Warren Bingham

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MGSM845 – Economic Context of Management

Essay Term 4 2012

Warren Bingham – SID: 43105505

Table of Contents
Table of Contents2

Executive Summary……………………………..…………………………………………….……………3

2008-2009 Budget Outlook……………………………………………………………………………..4

Fiscal Stimulus Package…………………………………………………………………………………..5

Did the Fiscal Stimulus Package work?......................................................................................5

Natural Resouces Boom………………………………………………………………………………..…7

Employment…………………………………………………………………………………………………..7

Consequences of the Fiscal Deficit on economic activity……………………….8

What are the implications for Australia’s fiscal policy for the next 3 years?....9

Conclusion…………………………………………………………………………10

References………………………………………………………………………….11

Executive Summary

In 2008, the global financial crisis resulted in a global recession, the likes of which had not been seen in generations. It led to an unprecedented downturn in business and consumer confidence, which became a broader economic crisis. Household consumption growth had already shown signs of decline, along with projections for expected taxation receipts (mainly due to lower forecasts of capital gains tax and company tax). Whilst there were expected significant challenges due to the world economic outlook, the Australian economy was expected to continue to grow in 2008-09 and was forecasting a cash surplus of $5.4 billion for 2008-09 (0.4 per cent of GDP). In light of the global developments, the Australian Government attempted to strengthen the economy by implementing a $10.4 billion Economic Security Strategy and a $42 billion Nation building and Jobs Plan as part of the 2008 Fiscal Policy. The $10.4 billion Economic Security Strategy was announced on the 14th October 2008, and both were implemented in the early months of 2009. This paper will discuss the assertion that “The Australian Government has been running with too large a fiscal deficit during the past 4 years particularly in light of their projections for the Australian economy which were made when the first stimulus package was announced in 2008.” This will look at the consequences of this fiscal deficit on economic activity during the past 4 years and the implications for the next 3 years.

2008-09 Budget Outlook

An underlying cash surplus of $5.4 billion was forecast for 2008-09 (0.4 per cent of GDP). The escalation in the severity of the global financial crisis and associated weaker global economic outlook seriously impacted on the fiscal outlook, particularly from 2009-10. Almost all of the decrease in the surplus beyond 2008-09 was due to the significant reduction in revenues associated with the global financial crisis. Expected taxation receipts were revised down by $4.9 billion in 2008-09, by $12.2 billion in 2009-10, $12.4 billion in 2010-11 and $7.9 billion in 2011-12. Table 1

Table 2

The fiscal strategy for the 2008-09 Budget year was meant to be for a budget surplus of at least 1.5 per cent of GDP however policy decisions since the MYEFO (Mid Year Economic Fiscal Outlook) reduced the underlying cash balance by $18 billion in 2008-2009. Fiscal Stimulus Package

On October 14th 2008, Prime Minister Kevin Rudd and Treasurer Wayne Swan unveiled a significant $10.4 billion emergency spending plan, titled the ‘economic security package’. It included pre-Christmas payments of $4.8 billion for pensioners, $3.9 billion for support to families, and $1.5 billion for first-home buyers.

The key components of the stimulus package were

* - $4.8b down payment to pensioners, payable in December. * - $3.9b in support payments for families.
* - $1.5b for first home buyers.
* - $187m to create new training positions
* - Budget to remain in surplus.

Table 3
Did the Fiscal Stimulus Package work?

Aisbett et al concluded that the $8 billion dollars that was distributed to approx. 8.7 Million taxpayers (75% of...
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