Aggregrate demand policies and domestic economic stability Flashcards
(91 cards)
1
Q
Budgetary policy
A
document released annually that details how the govt. plans to get its revenue and expenditure
2
Q
Budgetary policy is also known as
A
fiscal policy
3
Q
The budgetary policy is used to
A
define how the govt. will use its budget to achieve the goals of the economy (3 main economic goals)
4
Q
Medium term fiscal stategy
A
the governments fiscal strategy, oftern called the medium fiscal strategy is released with the budgetary policy to display how the economy will achieve these goals
5
Q
what are Sources of Govt. revenue
A
In order for the government to achive these goals, the governmnet needs money. The money the govt. collects is called its revenue
6
Q
3 sources of government revenue
A
-Direct tax
-Indirect tax
-Revenue from govt. businesses
-Sale of govt. assets
7
Q
Direct tax
A
-levied on the entity who pay it
-Largest component of the governments revenue
-includes; personal income tax, company tax (e.g supperanuation tax)
8
Q
Indirect tax
A
-levied on one entity but ultimately paid by another
-levied on expenditure
-GST (charged by businesses to consumers), Excise taxes ( make demerit goods less attractive (tobacco))
9
Q
Revenue from the government businesses
A
if the government owns a business revenue from those sources contributes to total government revenue
10
Q
Sale of governemnt assets
A
the money obtained from the sale of a government owned asset share in a company or an entire business contirbutes to govt. revenue
11
Q
Types of government expenses
A
-current expenditure
-Capital expenditure
12
Q
Current expenditure (G1)
A
-spending undertaken to maintain the day to day functions of the government
-e.g paper work for govt. printers, wages paid to public servants
13
Q
Capital expenditure (G2)
A
-spending undertaken to create infastructure and other assets that will lead to better economic outcomes for the future
-e.g infastructure, airport
14
Q
Transfer Payments
A
money paid by the govt. to private entities mostly by welfare payments
-funding to individuals in the economy via the governments revenue from taxation going to other consumers
14
Q
The budget outcome
A
diffrence between government revenue and expenditure
-is either balanced, surplused or deficit
15
Q
3 types of budget outcomes
A
-Balanced
-Surplus
-Deficit
16
Q
Balanced budget outcome
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if receipts ( revenue) are equal to outlays (expenditure)
17
Q
Budget deficit outcome
A
reciepts (revenue) is smaller than outlays (expenses)
18
Q
Headline cash outcome
A
all the income of the govt. over a certain period of time, minus all expenditure of the govt. in that period
19
Q
Diffrent ways to display the budget outcome
A
-Headline cash outcome
-Underlying cash outcome
-Fiscal outcome
20
Q
Underlying cash outcome
A
level of cash receipts minus the level of cash payments excluding one off transactions that do not directly impact the economy
-e.g sale of govt. assets
21
Q
Fiscal outcome
A
representation of the budget outcome that is made using cash earned and costs incurred
22
Q
How does the govt. Finance a deficit
A
-the govt. has spent more than it earns
-3 ways the govt. sells bonds to finance these:
-Selling bonds to the reserve bank of Australia
-Selling binds to Australian investors
-selling bonds to overseas investors
23
Q
How the governmnet finances a debt; Selling bonds to the reserve bank of australia
A
-the govt. sells bonds to the RBA who then print new money or give never before used money from their stores to the government
-Most inflationary way to finance a debt
-govt doesnt do this much anymore
24
How the Australian government finances a debt: Selling bonds to Australian investors
-the govt. sells bonds to private individuals in australia
-doesnt have same impact as selling bonds to RBA but does include others
25
issues with Australia selling bonds to the RBA
price of money is represented by intrest rates, when intrest rates rise, there is a higher cost of borrowing money, Private individuals are forced to undertake less expenditure and C and I decrease (crowding out)
26
Crowding out definition
situation where increased government spending or activity leads to a decrease in private sector activity, such as investment or spending
27
Selling bonds to overseas investors
the government sells bonds to people in other countries
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The government utilises a surplus in 3 ways
-Repaying debt
-Funds
-Investment
29
Utilising a surplus; Repaying debt
the government can pay back some of the debt they incurred from a previous deficit period
30
Utilising a surplys: Funds
the government can put the money into a fund where it can increase in value, for example a future fund
31
Utilising a surplus: Investment
the government can put the money in an RBA account
32
whilst funding a deficit can mean the crowding out of the private sector, a surplus can mean
the crowding in on the private sector; when intrest rates decrease due to the government lending money and the opposite of crowding out occurs
33
The budget outcome and its effect on public debt
The government can decide to expand the economy by increasing injections to be higher than leakages, hence delivering a deficit budget. However as some money tends to be borrowed from oversease to fund this deficit the government is taking on more public debt over time
34
The larger the budget deficit the more it contributes to public debt because...
