SlideShare una empresa de Scribd logo
1 de 18
Descargar para leer sin conexión
Contemporary (2019) Fiscal Policy in Australia
WACE Economics - Unit 13
Video 13.2 (2019)
© Andrew Tibbitt 2019
Contemporary Fiscal Policy in Australia
INTRODUCTION
After an emergency fiscal policy stimulus to deal with the post GFC downturn
the main theme of fiscal policy has been one of budget repair rather than
demand management.
Monetary Policy has been given the role of stimulating aggregate demand, even
though the impact of record low cash rates has been weak and patchy.
Budget repair involves:
Returning the budget balance to surplus
Using the budget surplus to reduce the level of net government debt
Returning the budget to surplus has been a difficult and relatively slow process.
Reducing government debt will also be a decade long process.
There have also been attempts to reform aspects of the tax and transfer (welfare)
system during this period.
Fiscal stimulus v fiscal austerity
Fiscal stimulus Fiscal austerity
Policy
measures
Direct injection of net government
spending (more G, less T)
Return budget to surplus to allow
reduction in government net debt by
spending restraint and sustaining tax
revenue.
Short-term
impact
Direct boost to aggregate demand
from government spending.
Indirect boost to aggregate
demand from rise in disposable
income after tax cuts
Fall in aggregate demand from reducing
the size of the budget deficit
Long-term
impact
Stimulus to aggregate demand
reduced by impact of crowding out
on interest rates, private sector
investment and exchange rate.
Negative supply-side impact of
higher net government spending
Debt problems develop (interest
payments, debt refinancing, threat
to credit rating)
Less scope to deal with next
financial crisis
Indirect boost to aggregate demand from
higher private sector investment, more
confident consumers, rise in net exports
from more competitive exchange rate
Supply-side gain from greater role of
private sector
Debt problems reduced and eventually
eliminated
‘War-chest’ to deal with next financial
crisis
Budget repair
What is the aim of budget repair?
Returning the budget balance to
surplus
Using future surplus budgets to
reduce government net debt
Why is it needed?
Avoids costs and constraints caused
by servicing (paying interest) and
sustaining (renewing) debts. Without
action net government debt would
have reached $1 trillion within a
decade.
Allows future governments to
provide ‘responsible tax relief’ to
households and business and spend
money on infrastructure to boost
productivity
Creates a buffer to allow economy to
withstand a future economic shock
How will it be achieved?
Cyclical factors
Higher rates of economic growth
(There is a positive relationship
between growth in nominal GDP and
growth in taxation revenue and a
negative relationship between growth
and welfare spending).
Structural factors
Governments showing spending
restraint (avoiding the spending bias
of politicians at election time)
Changes to the taxation of
multinationals (e.g. Multinational Anti-
Avoidance Law (MAAL) and Diverted
Profits Tax (DPT)
Targeting benefits - by extending
fraud detection and debt recovery
activities.
© Andrew Tibbitt 2019
Cyclical impact on budget balance
Increase in
economic
growth
More individual
income tax
More company
tax
More indirect tax
(e.g. GST, excise
duty)
Reduced welfare
spending
More employment,
higher incomes
Higher company
profits
More production and
spending
Reduced numbers
needing support
Budget repair has been a slow process
Why has budget repair been a slow
process?
‘Budget sabotage’ - ‘savings’
measures not passed by parliament
due to perceived unfairness of
measures
Until recently the economy
performed worse than budget
forecasts, giving government an
earnings or revenue problem
Economic recovery after GFC was
slow and patchy. Budget repair
slows recovery in the short-run
because it is deflationary.
The impact of an accommodative
(expansionary) monetary policy
stance has been weak
How long will the process take?
Budget repair or austerity will have
been the main theme of fiscal policy:
From 2008-09 (following the fiscal
stimulus that provided short-term
relief from impact of Global
Financial Crisis)
To perhaps about 2029-30. The
Government is hoping Budget will
be in surplus by 2020-21, and that
surpluses will continue after that.
© Andrew Tibbitt 2019
Source: 2018-19 Budget Papers
Payments (Expenditure)
Receipts (Revenue)
SurplusDeficitSurplus
Global
Financial
Crisis
Control of government spending and an improving
economy leads to budget surpluses
© Andrew Tibbitt 2019
Caution
Outcomes Reliable, but ‘lagging’ or actual past data
Forecasts
Projections
Less reliable, ‘leading’ or future data
Very unreliable, basically forecasts projected into the future
According to the 2018-19
Budget:
Government net debt is set
to peak at about $482b, or
25.4% of GDP.
By 2028–29, it will be down
to $118 billion, or only
3.8% of GDP
Budget surpluses lead to a fall in net government debt
© Andrew Tibbitt 2019Source: 2018-19 Budget Papers
Surpluses
Deficits
Note the Rudd/Gillard/Rudd Labor government had to deal with the GFC
Recent control in growth in government spending
Source: 2018-19 Budget Papers © Andrew Tibbitt 2019
What is special about this figure?
Target is political rather than economic -
suggesting Coalition Government is better
than Labor at keeping the burden of taxation
under control
Control of government spending
© Andrew Tibbitt 2019Source: 2018-19 Budget Papers
Will budget repair be successful?
Factors affecting success include:
Will economy perform as well as the assumptions about economic
performance made in the budget? Will nominal GDP growth reach and stay at
projected level of 4.5% and not be thrown off-course by external shocks (e.g.
trade disputes, downturn in housing market)?
Will wages growth return to trend rates of 2.75% then go above trend to 3%),
higher than the rates achieved since the GFC?
Will recent government revenue ‘windfalls’ (e.g. from mining profits) become
a permanent feature?
Will inflation will continue to be in the middle of its 2% to 3% target range?
Will the government ‘bank’ (i.e. save) the budget surpluses and show a high
degree of restraint in its future spending?
© Andrew Tibbitt 2019
Government revenue is already sufficient to meet
recurrent spending (everyday expenses)
© Andrew Tibbitt 2019Source: 2018-19 Budget Papers
Has budget repair been the right policy?
ADVANTAGES
Deals with spiralling net government
debt to reduce the actual and
opportunity cost of servicing payments
Builds ‘war-chest’ to be in a position to
deal with next financial crisis
Avoids crowding out effects (i.e. higher
interest rates and their impact on
private sector investment and
exchanges rates)
Positive supply-side influence on
consumer and producer confidence
linked to better control of public
finances
DISADVANTAGES
Deflated economy in short-run when
it needed a stimulus to overcome
weak global factors and an
ineffective monetary policy.
The impact of austerity measures
has been uneven and unfair (e.g.
affecting people on welfare or
relying on government provided
public and merit goods
© Andrew Tibbitt 2019
Tax reform
Tax changes should be judged against the principles of taxation, namely
fairness, simplicity, efficiency, sustainability, competitiveness and cohesion.
Income changes outlined in the 2018-19 budget address aspects of bracket
creep. When wages rise with inflation, tax payers in a progressive tax
system experience bracket creep. Without changes to tax brackets and
thresholds, people pay more tax even though the level of their real income
(as opposed to their money or nominal income) may not have changed.
Everybody experiences bracket creep not just those who move into a higher
tax bracket because it is the average rate of tax rather than the marginal
rate of tax that is important.
Someone on average full-time earnings currently sitting at the top of 32.5%
bracket would, without reform, have moved well into the 37% bracket by
2024-25. With the proposed reform they will be 2/3rds of the way along the
enlarged 32.5% bracket.
© Andrew Tibbitt 2019
Tax reform - proposed changes to income tax
First bracket Second
bracket
Third
bracket
Fourth
bracket
2017-18
Under current
system
Up to $37,000*
22% of taxpayers
Marginal rate
19%
$37,001 to
$87,000*
53% of
taxpayers
Marginal rate
32.5%
$87,001 to
$180,000*
22% of
taxpayers
Marginal
rate 37%
Above
$180,000*
5% of
taxpayers
Marginal
rate 45%
2024-25
Under current
system
Up to $37,000*
16% of taxpayers
Marginal rate
19%
$37,001 to
$87,000*
47% of
taxpayers
Marginal rate
32.5%
$87,001 to
$180,000*
29% of
taxpayers
Marginal
rate 37%
Above
$180,000*
8% of
taxpayers
Marginal
rate 45%
2024-25
Under
reformed
system
Up to $41,000*
21% of taxpayers
Marginal rate
19%
$41,001 to
$200,000*
73% of
taxpayers
Marginal rate
32.5%
Above
$200,000*
6% of
taxpayers
Marginal
rate 45%
* Taxable income
© Andrew Tibbitt 2019
Existing income tax brackets
Bracket creep by 2025 without reform
What will happen under the new tax plan
End of video 13.2
© Andrew Tibbitt 2019

