Introduction Of The Hawke-Keating Era

The introduction of the Hawke-Keating-Howard reforms were necessary at the time as a result of Australia’s situation in the 1970s and early 1980s. These few years before the Hawke-Keating government saw Australia experience a downturn in their economy influenced by the Whitlam government’s decision to persist with an exchange rate that was overvalued, which reduced the foreign demand for exports and switched domestic demand from local goods to imported substitute goods (McLean 2013). This was also accompanied by huge real wage increases as well as stagflation, where there was a rise in inflation, a steadily high rate of unemployment and a slowing economic growth. As a result of this 1982 saw Australia enter a recession, ending with a large budget deficit for the Fraser government. This budget deficit and dire economic situation was inherited in 1983 by the newly elected Prime
Minister Bob Hawke and the Hawke government.
In order to lift Australia out of their current economic situation, the Hawke government introduced policies, or reforms, aimed to restore the country’s economic growth by reducing the high rate of unemployment and inflation that had occurred in the previous years. The aim of the reforms that the Hawke government wanted to implement were to lift the growth rates in the medium – long run as opposed to an immediate short run gain (McLean 2013). In order to do this, the Hawke-Keating era saw the government aim to open up the Australian economy to increase economic prosperity. They’re intentions were to increase economic efficiency and raise productivity through domestic market liberalization (McLean 2013), which would relax government restrictions on the domestic market, and opening up the domestic Australian economy to the world (Quiggin 2002) through international competition. The main
reform measures that were introduced by the government to achieve this aim of opening the domestic economy to the global economy were tariff protection reductions in the manufacturing sector, floating the Australian dollar, and reducing entry restrictions for foreign banks into the domestic sector (McLean 2013). In addition to this, there was also large focus on a push for the privatisation of public enterprises. This was mainly due to the fact that Australian governments found it harder to justify financing unprofitable public entities and, as stated by John Quiggin (2002), ‘Inefficiencies in publicly-provided infrastructure services were seen as obstacles to the development of competitive export industries’. John Howard added to this during his time as Prime Minister by introducing the Good and Services Tax (GST) and improving the flexibility of the labour market. These reforms, of course, impacted Australia’s economy.
In the short run, these reforms did not significantly impact the Australian economy, although there were recurring account deficits which lead to a rising ratio of overseas debt to GDP (McLean 2013), however this was seen as a necessary and only temporary step by the government in order to evolve into a manufacturing sector that was competitive on a more global scale with a greater focus on the export of non-traditional products. As the reforms were intended for long run prosperity, the minimal short run effects such as the decline of the manufacturing sector and import dependence were expected. It wasn’t until after the recession of 1990-1991 and the election of Paul Keating as Prime Minister, did the microeconomic reforms introduced earlier achieve their goal and restore Australia’s economic prosperity and productivity. The recession that had occurred during this period allowed for Australia’s economic slate to be wiped clean, nullifying the policies that were holding the country back and permitted the new reforms put in place to take full effect. Even Paul Keating himself addressed the recession with his famous quote, “The first thing to say is, the accounts do show that Australia is in a recession. The most important thing about that is that this is a recession that Australia had to have”.
After the recession, Australia experienced an economic boom under the Keating and Howard governments which was assisted by the Hawke reforms. Once the reforms were able to take effect shortly after this recession, statistics show that Australia has noticeably been better off because of them. The recession saw inflation rates fall greatly. In the 20 years leading up to 1990s recession, Australia’s average rate of inflation had been about 9.2%, however, with the new reforms, the two decades following 1990 saw Australia’s average inflation rate drop 2.5%, meeting the Reserve Bank of Australia’s (RBA) inflation target of between 2 and 3 percent (Koukoulas 2012). This low inflation rate marked a strong turn around for Australia and influenced the fall of interest rates and unemployment rates. Between 1980 and 1991 the interest rate averaged 13.8% with many years seeing rates as high as 15%, however, since 1992 it has not exceeded 7.5% and has been averaging 5.3% (Koukoulas 2012). The employment rate also took a similar turn for the better. Again, the years before the recession had terribly high rates, this time in terms of unemployment, averaging 8.1% of labour force being unemployed. However, once again thanks to the reforms introduced by the Hawke-Keating government, Australia’s unemployment has rate drastically dropped. As of the late 1990s, it has not exceeded 7% and has been averaging a respectable 5.1% (Koukoulas 2012). The introduction of GST did record some negative economic growth in its early stages of implementation as stated by Australian politician, Simon Crean, however these effects were not last longing and economic growth returned to normal soon after.
These statistics recorded show that overall the reforms implemented by Hawke, and then later carried on by Keating and Howard, were successful in revitalizing Australia’s economy in the long run as they managed to reduce the high rates of inflation, interest and unemployment that plagued the country. In addition they also opened up Australia’s economy to become more integrated with the international economy which has been beneficial in the long run.