-have to pay back the principlal (original amount borrowed)
-Intrest payments
-our credit rating may drop
35
achieveing a smaller budget deficit compared to previous years does not lead to a reduction in public debt because
it causes the level of public debt to grow, but more slowly
-the government still requires additional borrowing to finance this new deficit
-the larger the budget surplus the more it can repay existing debts
36
Automatic (built in) stabilisers
-govt. wants a stable non fluctuating buisness cycle
-built in aspects of the budget which respond to economic condition without any deliberate action by the government
-occurs in a counter cyclical way as it inhibits growth rates when rates are too high and promotes growth when it is too low
-E.G progressive tax system, Welfare outlays
37
how does the government use automatic stabilisers in a time of high growth
-high incomes and employment mean higher government revenue from personal income tax and lower government expenditure on welfare payments as fewer people qualify for unemployment benifits
-the budget outcome is hence higher
-Leakages increase and injections decrease , so AD decreases and so fo rates of growth
38
how do automatic stabilisers work in a time of low economic growth
-low incomes ad employment mean lower government revenue from personal income tax and higher government expenditure on welfare payments as more people move into lower tax brackets
-the budget outcome is hence lower , leakages decrease and injections increase, so AD increases and so do rates of growth
39
Discretionary stabilisers
deliberate actions undertaken by the government to change its revenue or expenses in a counter-cyclical way
40
How do discretionary stabilisers work in a high growth rate
when growth is high the government may deliberately impliment policies which increase receipts and/or reduce outlays, so that leakages increase, and injections decrease. Hence, AD decreases and the rates of real GDP growth are dampened
41
How do Discretionary stabilisers aid in a time of low growth
the govt. may deliberately impliment policies which decrease receipts and/or increase outlays, so that leakages decrease and injections increase Hence AD increases and rates if real GDP growth are raised
42
Budgetary policy stance
the budgetary policy can either be:
-Expansionary
-Contractionary
43
AD policies in budgets and the goal of strong and sustainable growth
-supports; if growth rates are lower than the target range of 3% to 4% PA
-can create a contractionary budget if growth rates are higher than that range
44
AD policies and the goal of full employment
-by delivering a more expansionary budget, the govenrment can increase G and hence AD, this increased demand for g/s means increased demand for labour and hence lower rates of cyclical unemployement
-structural unemployment is largely reduced through AS policies such as training and developing
45
where does the future economy expect most of its revenue to come from
from taxation
-Individuals income tax
-Company tax
-GST
46
where does the future economy expect most of its expenditure to go to
-social security/ Welfare (support to the aged, families and children)
-Health (e.g medicare rebates)
-Education
47
what has the govenrment done to tax rates
-reduced income tax rates
-results in a marginal increase in the progressivity of the system
48
Sale of government assets as a type of non tax revenue by the government
sale of federal assets refers to the government disposing of, or selling to the private sector
-lists these assets and allows the general public to place shares in them
-E.g aus post, national broad band company
49
what lead to an increase in the headline budget deficit
student loans
50
estimated outcome for the next financial year
underlying budget deficit
51
issue in 2023-24 about the estimated budget
-govt. estimated a deficit but was actually a surplus
-this was due to:
=issues with incorrect TOT forecasts
=Unemployment rate was lower than anticipated
=when economic activity is larger than expectedm the actual deficit is likely to be smaller
52
The budget surplus in 2022-23 and 2023-24 where used to pay for
-existing public debt
-invest in housing australia future fund
-medical research future fund
-drought future fund
53
Example of a descretionary influence in 2024-2025
-reduction in rates of income taxes in the 2024-2025 budget
-provision of cost of living relief measures delieved/announced in these same budgets
54
recent examples of automatic stabilisers
-increase in the amount of company taxes recieved over 2022-2023 due to higher terms of trade
-resulted in increase in govt. revenue
55
recent 2023-24 budget predictions
-was predicted to be a deficit
-but growth in commodity prices was higher and unemployment was lower
-
56
why is the budget currently in a budget deficit
-returned in 2024-25 and 2025-26
-due to the effect of structural stabilisers as the government has introduced substansialrevisions to the revenue side of the buget (primarily tax cuts)
-aswell as significant increases in discretionary government expenditure (such as cost of living relief measures and expenditure related to the aging population)
57
Bracket creep/ fiscal drag
occurs during times of inflation for countries with a progressive tax system. When inflation occurs it results in a decrease in "real wages"
and workers seek to protect their real wage by demanding increases in their nominal wage. As nominal wages increase, it pushes some workers into a higher marginal tax bracket
58
Issues of a bracket creep
-increases the total personal income tax revenue received by the federal government, thereby increasing the surplus. it is another cyclical componenet of the budget, but it does not rely on the growth rate in GDP to change the budget outcome automatically
-some taxpayers will experience a decline in their real disposable invome because they will be paying a higher averadge rate of tax on their nominal wage which reduces purchasing power of their after tax and after inflation wage= this causes slowing rate of spendng and reduces the incentives to work