Más contenido relacionado

La actualidad más candente

Chapter11 fiscal policy
Chapter11 fiscal policyChapter11 fiscal policy
Chapter11 fiscal policytelliott876
 
Fiscal Policy And The Business Cycle
Fiscal Policy And The Business CycleFiscal Policy And The Business Cycle
Fiscal Policy And The Business Cyclemscuttle
 
Fiscal Policy Ppt
Fiscal Policy PptFiscal Policy Ppt
Fiscal Policy PptCAG
 
AS Macro Fiscal Policy Questions
AS Macro Fiscal Policy QuestionsAS Macro Fiscal Policy Questions
AS Macro Fiscal Policy Questionstutor2u
 
Macro-Economic Policy
Macro-Economic PolicyMacro-Economic Policy
Macro-Economic Policymattbentley34
 
Fiscal policy updated
Fiscal policy updatedFiscal policy updated
Fiscal policy updatedMj Payal
 
AS Macro Revision: Economic Growth
AS Macro Revision: Economic GrowthAS Macro Revision: Economic Growth
AS Macro Revision: Economic Growthtutor2u
 
Government fiscal policy and the economy
Government fiscal policy and the economyGovernment fiscal policy and the economy
Government fiscal policy and the economytutor2u
 
3.4 Demand And Supply Side Policies
3.4   Demand And Supply Side Policies3.4   Demand And Supply Side Policies
3.4 Demand And Supply Side PoliciesAndrew McCarthy
 
Fiscal policy and economic development
Fiscal policy and economic developmentFiscal policy and economic development
Fiscal policy and economic developmentSana Hassan Afridi
 
