The State Government's Economic Management

Over the past two or three decades, since Australia embraced freer trade as a policy, Australia business has benefited more and more. Since then, Australian business has been influenced a lot by the implementation of the Asprey report on taxation over the following twenty-five years. Until the recent financial crisis, thanks to the measures taken by Australia government to reduce the corporate tax rate and tariff rate, Australia industries have recovered very quickly from the downturn. The state has varied meanings in both international relations and politics. The state controlled by a government, exercises sovereignty within its geographical territory. The state referred to in this essay is appointed to federal government. This essay will first explain the real meaning of business and the relations between state government and business. Then, it will analyse the reasons why, the methods of economic management are used by the government and discuss how company tax cuts and tariff reductions have the greatest impact on the growth of Australia business. It will first discuss and explain economic management, then outline its main methods to achieve. Finally, it will proceed to analyse the positive and negative impacts that tariff cuts and corporate tax reduction have on business. This essay evaluates that, as main measures of the State's government economic management, company tax cuts and tariff cuts have the biggest positive impacts on promoting the growth of Australian business.

The state government and business sectors have an active interaction with each other in Australia.(Parkin & Hardcastle,2006) Business is used to describe such an activity which involves individuals or organisations to generate profits through the consumption of resources. Land, factories and machinery are all resources contributed to the process of manufacturing. Business can also be called capital.( Ryan, Parker and Brown, 2003) Businesses enable government to maintain a stable environment through generating economic activities and employment. Reversing the perspective, the development of Australian business is usually affected by three main roles for government, namely the establishing and maintaining of the legal system to achieve stability and order, the provision of social protection and economic management. Among the three basic roles of federal government, it is economic management, which has promoted industry development directly by corporation income tax abatement and tariff cuts targeting particular industries, is the prime position in federal government activities.

Economic management is essential to Australian business because of its specific measures in solving different economic and business issues. The state's economic management is a series of behaviour performed by federal government to secure and promote the development of business. It deals with the relationship between such economic issues as national income, yield, unemployment, savings, inflation, international finance, business investment, industries costs and international trade. The solutions to these economic and business issues are always achieved by: the provision of infrastructure for economic development; the prevention of unemployment through state spending, training policies or job-creation strategies; the support and promotion to specific industry research and development through government grants and subsidies; the control of national currency and inflation by regulating the financial and banking systems, the reduction of corporation income tax and tariff cuts and so on. The implement of the state economic management is very important in adjusting and easing the main conflicts existing in Australian business, such as the high cost of manufacturing, lack of investment, high productivity and competitiveness. Among these influential measures of economic management, company tax abatement and tariff reduction is the utmost factor in the growth of Australian business. (Treasury,1998)

Company tax cuts bring a lot of benefits for Australia's business. (Treasury,1998)

When a tax is imposed to business profit and gains of a company, this is called corporate tax or business income tax. The expenses relate to capital expenditures that are often reduced completely. Warren (2004) states that "if government encourages certain exercises such as investment in capital equipment through lowering taxes rate, it would be tax abatements. The trend of company tax in Australia can be seen clearly from the table below that rates dropped from 49% in 1988 to 30% in 2001. (Please see table1 in Appendix)

In August 1998, Tax Reform, Not a new tax, a new tax system was released by the Howard Government, which includes recommendations to reduce business tax. The release of this tax reform has profound influence on the spread of Australian business. Since it is said that tax is paid on business income at the corporate level before it is distributed to individual shareholders as dividends, which implies that the reduction of company tax appeared in the tax reform can greatly reduce the cost of business. In other words, any reduced cost of business caused from tax abatement can improve the profits of the particular industries markedly. Secondly, many investors around the world have been attracted by the reduction of business cost because of the fall of company tax cut. It brings a lot of investment opportunities to Australian industries, and improves capital productivity. Finally, because of lower industry input costs and excellent investment, the export of Australian business become more profitable and competitive. All in all, business tax reduction has exceedingly influenced Australian business and industries reflecting on lowering of business cost and lifting of foreign investment and export performance. (Treasury,1998,p.155~157)

