Fiscal Policy - Australia Essay

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Demand-side policy 2: Fiscal (budgetary) policy Definition of fiscal policy Budgetary policy refers to changes in the level and composition of federal government receipts and payments for the forthcoming 12 months. Operated by the government, specifically the Treasurer in consultation with other key ministers. The aim(s) of fiscal policy Medium term strategy aims * The medium term aim of fiscal policy is to achieve ‘budget surplus, on average, over the medium term’. * This means that budget surpluses in periods of strong growth will be used to pay for budget deficits accumulated during downturns * Helps to ensure that the government does not add to public debt * Other medium term goals include: * Not increasing the tax burden compared to 2007/08 levels, which means that the government must keep taxes on average below 24.7% of GDP * Improving the net financial worth position of the Federal Government over the medium term, to ensure that it has sufficient financial assets to withstand economic shocks. Longer-term aims The budget also considers longer-term goals of improving living standards of Australians, increasing the productive capacity of the nation A shift in emphasis of fiscal policy The budget has shifted in emphasis in recent years: * In the mid-2000’s the Australian economy was approaching productive capacity: * Budget surplus was increased by mining boom and resulting company tax receipts, which were very high. Government were able to cut personal income tax rates during this period * Emphasis shifted to raising the productive capacity of the nation, and increasing labour force participation to deal with labour shortages * During the GFC the Australian economy went into a downturn with weak AD * Economic stimulus packages delivered as the government sought to avoid recession

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