Group IT Macroeconomics Presentation
Group IT Macroeconomics PresentationGroup IT Macroeconomics Presentation
Group IT Macroeconomics PresentationPhumlani M. Majozi
 
Macroeconomics: Fiscal Policy
Macroeconomics: Fiscal PolicyMacroeconomics: Fiscal Policy
Macroeconomics: Fiscal Policybrianbelen
 

La actualidad más candente (19)

Chapter11 fiscal policy
Chapter11 fiscal policyChapter11 fiscal policy
Chapter11 fiscal policy
 
Fiscal policy
Fiscal policyFiscal policy
Fiscal policy
 
Fiscal policy
Fiscal policyFiscal policy
Fiscal policy
 
Fiscal Policy And The Business Cycle
Fiscal Policy And The Business CycleFiscal Policy And The Business Cycle
Fiscal Policy And The Business Cycle
 
Fiscal Policy Ppt
Fiscal Policy PptFiscal Policy Ppt
Fiscal Policy Ppt
 
AS Macro Fiscal Policy Questions
AS Macro Fiscal Policy QuestionsAS Macro Fiscal Policy Questions
AS Macro Fiscal Policy Questions
 
Fiscal policy
Fiscal policyFiscal policy
Fiscal policy
 
Inflation in India
Inflation in IndiaInflation in India
Inflation in India
 
Macro-Economic Policy
Macro-Economic PolicyMacro-Economic Policy
Macro-Economic Policy
 
Fiscal policy updated
Fiscal policy updatedFiscal policy updated
Fiscal policy updated
 
AS Macro Revision: Economic Growth
AS Macro Revision: Economic GrowthAS Macro Revision: Economic Growth
AS Macro Revision: Economic Growth
 
Government fiscal policy and the economy
Government fiscal policy and the economyGovernment fiscal policy and the economy
Government fiscal policy and the economy
 
Fiscal policy
Fiscal policyFiscal policy
Fiscal policy
 
3.4 Demand And Supply Side Policies
3.4   Demand And Supply Side Policies3.4   Demand And Supply Side Policies
3.4 Demand And Supply Side Policies
 
Fiscal policy and economic development
Fiscal policy and economic developmentFiscal policy and economic development
Fiscal policy and economic development
 
Group IT Macroeconomics Presentation
Group IT Macroeconomics PresentationGroup IT Macroeconomics Presentation
Group IT Macroeconomics Presentation
 
Fiscal policy
Fiscal policyFiscal policy
Fiscal policy
 
Macroeconomics: Fiscal Policy
Macroeconomics: Fiscal PolicyMacroeconomics: Fiscal Policy
Macroeconomics: Fiscal Policy
 
Fiscal+policy
Fiscal+policyFiscal+policy
Fiscal+policy
 

Similar a Contemporary Australian Fiscal Policy (2019)

Spring Budget 2021: The big questions
Spring Budget 2021: The big questionsSpring Budget 2021: The big questions
Spring Budget 2021: The big questionsDeloitte UK
 
Budget 2021 the big questions final
Budget 2021 the big questions finalBudget 2021 the big questions final
Budget 2021 the big questions finalDeloitte UK
 
The Spring Budget: The big questions
The Spring Budget: The big questionsThe Spring Budget: The big questions
The Spring Budget: The big questionsDeloitte UK
 
Monetary and fiscal policy response and recent developments
Monetary and fiscal policy response and recent developmentsMonetary and fiscal policy response and recent developments
Monetary and fiscal policy response and recent developmentsClaro Ganac
 
Michael Taft, SIPTU post budget 2020 analysis 16 Oct 19
Michael Taft, SIPTU post budget 2020 analysis 16 Oct 19Michael Taft, SIPTU post budget 2020 analysis 16 Oct 19
Michael Taft, SIPTU post budget 2020 analysis 16 Oct 19NevinInstitute
 
2017 Federal Fall Economic Statement
2017 Federal Fall Economic Statement2017 Federal Fall Economic Statement
2017 Federal Fall Economic StatementEdelman
 
Chap011 4 (2010)
Chap011  4 (2010)Chap011  4 (2010)
Chap011 4 (2010)bnorman2
 
Fiscal Responsibilities Bill
Fiscal Responsibilities BillFiscal Responsibilities Bill
Fiscal Responsibilities Billsukre_pravin
 
Joint Committee Report: Fact Sheet
Joint Committee Report: Fact SheetJoint Committee Report: Fact Sheet
Joint Committee Report: Fact SheetObama2012
 
One of these answers are wrong. May somebody tell me which one and w.docx
One of these answers are wrong. May somebody tell me which one and w.docxOne of these answers are wrong. May somebody tell me which one and w.docx
One of these answers are wrong. May somebody tell me which one and w.docxarnit1
 
Module 20 economic policy and the aggregate demand aggregate supply model
Module 20  economic policy and the aggregate demand aggregate supply modelModule 20  economic policy and the aggregate demand aggregate supply model
Module 20 economic policy and the aggregate demand aggregate supply modelAmerican School of Guatemala
 
Policy paper Autumn Statement 2023 (HTML)
Policy paper Autumn Statement 2023 (HTML)Policy paper Autumn Statement 2023 (HTML)
Policy paper Autumn Statement 2023 (HTML)nishatislam612
 
