2011/12. However, this deficiency is overcome with the aid of foreign investors. Besides, the microeconomic reforms help allocate the budget to the right investment areas. The compulsory superannuation savings since 1992 and the government’s medium term fiscal strategy have also served to enhance the national savings.

One good step toward global financial regulation was Australia’s involvement in the G 20 which tends to keep the external factors from affecting Australia’s external economy. Government’s reaction: The most unproductive tax in Australia which tends to lower the GDP significantly is the one which is charged by the government to the private firms which explore non-renewable resources upon government’s permission. However, the government tends to apply the uniform resource rent tax, also referred to as the Resource Super Profits Tax (RSPT) from 1st July 2012 on the non-renewable resources which will make up to 40% of the released value of resources.

Also, the royalties will be refunded to let the States draw revenue from them. Marginal mines will have to pay lesser so that it would be easy for them to invest in other projects. Being sensitive to profitability, the collection of revenue by RSPT will be proportional to economic boom. Owing to its high income tax rates as compared to OECD countries, the government intends to reduce taxes on companies to encourage productivity and raise capital stock to increase GDP. The Council of Australian Governments (COAG) has also enforced the Seamless National Economy reform agenda that serves to minimize the impact of regulations on the contest among different interstate governments.

Employment: The tax reform, which is an important part of the microeconomic reform agenda, is likely to result in an increase in the investment, employment and productivity in the resource sector in coming years. Also, the revenues from RSPT will be utilized to develop infrastructures that will raise employment opportunities for the workers. Besides, Australia aims at educating the workers in order to enhance their productivity through polishing their skills through the “Skills for Sustainable Growth strategy”.

The OECD has mentioned that Australia needs to focus upon the development of regulations associated with the change in reforms in order to exercise even better regulatory practices. References: www.budget.gov.au. “Statement 4: Benefiting from our mineral resource: Opportunities, challenges and policy settings”. 2010. Web. 26 May 2010. www.phongpo.com. “Australian Government plans to raise taxes on the profits of mining companies”. 2 May 2010. Web. 26 May 2010.