Malcolm Turnbull threatens early election over IR

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Malcolm Turnbull has announced that he would request Peter Cosgrove, the Governor-General to dissolve both Houses of Parliament if the Senate fails to pass a bill to re-establish the Australian Building and Construction Commission. The bill in question has already been rejected twice by the Senate. If there is a double dissolution, the government would push the Budget forward to 3rd May and the election to 2nd July. While Malcolm Turnbull has other potential bills concerning the abolition of the Clean Energy Financial Corporation that may also trigger a double dissolution, he has confirmed that a double dissolution will only be called on failure to pass the bill to re-establish the Australian Building and Construction Commission.

How does this relate to the HSC syllabus?

  • A double dissolution can be triggered if the House of Representatives has passed a bill which the Senate has repeatedly rejected or passed with amendments to which the House of Representatives does not agree. To be more precise, the Senate must first reject or pass a bill with amendments with which the House of Representatives does not agree with. After three months of the Senate rejecting the bill, if the House of Representatives passes it again and the Senate again rejects or makes unacceptable amendments, a double dissolution can be triggered (Australian Constitution s 57). Ordering a double dissolution is a constitutional power of the Governor-General who alone has the power to dissolve both Houses of Parliament (Preliminary Topic 6 – Government and the Economy).
  • If a double dissolution occurs, the Senate must be re-elected. Currently, no political party makes up a clear majority within the Senate which means that the Liberal Party must rely on cross-bencher votes to pass a bill which demonstrates the influence of their political position on government policies (Preliminary Topic 6 – Government and the Economy). A cross-bencher is one who is not from a major political party. Given that the Liberal Party has struggled to pass the bill re-establishing the Australian Building and Construction Commission, a double dissolution call for the bill being voted on by the House of Representatives and Senate as one which may see the bill to be passed.
  • Malcolm Turnbull has stated that the re-establishment of the Australian Building and Construction Commission is vital to his economic plan. The Australian Building and Construction Commission is a union which has the authority to investigate enforce and prosecute any potential breaches of the Building and Construction Industry Act or the Fair Work Act.
  • The Australian Building and Construction Commission can be considered to regulate the construction industry and prevent illegality. Imposing additional regulation and scrutiny on a sector generally contributes additional costs to its operations since the affected companies must spend extra money to ensure that it is complying with the legislation. Given that the construction sector is one of the fastest growing sectors in the Australian market due to the growth in the property market, the effect of imposing additional regulation on the sector will adversely affect Australian economic growth in the short term as a ‘handbrake’ is put on the growth of the property market (HSC Topic 3 – Economic Issues). Such policy is questionable since one of the main economic objectives of economic policy is to promote economic growth (Preliminary Topic 6 – Government and the Economy; HSC Topic 4 – Economic Policies and Management).
    • Given that the construction industry is quickly growing, managers may be tempted to contravene regulation and neglect to ensure that their materials and practices are to the correct standard in order to increase production and therefore growth. While promoting growth is ideal in the short term, in the long term, the economy could be straddled with weak and unsustainable infrastructure.
  • Re-establishing a body that enforces the Fair Work Act, however, will be beneficial to the labour market. Given that the Fair Work Act aims to promote fair pay and representation for employees in Australia, an additional route to investigate and prosecute violations of the Fair Work Act will encourage better working conditions and compensation to workers (Preliminary Topic 4 – Labour Markets; HSC Topic 4 – Economic Policies and Management).
  • Note: A legal reason for preventing the Australian Building and Construction Commission from being re-established is that its powers to compel the production of documents were too wide. Witnesses were forced to give evidence, reinforced with serious financial penalties if they refused.

Banks pull financing from coal industry

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Banks are no longer financing coal power plants in the U.S. or in other wealthy nations. Large coal companies, such as Peabody Energy have said that they might have to file for bankruptcy. The banks have cited that their reason for pulling funds out of coal companies are due to their desire to ‘do their part against climate change’ but the retreat can also be attributed to the fact that lending to coal companies is generally more risky.