Final fiscal sustainability up_mla_gil_b
Final fiscal sustainability up_mla_gil_bFinal fiscal sustainability up_mla_gil_b
Final fiscal sustainability up_mla_gil_brbulalakaw
 
Tax Cuts and Jobs Act
Tax Cuts and Jobs ActTax Cuts and Jobs Act
Tax Cuts and Jobs ActDavid Doney
 
The Current Outlook for the Economy and the Budget
The Current Outlook for the Economy and the BudgetThe Current Outlook for the Economy and the Budget
The Current Outlook for the Economy and the BudgetCongressional Budget Office
 

Similar a Contemporary Australian Fiscal Policy (2019) (20)

Fiscal policy keynesians
Fiscal policy keynesiansFiscal policy keynesians
Fiscal policy keynesians
 
Fiscal policy
Fiscal policyFiscal policy
Fiscal policy
 
Spring Budget 2021: The big questions
Spring Budget 2021: The big questionsSpring Budget 2021: The big questions
Spring Budget 2021: The big questions
 
Budget 2021 the big questions final
Budget 2021 the big questions finalBudget 2021 the big questions final
Budget 2021 the big questions final
 
The Spring Budget: The big questions
The Spring Budget: The big questionsThe Spring Budget: The big questions
The Spring Budget: The big questions
 
Monetary and fiscal policy response and recent developments
Monetary and fiscal policy response and recent developmentsMonetary and fiscal policy response and recent developments
Monetary and fiscal policy response and recent developments
 
Michael Taft, SIPTU post budget 2020 analysis 16 Oct 19
Michael Taft, SIPTU post budget 2020 analysis 16 Oct 19Michael Taft, SIPTU post budget 2020 analysis 16 Oct 19
Michael Taft, SIPTU post budget 2020 analysis 16 Oct 19
 
Fiscal policy
Fiscal policyFiscal policy
Fiscal policy
 
Eco 301 ch26
Eco 301 ch26Eco 301 ch26
Eco 301 ch26
 
2017 Federal Fall Economic Statement
2017 Federal Fall Economic Statement2017 Federal Fall Economic Statement
2017 Federal Fall Economic Statement
 
Chap011 4 (2010)
Chap011  4 (2010)Chap011  4 (2010)
Chap011 4 (2010)
 
Fiscal Responsibilities Bill
Fiscal Responsibilities BillFiscal Responsibilities Bill
Fiscal Responsibilities Bill
 
Fiscal policy
Fiscal policyFiscal policy
Fiscal policy
 
Joint Committee Report: Fact Sheet
Joint Committee Report: Fact SheetJoint Committee Report: Fact Sheet
Joint Committee Report: Fact Sheet
 
One of these answers are wrong. May somebody tell me which one and w.docx
One of these answers are wrong. May somebody tell me which one and w.docxOne of these answers are wrong. May somebody tell me which one and w.docx
One of these answers are wrong. May somebody tell me which one and w.docx
 
Module 20 economic policy and the aggregate demand aggregate supply model
Module 20  economic policy and the aggregate demand aggregate supply modelModule 20  economic policy and the aggregate demand aggregate supply model
Module 20 economic policy and the aggregate demand aggregate supply model
 
Policy paper Autumn Statement 2023 (HTML)
Policy paper Autumn Statement 2023 (HTML)Policy paper Autumn Statement 2023 (HTML)
Policy paper Autumn Statement 2023 (HTML)
 
Final fiscal sustainability up_mla_gil_b
Final fiscal sustainability up_mla_gil_bFinal fiscal sustainability up_mla_gil_b
Final fiscal sustainability up_mla_gil_b
 
Tax Cuts and Jobs Act
Tax Cuts and Jobs ActTax Cuts and Jobs Act
Tax Cuts and Jobs Act
 
The Current Outlook for the Economy and the Budget
The Current Outlook for the Economy and the BudgetThe Current Outlook for the Economy and the Budget
The Current Outlook for the Economy and the Budget
 

Más de AndrewTibbitt1

Australian Monetary Policy 3 - Transmission Mechanism
Australian Monetary Policy 3 - Transmission MechanismAustralian Monetary Policy 3 - Transmission Mechanism
Australian Monetary Policy 3 - Transmission MechanismAndrewTibbitt1
 
Australian Monetary Policy 2 - Interest Rates
Australian Monetary Policy 2 - Interest RatesAustralian Monetary Policy 2 - Interest Rates
Australian Monetary Policy 2 - Interest RatesAndrewTibbitt1
 
Australian Monetary Policy 1 - Basics
Australian Monetary Policy 1 - BasicsAustralian Monetary Policy 1 - Basics
Australian Monetary Policy 1 - BasicsAndrewTibbitt1
 
Globalisation - Opposition to global integration
Globalisation - Opposition to global integrationGlobalisation - Opposition to global integration
Globalisation - Opposition to global integrationAndrewTibbitt1
 
Globalisation - Gains, Drivers and Enablers
Globalisation - Gains, Drivers and EnablersGlobalisation - Gains, Drivers and Enablers
Globalisation - Gains, Drivers and EnablersAndrewTibbitt1
 
Australian Balance of Payments - Performance Analysis and Evaluation
Australian Balance of Payments - Performance Analysis and EvaluationAustralian Balance of Payments - Performance Analysis and Evaluation
Australian Balance of Payments - Performance Analysis and EvaluationAndrewTibbitt1
 
