Federal Budget Analysis

Impact of the federal budget on the Australian economy

To succeed you must;

a) give a definition of the federal budget

The federal budget is delivered in may of each year by the house of representatives and is delivered in two parts: government income/receipts (what the government earns) and government expenditure/outlays (what the government spends). The correct title to the budget is the ‘Appropriation Bill 2006/07,' it is commonly referred to as the supply bill.
The summary of the Appropriation Bill takes approximately 30 minutes to read, however the actual budget is very extensive and consists of many thousands of pages.
The Federal Budget is basically an estimate of the federal governments income and expenditure for a one year period. E.g. 2006/07.
Federal government income/receipts are mainly come from personal income tax, company tax, sales tax, excise duty, customs duty, fringe benefits tax and capital gains tax.

b) list fiscal policy and economic objectives

economic objectives of the federal government fall into four categories;
1. economic growth
2. reallocation of resources
3. external stability ~ in relation to the sustainability of our interaction with the world. e.g. trade
~ ability to export enough for our imports (or borrow money) to sustain our debts
~is being internationally competitive include sale of exports and viable import replacement industries
~ being able to service in a sustainable manner, interest on the foreign debt and dividends sent overseas due to equity financing.

4. internal stability ~is sustainable economic growth
~ is employment growth and low unemployment
~ stable prices (inflation in 2-3% range)

Federal budget

Revenue
Taxation – personal income tax (60%)
- company tax (proportional 30%)
- excise tax (fuel, alcohol, tobacco)
- (GST collected on behalf of states) not in budget
- Departure tax
- Fee's – GBE's profit, e.g. Aust Post

Expenditure
-social welfare e.g. youth allowance, age pension, disability pension etc.
- Defence (army, navy, air force)
- health
- education

Type sof federal budget
Expansionary G > T
Neutral G = T
Contractionary T > G

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Types of budget;

Budgets are classified according to their ‘stance.'
Stance – the arm of the budget whether it is expansionary, neutral or contractionary. Stance is the impact of the budget on the economy.

Three types of budgets;
1. balanced G = T (tens to be a neutral budget on economic activity)
2. surplus T > G (can be contractionary- not always)
3.
deficit G > T (usually but not always expansionary)

Components of the budget
2 components 1. the structural component – this is the deliberate (explicit) spending and taxing decisions of the government.
2. the cyclical component – this is the non-discretionary spending, taxing and spending of the budget – often called automatic stabilizers.

c) list possible outcomes of the budget on the economy

There are three possible outcomes of a budget on the economy. These being

1. balanced G = T (tens to be a neutral budget on economic activity)
2. surplus T > G (can be contractionary- not always)
3. deficit G > T (usually but not always expansionary)

each type

d) the impact of the budget on the economy

The budget impacts on the economy in the following ways. A decision to lower tax rates would lead to people having more disposable income. This could influence producers to increase the price of their product and also lead to an increase in the price of a whole range of products. This rise in price is referred to as inflation and is measured by the CPI (consumer price index)
e) the direction and objectives of fiscal policy in Australia at present

Key terms and concepts which must be
used;

Inflationary pressures
Causes of inflation
The causes of inflation can be put into four main groups
a) demand pull inflation - excess demand over supply
b) cost push inflation - rises in the cost of producing and marketing goods.
c) monetary inflation - excess growth in the money supply and credit
d) past experience of inflation and future expectations of inflation

In practice it is difficult to isolate causes of particular outbreaks of inflation: eg, wage-price spirals
• wages rise - disposable incomes rise - spending rises - prices rise - wages rise
• wages rise - costs of production rise - profits fall - prices rise - wages rise

Foreign debt – is money which is owed to overseas investors. The money one country owes to another country, as a result of loans and/or a negative balance of trade.

Contraction -

Expansion
Employment growth
Increase national savings
Budget surplus
Budget deficit
Current account deficit
Multiplier effect
Cyclical component
Structural component
Government expenditure
Automatic stabilizers
Business cycle
Government revenue
Taxation
Appropriate fiscal policy

from economics text book and own note book