How does this relate to the HSC syllabus?

  • Although burning coal is one of the cheapest means to generate energy, it has significant social costs since it releases copious amount of carbon into the atmosphere (HSC Topic 3 – Economic Issues). Climate change has been attributed largely to carbon pollution which threatens long term economic growth as pollution causes health problems within the labour force and climate change causes severe floods, wildfires and droughts which ca damage natural resources (Preliminary Topic 3 – Markets; HSC Topic 3 – Economic Issues).
  • Withdrawal of financing from banks means that coal companies may find it difficult to fund their investments. This, along with increasing regulation concerning carbon pollution and price pressure from other energy sources may see coal companies file for bankruptcy as their operations are no longer sustainable (Preliminary Topic 2 – Consumers and Business).
  • Movement away from using coal as an energy source and towards cleaner energy will improve environmental sustainability in the long term as carbon pollution is reduced.

Stevens hits back at US jawboning criticism

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The U.S. government has criticised the Reserve Bank of Australia for allegedly jawboning the Australian dollar. This criticism was in reference to Glenn Stevens' remarks regarding his opinion that the Australian dollar is currently overvalued which the U.S. views as an attempt to ‘change the direction of the Australian dollar’. Stevens commented that the Reserve Bank has not intervened in the currency market. There is concern globally that central banks are currently devaluing their currencies for the purpose of increasing international competitiveness with the U.S. publicly criticising China, Japan and Korea for weakening their currencies.

How does this relate to the HSC syllabus?

  • Central banks globally (including Japan, the EU, China) have been loosening monetary policy in response to decreasing growth and the threat of deflation (HSC Topic 3 – Economic Issues). There has been speculation that such decreases of their cash rates has been for the purpose of devaluing their currencies. Since lower cash rates mean that investors receive less return from their investment in a country’s bonds, investors would sell these bonds and the country’s currency to buy into another country’s bonds. As such, they increase the supply of the currency they sell, causing a depreciation (HSC Topic 2 – Australia in the Global Economy).
  • Economies would want their currencies to depreciate in order to make their exports more internationally competitive. If the domestic currency depreciates, the price of buying that currency will decrease which means, ceteris paribus, that the price of that country’s exports will also decrease (HSC Topic 2 – Australia in the Global Economy). China has been accused by the U.S. of constantly devaluing the yuan in order to make their exports cheaper.
  • Increasing the international competitiveness of an economy’s exports increases the demand for those exports given that they are less expensive. If an economy can increase the demand for their exports, they can also increase aggregate demand and in turn, economic growth given that AD = C + I + G + X – M (HSC Topic 3 – Economic Issues).
  • The Australian dollar, at US$0.75 has been said to be too high by a number of RBA members. RBA board member John Edwards has said that he would prefer the currency to be around US$0.65. Give that the Australian economy is currently in transition to shift its exports from mining to services, a lower exchange rate would be ideal to increase the competitiveness of these exports. A sustained high exchange rate could act as friction against Australia’s transition which could see economic growth floundering in the medium term as Australia struggles to increase its exports (HSC Topic 3 – Economic Issues).

Theresa Dang THERESA DANG

Theresa Dang is an economics mentor at Keystone Education. She attended Sydney Girls High and achieved an ATAR of 99.70 in 2012. She is now studying Commerce and Law at the University of Sydney. She has experience in a global technology firm and a mutual fund.

Gary Liang GARY LIANG

Gary Liang is the founder and director of Keystone Education. He attended Sydney Boys High and achieved an ATAR of 99.95 in 2012. He achieved 5 state ranks in Mathematics, Mathematics Ext 1, Mathematics Ext 2, Chemistry and Economics. He is now studying Economics and Science (Advanced Mathematics) at the UNSW Australia, where he is the recipient of four scholarships.

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