Australlian Balance of Payments - Structure
Australlian Balance of Payments - StructureAustrallian Balance of Payments - Structure
Australlian Balance of Payments - StructureAndrewTibbitt1
 

Más de AndrewTibbitt1 (7)

Australian Monetary Policy 3 - Transmission Mechanism
Australian Monetary Policy 3 - Transmission MechanismAustralian Monetary Policy 3 - Transmission Mechanism
Australian Monetary Policy 3 - Transmission Mechanism
 
Australian Monetary Policy 2 - Interest Rates
Australian Monetary Policy 2 - Interest RatesAustralian Monetary Policy 2 - Interest Rates
Australian Monetary Policy 2 - Interest Rates
 
Australian Monetary Policy 1 - Basics
Australian Monetary Policy 1 - BasicsAustralian Monetary Policy 1 - Basics
Australian Monetary Policy 1 - Basics
 
Globalisation - Opposition to global integration
Globalisation - Opposition to global integrationGlobalisation - Opposition to global integration
Globalisation - Opposition to global integration
 
Globalisation - Gains, Drivers and Enablers
Globalisation - Gains, Drivers and EnablersGlobalisation - Gains, Drivers and Enablers
Globalisation - Gains, Drivers and Enablers
 
Australian Balance of Payments - Performance Analysis and Evaluation
Australian Balance of Payments - Performance Analysis and EvaluationAustralian Balance of Payments - Performance Analysis and Evaluation
Australian Balance of Payments - Performance Analysis and Evaluation
 
Australlian Balance of Payments - Structure
Australlian Balance of Payments - StructureAustrallian Balance of Payments - Structure
Australlian Balance of Payments - Structure
 

Último

What is the Future of QuickBooks DeskTop?
What is the Future of QuickBooks DeskTop?What is the Future of QuickBooks DeskTop?
What is the Future of QuickBooks DeskTop?TechSoup
 
How to Add a many2many Relational Field in Odoo 17
How to Add a many2many Relational Field in Odoo 17How to Add a many2many Relational Field in Odoo 17
How to Add a many2many Relational Field in Odoo 17Celine George
 
Clinical Pharmacy Introduction to Clinical Pharmacy, Concept of clinical pptx
Clinical Pharmacy  Introduction to Clinical Pharmacy, Concept of clinical pptxClinical Pharmacy  Introduction to Clinical Pharmacy, Concept of clinical pptx
Clinical Pharmacy Introduction to Clinical Pharmacy, Concept of clinical pptxraviapr7
 
General views of Histopathology and step
General views of Histopathology and stepGeneral views of Histopathology and step
General views of Histopathology and stepobaje godwin sunday
 
CAULIFLOWER BREEDING 1 Parmar pptx
CAULIFLOWER BREEDING 1 Parmar pptxCAULIFLOWER BREEDING 1 Parmar pptx
CAULIFLOWER BREEDING 1 Parmar pptxSaurabhParmar42
 
Human-AI Co-Creation of Worked Examples for Programming Classes
Human-AI Co-Creation of Worked Examples for Programming ClassesHuman-AI Co-Creation of Worked Examples for Programming Classes
Human-AI Co-Creation of Worked Examples for Programming ClassesMohammad Hassany
 
Patient Counselling. Definition of patient counseling; steps involved in pati...
Patient Counselling. Definition of patient counseling; steps involved in pati...Patient Counselling. Definition of patient counseling; steps involved in pati...
Patient Counselling. Definition of patient counseling; steps involved in pati...raviapr7
 
CHUYÊN ĐỀ DẠY THÊM TIẾNG ANH LỚP 11 - GLOBAL SUCCESS - NĂM HỌC 2023-2024 - HK...
CHUYÊN ĐỀ DẠY THÊM TIẾNG ANH LỚP 11 - GLOBAL SUCCESS - NĂM HỌC 2023-2024 - HK...CHUYÊN ĐỀ DẠY THÊM TIẾNG ANH LỚP 11 - GLOBAL SUCCESS - NĂM HỌC 2023-2024 - HK...
CHUYÊN ĐỀ DẠY THÊM TIẾNG ANH LỚP 11 - GLOBAL SUCCESS - NĂM HỌC 2023-2024 - HK...Nguyen Thanh Tu Collection
 
The Stolen Bacillus by Herbert George Wells
The Stolen Bacillus by Herbert George WellsThe Stolen Bacillus by Herbert George Wells
The Stolen Bacillus by Herbert George WellsEugene Lysak
 
The basics of sentences session 10pptx.pptx
The basics of sentences session 10pptx.pptxThe basics of sentences session 10pptx.pptx
The basics of sentences session 10pptx.pptxheathfieldcps1
 
Quality Assurance_GOOD LABORATORY PRACTICE
Quality Assurance_GOOD LABORATORY PRACTICEQuality Assurance_GOOD LABORATORY PRACTICE
Quality Assurance_GOOD LABORATORY PRACTICESayali Powar
 
Education and training program in the hospital APR.pptx
Education and training program in the hospital APR.pptxEducation and training program in the hospital APR.pptx
Education and training program in the hospital APR.pptxraviapr7
 
