Australian Market Economy

Discuss about the Australian Market Economy.

Introduction

The Australian economy is a mixed market economy and it is one of the largest in the world. Service sector is the most important industry in the economy contributing the maximum proportion of GDP. In addition to that, the mining and agricultural sectors being the export sectors of the economy largely influence economic growth.

The construction industry in Australia is a primary industry of the economy which has contributed majorly to the economic growth of the country over a considerable period of time. With further progress and necessary reforms, the construction industry would turn out to be one of the most significant industries in the economy. The construction industry is a growing industry of the economy and at one point of time, the industry had experienced seven consecutive years of growth since the introduction of the Goods and Services Tax in 2000-01. In 2008-09, it contributed about 6.8% of the GDP of the economy having decreased from a 7% of 2007-08. During the first half of 2009, the employment level in the construction industry in Australia accounted for 9.1% of the total workforce of the country. This led to the construction industry becoming the fourth largest industry of Australia.

The Construction Industry in Australia

The construction industry operates under both the private and the public sectors of the economy. The three main categories that the industry comprises are residential building, non-residential building and engineering construction.

The construction industry is at the forefront of the social and infrastructural development in Australia. Many reforms have been undertaken to develop the industry even further such that it can boost the economic growth of the country. Various fiscal and monetary policies along with microeconomic reforms such as tax reforms are needed for the improvement of the construction industry. Since labour is the key factor in the construction business, labour market reforms will also greatly influence the industry.

The coalition government had planned to implement a reform such that the actions of the construction industry authorities could be monitored. The Building and Construction Industry Bill (BCI) that was passed in 2014 advocated greater coercive power on the part of the regulators. These powers could be stated as follows: (Gray and Stevenson, 2015)

  • Examination orders could be issued without any prior approval of the Administrative Appeals Tribunal.
  • Before the Australian Building and Construction Commissioner (ABCC) would examine, some other person was to do a prior examination and report to the ABCC.
  • Inspection could be done at any random time in any premise to check on the work or the process.
  • Self-incrimination privileges were eliminated.
  • The ABCC could execute an inquiry on any issue before the passing of the BCI bill.
  • A construction industry corporation was required to disprove any allegations imposed by the ABCC and for this purpose, the onus of proof was reversed.

Penalties for not abiding by the Code were increased. The Code advocates work health safety and increased association of the employees with unions. The main motive behind the rising government intervention in the construction industry was liberalisation of the labour market and cost reduction.

The Bill passed by the ABCC aimed at improving the workplace. It was directed at ensuring the execution of fair and efficient work for the greater benefit of the participants in the market as well as for the Australian economy as a whole. (Doran, 2016)

In December 2015, there was a considerable increase in the apartment and house building numbers. Despite that, the construction industry had contracted during the time. This in the long run could lead to a slower economic growth. (Ong, 2016)

Reforms on the monetary frontier are needed to boost the growth of the construction industry.

When interest rates increase, market loans become costlier. This affects investment inversely. Thus investment in the construction industry may fall thereby reducing the supply of construction work. Moreover, people generally acquire loans to purchase real estate properties. If loan service charges increase, some people may no longer be able to afford taking loans and others might not want to. Hence the demand for houses, that is, residential buildings may fall. Hence, monetary policies aiming at lower interest rates would reduce the cost of investment and loanable funds. This in turn would encourage people to opt for loans for purchasing apartments and houses. On the other hand, investment in the construction would also grow.

Rise in inflation rates implies a growing price level which means growing rates in the real estate markets. This will affect both the supply and demand negatively – because affordability will reduce on the part of the consumers and input prices and other resource costs will also increase thereby leading to shrinking supply. Therefore, Curbing inflation rates would help control price levels and consequently real estate rates as well. This pushes up the demand in the construction market.

When the economy performs well in terms of the major macroeconomic parameters, consumer confidence is boosted up. This also increases the demand in the construction market. Fiscal and monetary policies that can stabilise the economy should be undertaken such that consumer confidence is boosted. This will lead to higher investments in the sectors. (Patten, 2016)

Labour market reforms indirectly influence the construction industry because labour is the most significant factor of production in the industry. Increase in the capital stock and improvement of technology increases the productivity of labour. Hence, adoption of advanced technological construction procedures and availability of raw materials and other resources improve the conditions under which the construction market operates.

The other sectors in the economy such as the agricultural sector, the mining sector and the manufacturing sector greatly influence the construction sector via indirect channels. Reforms in these sectors will also help boost the construction industry. (Skyring, 2016)

Conclusion

The construction industry deals in not only residential properties but also commercial and engineering construction projects. With the progress and development of the economy as a whole, new sectors will come up and the existing sectors would expand. This will generate growing demand in the construction market for new buildings and constructions. Infrastructural improvements include modifying the connectivity in the economy. This will require improved transportation, flyovers, roads, etc. Engineering construction would hence receive a boost in the longer run. Population growth would posit the need for more buildings and apartments. With improved infrastructural facilities, foreign immigration is growing by the day. Over time, provision of more apartments would be necessary. Hence the construction industry has more than one channel to benefit from because of the diverse requirements in the economy.

References

Doran, M 2016, Explained: The two pieces of legislation that could enforce an election, viewed 20 August 2016, < http://www.abc.net.au/news/2016-03-21/what-are-the-abcc-and-registered-organisations-about/7263500>.

Gray, A and Stevenson, P 2015, What next? Collapse of the Government’s construction industry reform agenda, viewed 20 August 2016, < http://www.kwm.com/en/au/knowledge/insights/collapse-government-construction-industry-reform-agenda-20150904>.

Ong, T 2016, Construction downturn to hit economic growth in 2016: analyst, viewed 20 August 2016, < http://www.abc.net.au/news/2016-01-08/construction-downturn-to-hit-economic-growth-in-2016/7076222>.

Patty, A 2015, Bill Shorten promises construction industry reform, viewed 20 August 2016, < http://www.smh.com.au/nsw/bill-shorten-promises-construction-industry-reform-20150826-gj8byn.html>.

Skyring, B 2016, How Can Government Encourage Infrastructure Investment?, viewed 20 August 2016, < https://sourceable.net/how-can-government-encourage-infrastructure-investment/>.

Patten, A 2016, Building: The Power of the Untold Story, viewed 20 August 2016, < https://sourceable.net/building-the-power-of-the-untold-story/>.

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