Tariff cuts have profoundly influenced Australian business. When goods are imposed with a duty because of moving across political boarder, this is called a tariff. Therefore, it can be clear that tariff reduction is a kind of policy set by government to intervene with national business. The part or complete implementation of tariff reduction can lead to free trade, which is the absence of government-imposed barriers to trade between countries. Those people who favour of freer trade, criticize protection strongly because of the economic inefficiencies and higher costs for consumers caused by the restriction of the free movement of goods and services among countries.(Ryan, Parker&Brown,2003, p.248) An example is the automobile industry. To show how Australian business is influenced by tariff cuts. Tariffs upon new passenger motor vehicles were reduced to 10 percent for the period 2005 to 1 January 2010 from 15 percent in 2002 by the Australia government. Auto components duties were reduced to between 4.1 and 7.6 percent.( Australian Automobile Association, 2008) The development of the Australian automobile industry has been effectively promoted by the tariff reduction to the automobile industry. Firstly, automobile manufacturers can gain a lot of incomes because of the lower cost of inputs [auto components] caused by the reduction on automobile parts tariff. Secondly, the automobile industry has become more and more competitive in the worldwide automotive industry because of the implementation tariff cuts on vehicle components. Thanks to the liberalisation of tariffs, the automobile industry has closely integrated into the global supply chains. Meanwhile, the highly specialised chains in vehicles and components bring lots of advanced knowledge and technology, which improved the productivity of the manufacturing. Therefore, the competitiveness of Australian automobile business has been increased by the productivity and the scale of economy arising from the tariff cuts of automobile business. (Department of Foreign Affairs and Trade, 2008) In addition, from the long-run effect, this business will also benefit from the future export success. Just as Richard Snape stated that, "If no one does anything, no one gains."(1997) After all, only when Australia cuts tariffs, then, other countries will be willing to trade with it and do some import from Australia. In conclusion, Australian automobile business has been and will continue to be impelled by the incentive of tariff reduction through the decreased manufacturing cost, increased competitiveness towards the global automobile business and some potential export with other countries.

As the main measures of economic management taken by Australia state government, both the company tax abatement and tariff cuts has impelled the rapid growth of Australian business respectively from domestic point and international perspective. However, company tax cuts and tariff reduction also bring about negative impact on Australian business. The abatement of company tax means the deduction of government income because tax is a main way to get government revenue. That is to say, the government's investment to business would be dwindled away due to the reduction of government revenue. Furthermore, tariff cuts may directly bring some threatens to some domestic business because of some low prices offered by overseas competitors. Once it is out of control, the appearance of price war would hurt domestic business deeply. Nevertheless, the positive impacts of the company tax abatement and tariff reduction still outweigh their negative impacts.

In conclusion, Australian business has developed very satisfactorily under a series of economic management, especially the achievement of corporation tax cut and tariff reduction. In Australia, thanks to the nature of government and business, the government and business interact actively with each other. Overall, it can be seen that company tax reduction plays an indispensible role in impelling the development of Australian business, because it has directly lowered industries costs, and subsequently because it resulted in a stronger, more productive business investment. These two reasons together yielded great export outcomes, which definitely promoted the growth of Australian business. Likewise, tariff reduction is very essential for the growth of business in Australia as well, because the diffusion of excellent foreign knowledge and technology enabled the domestic business become more productive and competitive. Although inappropriate use of company tax cuts and tariff reduction may bring some negative impacts, among the different sorts of economic management of the State government, they are still the most influential measures in impelling the extension of Australia's business. Can you imagine a condition of Australian business with high company tax rate and high tariff rate? Can Australia industries really live in an environment with high costs and no new knowledge?

Reference list

  • Australian Automobile Association.(2008) Submission to the Review of the Automotive Industry. P8 Retrieved November 22, 2009, from http://www.innovation.gov.au/automotivereview/Documents/104%20AAA%20190508.pdf
  • Australian Tax Office.(2003) Australian Tax History. Retrieved November 23,2009. http://www.ato.gov.au/corporate/content.asp?doc=/content/tax_history.htm.
  • Department of Foreign Affairs and Trade.(2008). Submission to the Review of Automotive Industry. Retrieved November 22, 2009, from http://www.innovation.gov.au/automotivereview/Documents/113%20DFAT%20220508.pdf
  • Goldstein J, (2004) International Relations (5th Edition), America: Pearson Longman
  • Norton, Andrew.(2004) The Politics of Protection Public Opinion Can Favour Liberalising Trade.http://search.informit.com.au/fullText;dn=200406015;res=APAFT
  • Parkin,A., & Hardcastle, L. (2006). Government-Business Relations. Government, Politics, Power and Policy in Australia(8th ed.) p.344
  • Ryan, N., Parker, R., &. Brown, K. (2003). Industrial Policy. In Government, Business and Society(2nd ed.) p.248 Australia: Pearson Education
  • Snap, R. (1997), Tariffs, Then and Now: Lecture in Honour of the Late Bert Kelly. The Australian Economic Review. vol. 30. no. 2. pp. 149 Retrieved November 15, 2009 from WILEY INTERSCIENCE database.
  • Spilimbergo, A., Symansky, S. & Blanchard, O. J.(2009) Fiscal Policy for the Crisis. Retrieved November 23, 2009 http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1339442
  • Treasury. (1998) Tax Reform not a new tax, a new system. Australia: CanPrint Communications.
  • Warren, N.(2004), Tax Facts Fiction and Reform. Australia:Tax Research Foundation.

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