DUST OF SNOW_BY ROBERT FROST_EDITED BY_ TANMOY MISHRA
DUST OF SNOW_BY ROBERT FROST_EDITED BY_ TANMOY MISHRADUST OF SNOW_BY ROBERT FROST_EDITED BY_ TANMOY MISHRA
DUST OF SNOW_BY ROBERT FROST_EDITED BY_ TANMOY MISHRATanmoy Mishra
 
HED Office Sohayok Exam Question Solution 2023.pdf
HED Office Sohayok Exam Question Solution 2023.pdfHED Office Sohayok Exam Question Solution 2023.pdf
HED Office Sohayok Exam Question Solution 2023.pdfMohonDas
 
Practical Research 1: Lesson 8 Writing the Thesis Statement.pptx
Practical Research 1: Lesson 8 Writing the Thesis Statement.pptxPractical Research 1: Lesson 8 Writing the Thesis Statement.pptx
Practical Research 1: Lesson 8 Writing the Thesis Statement.pptxKatherine Villaluna
 
Diploma in Nursing Admission Test Question Solution 2023.pdf
Diploma in Nursing Admission Test Question Solution 2023.pdfDiploma in Nursing Admission Test Question Solution 2023.pdf
Diploma in Nursing Admission Test Question Solution 2023.pdfMohonDas
 
In - Vivo and In - Vitro Correlation.pptx
In - Vivo and In - Vitro Correlation.pptxIn - Vivo and In - Vitro Correlation.pptx
In - Vivo and In - Vitro Correlation.pptxAditiChauhan701637
 
Presentation on the Basics of Writing. Writing a Paragraph
Presentation on the Basics of Writing. Writing a ParagraphPresentation on the Basics of Writing. Writing a Paragraph
Presentation on the Basics of Writing. Writing a ParagraphNetziValdelomar1
 
Prescribed medication order and communication skills.pptx
Prescribed medication order and communication skills.pptxPrescribed medication order and communication skills.pptx
Prescribed medication order and communication skills.pptxraviapr7
 

Último (20)

What is the Future of QuickBooks DeskTop?
What is the Future of QuickBooks DeskTop?What is the Future of QuickBooks DeskTop?
What is the Future of QuickBooks DeskTop?
 
How to Add a many2many Relational Field in Odoo 17
How to Add a many2many Relational Field in Odoo 17How to Add a many2many Relational Field in Odoo 17
How to Add a many2many Relational Field in Odoo 17
 
Clinical Pharmacy Introduction to Clinical Pharmacy, Concept of clinical pptx
Clinical Pharmacy  Introduction to Clinical Pharmacy, Concept of clinical pptxClinical Pharmacy  Introduction to Clinical Pharmacy, Concept of clinical pptx
Clinical Pharmacy Introduction to Clinical Pharmacy, Concept of clinical pptx
 
General views of Histopathology and step
General views of Histopathology and stepGeneral views of Histopathology and step
General views of Histopathology and step
 
CAULIFLOWER BREEDING 1 Parmar pptx
CAULIFLOWER BREEDING 1 Parmar pptxCAULIFLOWER BREEDING 1 Parmar pptx
CAULIFLOWER BREEDING 1 Parmar pptx
 
Human-AI Co-Creation of Worked Examples for Programming Classes
Human-AI Co-Creation of Worked Examples for Programming ClassesHuman-AI Co-Creation of Worked Examples for Programming Classes
Human-AI Co-Creation of Worked Examples for Programming Classes
 
Patient Counselling. Definition of patient counseling; steps involved in pati...
Patient Counselling. Definition of patient counseling; steps involved in pati...Patient Counselling. Definition of patient counseling; steps involved in pati...
Patient Counselling. Definition of patient counseling; steps involved in pati...
 
CHUYÊN ĐỀ DẠY THÊM TIẾNG ANH LỚP 11 - GLOBAL SUCCESS - NĂM HỌC 2023-2024 - HK...
CHUYÊN ĐỀ DẠY THÊM TIẾNG ANH LỚP 11 - GLOBAL SUCCESS - NĂM HỌC 2023-2024 - HK...CHUYÊN ĐỀ DẠY THÊM TIẾNG ANH LỚP 11 - GLOBAL SUCCESS - NĂM HỌC 2023-2024 - HK...
CHUYÊN ĐỀ DẠY THÊM TIẾNG ANH LỚP 11 - GLOBAL SUCCESS - NĂM HỌC 2023-2024 - HK...
 