59
modified stage 3 tax cuts in 2024 did what
-lower income tax burden for all australian tax payers
-the further tax cuts in the future will help solve potential effects of bracket creeps
60
medium term fiscal strategy
-strategy that came apart after covid 19, prior to the economy wanted to ensure the budget was always in a surplus
-The govt. needed to borrow money to finance this recession and decided they shiuld aim to repair the economy instead
61
How did the medium term fiscal strategy reduce the unemployment rate
-Allowing budgets automatic stabilisers to operate,m to support AD
-Temporary, proportianate and targeted fiscal support (e.g tax measures that incentivise private sector investment)
-structural reforms to improve the ease of doing business and increase the economies long term growth potential
-contributing to improve the ffeciency and quality of government spending
62
after the medium term fiscal strategy
-needed more govt. expenditure in:
-Aged care due to an aging population
-support for disability care
-measures to adress climate change
63
the government aims, for the future to
-keep up all macroeconomic goals by;
-allowing tax receipts and income support to respond in line with changes in the economy
-improving, effeciency, quality and sustainability of spending
-focusing new soending on investments and reforms that build the capability of our people, expand the productivity our our economy and support action on climate change
-delivering a tax system that funds government services in an efficeint, fair and sustainable way
64
positives of returning the government budget to surplus
-consistent with governments fiscal strategy, facilitating debt reduction and helping to buffer Australia against future economic decline
-helps to generate greater international investor confidence in australia
-sign of strength and boosts confidence, stimulating AD
65
most recent statistics on budget
-in deficit
-taking on a more expansionary stance
66
budgetary policy initatives announced in 2025-26 budget
-Helping with the cost of living
-Strengthening medicare
-Investing in a future made by australia
67
Budgetary policies announced in the 2025-26 ( Helping with the cost of living)
-delivering new tax cuts for every Australian taxpayer
-1.8 billion to extend energy bill relief
-cutting student debt by 20% and making the repayment system fairer
68
Budgetary policy announced in 2025-26 ( strengthening medicare)
-money to make 9 out of 10 GP visits bulk billed by 2030
-funding to boost public hospitals
-50 additional medicare ugent care clinics, bringing the total to 137 nationwide
69
Budgetary policy announced in 2025-26 (Investing in a future made in Australia)
-investing money to become a renewable energy superpower and strengthen our economic resilience
-money to reform higher education and support future productivity
70
the 2025-26 budget achievement of goals
on full employment
-full employment= Tax relief via reductions, increases disposable income and therefore AD meaning an increase in need for labour
71
the 2025-26 budget achievement of goals on strong and sustainable economic growth
national competition measures, help to raise competition, increases productivity, AD and growth
72
the 2024-2025 budgetary policy achievement of full employment
-investing billions into supporting key industries
73
the 2024-2025 budgetary policy achievement of strong and sustainable economic growth
-adding money into the discovery of raw minerals
-and resources
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the 2024-2025 budgetary policy achievement of low inflation
-cost of living measures relief
-funding to delived cheaper medicines
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how do budget policies reduce market failures
-funding for national security and defence
-funding to imrpove the safety of australian communities
-increased funding for aged care
76
strengths of using budgetary policy to affect AD and the achievement of goals and living standards
-can target particular sectors or industries in the economy
-budget is open to significant public scrutiny
-operation of automatic stabilisers ensure the policy response is speedy in terms of stabiising the busoness cycle
77
Weaknesses of budgetary policy include
-is prone to political bias particulary around election time
-the implimentation lag can be long given that the budget bills must pass through both houses of parliment
-weakened by fact state governments require government cooperation, if state governments have diffrent objectives, policy can pull in diffrent directions
78
Revenue from the 2024-25 budget is most likely to come from
-taxation
-non tax sources (aus post)
79
Expenditure from the 2024-2025 budget is most likely to come from
-social security and welfare (transfer payments)
-health spending
80
2024-25 examples of G1
funding everyday healthcare services such as paying GPs for medical consultatiosn
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2024-2025 examples of G2
building health infastructure
82
the 2024-2025 budget outcome
-deficit
-payments are expected to exceed revenue
83
budget outcome 2022-2023
-surplus
84
has government debt increased
-yes, we are in a deficit
85
2024-25 stance and impact on the economy
-deficit
-expansionary budgetary stance
This is because:
-significant tax reductions reducing revenue
86
Discretionary changes to the economy 2024-2025
-tax cuts
-housing investment
-Infastructure
-renewable energy
-medicare funding
87
distrectionary stabilisers in 2023-2024
-welfare payments
-climate change spending
88
achievement of 2023-2024 goals - strong and sustainable eco growth
-tax cuts
-incentives to smal businesses
-infastructure spending
-good!
89
Achievement of 2023-2024 goals- full employment
-labour market still tight
-has most likely achived this goal
-however the cost of living eases could have caused inflation
90
achievement of 2023-2024 low inflation
-persistent high inflation
