Fiscal Policy

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Fiscal Policy
Fiscal Policy is a macroeconomic (influencing the whole economy) policy that can influence resource allocation, redistribute income and reduce the fluctuations of the business cycle. Government’s policy What is the expected outcome for the 2012-13 Budget? Give a brief explanation. 1.5 billion dollar surplus; from deficit to surplus. They are using contraction Fiscal policy. What is the expected outcome for the 2012-13 Budget? Give a brief explanation. 1.5 billion dollar surplus; from deficit to surplus. They are using contraction Fiscal policy. Its instruments include government spending and taxation and the budget outcome. In order to exercise Fiscal policy, the government uses the Budget where it shows planned expenditure and revenue for the next financial year. Budget Outcomes

There are three possible budget outcomes:
1. Fiscal Surplus (budget Surplus): total government revenue will exceed total expenditure 2. Fiscal Deficit (budget Deficit): total government expenditure will exceed total revenue 3. Fiscal Balance (Balanced budget): total government revenue will equal total government expenditure The government’s main aim is to achieve fiscal balance, on average, over the course of the economic cycle. Changes in Budget Outcomes

1. Cyclical (non-discretionary) impacts on the budge caused by changing economic (They don’t make the choice. It happens automatically) Tax: Progressive tax
Examples are:
* A boom period when taxation revenue is high and economic growth is strong, will cause a surplus or reduced deficit * A recession or slowdown when taxation revenue is low and economic growth falls will cause a deficit or reduced surplus. Automatic Stabilisers

Automatic Stabilisers is the instrument inherent in the government’s budgets that counterbalance economic activity. Boom/Upswing: Automatic stabilisers decrease economic activity as less welfare is paid and more taxation is collection. Aim: reduced inflation

Explain the role of automatic stabilisers (cyclical component of the budget) from the period 2008-2012. The role of automatic stabilisers from 2008-2012 were people started to lose their job due to GFC which causes Government to give money to the unemployed people and causes the increase of welfare payments and causes the taxation decreases and decreases the taxation receipt. Explain the role of automatic stabilisers (cyclical component of the budget) from the period 2008-2012. The role of automatic stabilisers from 2008-2012 were people started to lose their job due to GFC which causes Government to give money to the unemployed people and causes the increase of welfare payments and causes the taxation decreases and decreases the taxation receipt. Recession/downswing: automatic stabilisers increase economic activity as more welfare is paid and less taxation is collected. Aim: reduce unemployment or limit its increase

Net public sector debt: will peak in 2012 at $143 billion which will be 9.6% of GDP. This will decline slowly to $132 billion by 2016 (7% of GDP) as a result of small surplus budgets after 2012. This is viewed as the major economic negative of the period 2008-12 * How does this public sector debt relate to the goal of a surplus over the economic cycle? * To get Australia out of debt.

* Explain the concept of fiscal sustainability. Which economic issue does this relate to? * Relate the concept of not running a long string of budget deficit over time. If we run a long string of budget deficit it will increase the public debt. * How did the budget position change from 1996-2014? (2012: 1.5billion budget outcome) ($43billion fiscal stimulus: building education revolution; high marginal propensity to consumer. $900 per semester. * Period 1997-2008 (string of budget surplus)

* Period 2008-2012 (string of budget deficit)
* Period 2012 onwards (string of budget surplus)
2. Structural (discretionary) impacts on the budget...
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