The Stolen Bacillus by Herbert George Wells
The Stolen Bacillus by Herbert George WellsThe Stolen Bacillus by Herbert George Wells
The Stolen Bacillus by Herbert George Wells
 
Prelims of Kant get Marx 2.0: a general politics quiz
Prelims of Kant get Marx 2.0: a general politics quizPrelims of Kant get Marx 2.0: a general politics quiz
Prelims of Kant get Marx 2.0: a general politics quiz
 
The basics of sentences session 10pptx.pptx
The basics of sentences session 10pptx.pptxThe basics of sentences session 10pptx.pptx
The basics of sentences session 10pptx.pptx
 
Quality Assurance_GOOD LABORATORY PRACTICE
Quality Assurance_GOOD LABORATORY PRACTICEQuality Assurance_GOOD LABORATORY PRACTICE
Quality Assurance_GOOD LABORATORY PRACTICE
 
Education and training program in the hospital APR.pptx
Education and training program in the hospital APR.pptxEducation and training program in the hospital APR.pptx
Education and training program in the hospital APR.pptx
 
DUST OF SNOW_BY ROBERT FROST_EDITED BY_ TANMOY MISHRA
DUST OF SNOW_BY ROBERT FROST_EDITED BY_ TANMOY MISHRADUST OF SNOW_BY ROBERT FROST_EDITED BY_ TANMOY MISHRA
DUST OF SNOW_BY ROBERT FROST_EDITED BY_ TANMOY MISHRA
 
HED Office Sohayok Exam Question Solution 2023.pdf
HED Office Sohayok Exam Question Solution 2023.pdfHED Office Sohayok Exam Question Solution 2023.pdf
HED Office Sohayok Exam Question Solution 2023.pdf
 
Practical Research 1: Lesson 8 Writing the Thesis Statement.pptx
Practical Research 1: Lesson 8 Writing the Thesis Statement.pptxPractical Research 1: Lesson 8 Writing the Thesis Statement.pptx
Practical Research 1: Lesson 8 Writing the Thesis Statement.pptx
 
Diploma in Nursing Admission Test Question Solution 2023.pdf
Diploma in Nursing Admission Test Question Solution 2023.pdfDiploma in Nursing Admission Test Question Solution 2023.pdf
Diploma in Nursing Admission Test Question Solution 2023.pdf
 
In - Vivo and In - Vitro Correlation.pptx
In - Vivo and In - Vitro Correlation.pptxIn - Vivo and In - Vitro Correlation.pptx
In - Vivo and In - Vitro Correlation.pptx
 
Presentation on the Basics of Writing. Writing a Paragraph
Presentation on the Basics of Writing. Writing a ParagraphPresentation on the Basics of Writing. Writing a Paragraph
Presentation on the Basics of Writing. Writing a Paragraph
 
Prescribed medication order and communication skills.pptx
Prescribed medication order and communication skills.pptxPrescribed medication order and communication skills.pptx
Prescribed medication order and communication skills.pptx
 

Contemporary Australian Fiscal Policy (2019)

