The Role of Government in Australia

The structure of Government

Australia has a three tiered structure of Government. Under the Australian constitution, the central Commonwealth government and the state governments are independent of each other, and have different roles although they might work together. The constitution sets out the absolute limits on what the government is able to do.

The Commonwealth government has overall responsibility for the economy and has the most influence on economic performance. The power of the

State governments play important roles in developing infrastructure, delivering government services such as health and education, and fostering regional development.

Local governments play a relatively minor role, mainly relating to local government facilities and roles.

The Public Sector

The public sector refers to the parts of the economy that are owned or controlled by the government. It includes all tiers of the government as well as government business enterprises such as State Rail. Two important indicators that can demonstrate this are public sector outlays (spending) as a percentage of GDP and public sector employment as a percentage of total employment.

Taken as a percentage of GDP, total public sector outlays shows the proportion of total annual expenditure by all levels of government compared with the expenditure of the economy as a whole. Total public sector outlays as a percentage of GDP increased steadily in the second half of the twentieth century and have been at around 40% since the 1980s. Public sector outlays increased sharply between 2007-2010 in response to the global financial crisis. This reflects the fact that public sector outlays typically increase in response to downturns in domestic and global activity. In relative terms, the public sector in Australia is small compared with many other industrialized countries especially European countries. Governments have tended to spend less on infrastructure, while spending more on social welfare payments and community services such as health care. Transfer payments are the major item of Commonwealth government expenditure constituting around one third of the total.

Another measure of the size of the public sector is the proportion of Australian employees who work in the public sector. This number grew steadily in the twentieth century however since the peak rat...

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