Analyse the Role and Impact of Fiscal Policy
Analyse the role and impact of the 2013/14 fiscal policy in achieving the economic objectives in the management of Australia.
Traditionally, the Australian government has attempted to achieve its economic objectives through the implementation of macroeconomic policies especially fiscal policy (the budget). Fiscal policy (FP) is a macroeconomic management policy as it plays a critical role in influencing the level of aggregate demand (AD) in the economy. It aids the government in achieving its economic objectives, of managing and stabilising the business cycle so that the economy experiences internal balance (price stability & full employment), external stability (management of CAD, financing import expenses with export income and the ability to service our debt) and relatively stable economic growth.
Graph
Fiscal policy deals with the government’s use of government expenditure (G) and taxation (T) i.e. the budget outcome to influence (AD) and resource allocation and income distribution. Fiscal policy is all about budgetary outcomes as they give an indication on the state of the economy; the 3 outcomes are neutral, expansionary and the government’s current contractionary stance where government revenue is greater than expenditure. A contractionary stance may be used to slow the rate of economic growth and aid in reducing inflationary pressures. Within the budget there is a cyclical and a structural component. The structural discretionary component is the deliberate change to government revenue and taxation and the cyclical non-discretionary component involves the changes to government spending caused by changes in economic activity.
The budget has deteriorated significantly on the back of a strong Australian dollar (AUD), falling terms of trade, plateauing of the mining boom and subdued consumer confidence resulting in a budget deficit of $19.4b for 2012-13 and is forecasted for a deficit of $18b for 2013-14. The first economic objective is economic
Traditionally, the Australian government has attempted to achieve its economic objectives through the implementation of macroeconomic policies especially fiscal policy (the budget). Fiscal policy (FP) is a macroeconomic management policy as it plays a critical role in influencing the level of aggregate demand (AD) in the economy. It aids the government in achieving its economic objectives, of managing and stabilising the business cycle so that the economy experiences internal balance (price stability & full employment), external stability (management of CAD, financing import expenses with export income and the ability to service our debt) and relatively stable economic growth.
Graph
Fiscal policy deals with the government’s use of government expenditure (G) and taxation (T) i.e. the budget outcome to influence (AD) and resource allocation and income distribution. Fiscal policy is all about budgetary outcomes as they give an indication on the state of the economy; the 3 outcomes are neutral, expansionary and the government’s current contractionary stance where government revenue is greater than expenditure. A contractionary stance may be used to slow the rate of economic growth and aid in reducing inflationary pressures. Within the budget there is a cyclical and a structural component. The structural discretionary component is the deliberate change to government revenue and taxation and the cyclical non-discretionary component involves the changes to government spending caused by changes in economic activity.
The budget has deteriorated significantly on the back of a strong Australian dollar (AUD), falling terms of trade, plateauing of the mining boom and subdued consumer confidence resulting in a budget deficit of $19.4b for 2012-13 and is forecasted for a deficit of $18b for 2013-14. The first economic objective is economic