  • 1. Contemporary (2019) Fiscal Policy in Australia WACE Economics - Unit 13 Video 13.2 (2019) © Andrew Tibbitt 2019
  • 2. Contemporary Fiscal Policy in Australia INTRODUCTION After an emergency fiscal policy stimulus to deal with the post GFC downturn the main theme of fiscal policy has been one of budget repair rather than demand management. Monetary Policy has been given the role of stimulating aggregate demand, even though the impact of record low cash rates has been weak and patchy. Budget repair involves: Returning the budget balance to surplus Using the budget surplus to reduce the level of net government debt Returning the budget to surplus has been a difficult and relatively slow process. Reducing government debt will also be a decade long process. There have also been attempts to reform aspects of the tax and transfer (welfare) system during this period.
  • 3. Fiscal stimulus v fiscal austerity Fiscal stimulus Fiscal austerity Policy measures Direct injection of net government spending (more G, less T) Return budget to surplus to allow reduction in government net debt by spending restraint and sustaining tax revenue. Short-term impact Direct boost to aggregate demand from government spending. Indirect boost to aggregate demand from rise in disposable income after tax cuts Fall in aggregate demand from reducing the size of the budget deficit Long-term impact Stimulus to aggregate demand reduced by impact of crowding out on interest rates, private sector investment and exchange rate. Negative supply-side impact of higher net government spending Debt problems develop (interest payments, debt refinancing, threat to credit rating) Less scope to deal with next financial crisis Indirect boost to aggregate demand from higher private sector investment, more confident consumers, rise in net exports from more competitive exchange rate Supply-side gain from greater role of private sector Debt problems reduced and eventually eliminated ‘War-chest’ to deal with next financial crisis
  • 4. Budget repair What is the aim of budget repair? Returning the budget balance to surplus Using future surplus budgets to reduce government net debt Why is it needed? Avoids costs and constraints caused by servicing (paying interest) and sustaining (renewing) debts. Without action net government debt would have reached $1 trillion within a decade. Allows future governments to provide ‘responsible tax relief’ to households and business and spend money on infrastructure to boost productivity Creates a buffer to allow economy to withstand a future economic shock How will it be achieved? Cyclical factors Higher rates of economic growth (There is a positive relationship between growth in nominal GDP and growth in taxation revenue and a negative relationship between growth and welfare spending). Structural factors Governments showing spending restraint (avoiding the spending bias of politicians at election time) Changes to the taxation of multinationals (e.g. Multinational Anti- Avoidance Law (MAAL) and Diverted Profits Tax (DPT) Targeting benefits - by extending fraud detection and debt recovery activities. © Andrew Tibbitt 2019
  • 5. Cyclical impact on budget balance Increase in economic growth More individual income tax More company tax More indirect tax (e.g. GST, excise duty) Reduced welfare spending More employment, higher incomes Higher company profits More production and spending Reduced numbers needing support
  • 6. Budget repair has been a slow process Why has budget repair been a slow process? ‘Budget sabotage’ - ‘savings’ measures not passed by parliament due to perceived unfairness of measures Until recently the economy performed worse than budget forecasts, giving government an earnings or revenue problem Economic recovery after GFC was slow and patchy. Budget repair slows recovery in the short-run because it is deflationary. The impact of an accommodative (expansionary) monetary policy stance has been weak How long will the process take? Budget repair or austerity will have been the main theme of fiscal policy: From 2008-09 (following the fiscal stimulus that provided short-term relief from impact of Global Financial Crisis) To perhaps about 2029-30. The Government is hoping Budget will be in surplus by 2020-21, and that surpluses will continue after that. © Andrew Tibbitt 2019
  • 7. Source: 2018-19 Budget Papers Payments (Expenditure) Receipts (Revenue) SurplusDeficitSurplus Global Financial Crisis Control of government spending and an improving economy leads to budget surpluses © Andrew Tibbitt 2019
  • 8. Caution Outcomes Reliable, but ‘lagging’ or actual past data Forecasts Projections Less reliable, ‘leading’ or future data Very unreliable, basically forecasts projected into the future
  • 9. According to the 2018-19 Budget: Government net debt is set to peak at about $482b, or 25.4% of GDP. By 2028–29, it will be down to $118 billion, or only 3.8% of GDP Budget surpluses lead to a fall in net government debt © Andrew Tibbitt 2019Source: 2018-19 Budget Papers Surpluses Deficits
  • 10. Note the Rudd/Gillard/Rudd Labor government had to deal with the GFC Recent control in growth in government spending Source: 2018-19 Budget Papers © Andrew Tibbitt 2019
  • 11. What is special about this figure? Target is political rather than economic - suggesting Coalition Government is better than Labor at keeping the burden of taxation under control Control of government spending © Andrew Tibbitt 2019Source: 2018-19 Budget Papers
  • 12. Will budget repair be successful? Factors affecting success include: Will economy perform as well as the assumptions about economic performance made in the budget? Will nominal GDP growth reach and stay at projected level of 4.5% and not be thrown off-course by external shocks (e.g. trade disputes, downturn in housing market)? Will wages growth return to trend rates of 2.75% then go above trend to 3%), higher than the rates achieved since the GFC? Will recent government revenue ‘windfalls’ (e.g. from mining profits) become a permanent feature? Will inflation will continue to be in the middle of its 2% to 3% target range? Will the government ‘bank’ (i.e. save) the budget surpluses and show a high degree of restraint in its future spending? © Andrew Tibbitt 2019
  • 13. Government revenue is already sufficient to meet recurrent spending (everyday expenses) © Andrew Tibbitt 2019Source: 2018-19 Budget Papers
  • 14. Has budget repair been the right policy? ADVANTAGES Deals with spiralling net government debt to reduce the actual and opportunity cost of servicing payments Builds ‘war-chest’ to be in a position to deal with next financial crisis Avoids crowding out effects (i.e. higher interest rates and their impact on private sector investment and exchanges rates) Positive supply-side influence on consumer and producer confidence linked to better control of public finances DISADVANTAGES Deflated economy in short-run when it needed a stimulus to overcome weak global factors and an ineffective monetary policy. The impact of austerity measures has been uneven and unfair (e.g. affecting people on welfare or relying on government provided public and merit goods © Andrew Tibbitt 2019
  • 15. Tax reform Tax changes should be judged against the principles of taxation, namely fairness, simplicity, efficiency, sustainability, competitiveness and cohesion. Income changes outlined in the 2018-19 budget address aspects of bracket creep. When wages rise with inflation, tax payers in a progressive tax system experience bracket creep. Without changes to tax brackets and thresholds, people pay more tax even though the level of their real income (as opposed to their money or nominal income) may not have changed. Everybody experiences bracket creep not just those who move into a higher tax bracket because it is the average rate of tax rather than the marginal rate of tax that is important. Someone on average full-time earnings currently sitting at the top of 32.5% bracket would, without reform, have moved well into the 37% bracket by 2024-25. With the proposed reform they will be 2/3rds of the way along the enlarged 32.5% bracket. © Andrew Tibbitt 2019
  • 16. Tax reform - proposed changes to income tax First bracket Second bracket Third bracket Fourth bracket 2017-18 Under current system Up to $37,000* 22% of taxpayers Marginal rate 19% $37,001 to $87,000* 53% of taxpayers Marginal rate 32.5% $87,001 to $180,000* 22% of taxpayers Marginal rate 37% Above $180,000* 5% of taxpayers Marginal rate 45% 2024-25 Under current system Up to $37,000* 16% of taxpayers Marginal rate 19% $37,001 to $87,000* 47% of taxpayers Marginal rate 32.5% $87,001 to $180,000* 29% of taxpayers Marginal rate 37% Above $180,000* 8% of taxpayers Marginal rate 45% 2024-25 Under reformed system Up to $41,000* 21% of taxpayers Marginal rate 19% $41,001 to $200,000* 73% of taxpayers Marginal rate 32.5% Above $200,000* 6% of taxpayers Marginal rate 45% * Taxable income © Andrew Tibbitt 2019
  • 17. Existing income tax brackets Bracket creep by 2025 without reform What will happen under the new tax plan
  • 18. End of video 13.2 © Andrew Tibbitt 2019