Source of Government Revenue
48% of revenue comes from income tax
Government Expenditure
35% of expenditure is on welfare and social security
Headline Cash Outcome
Total cash received by Federal government less the total cash paid.
Underlying Cash Outcome
The headline cash outcome, but excluding - Future Fund earnings - 'net cash flows from investments in financial assets for policy purposes' (IFAPP)- Includes G1 & G2
Future Fund
This is a Commonwealth Government investment account that receives the proceeds of buget surpluses and asset sales and invests them in order to generate returns to meet the Commonwealth Government's future superannuation liabilities
Net cash flows from investments in financial assets for policy purposes (IFAPP)
Includes GBE asset sales (one-off sales) or privatisation, These are excluded from the underlying cash outcome as they do not directly affect the economy
Fiscal Outcome
In relation to the government's budget, revenue that has been earned over the relevant period minus expenses that have been incurred over the period.Excludes G2 (Capital spending)
Types of Tax
- Direct Tax (Income/Profits) - Indirect Tax (levied on consumption) - Exercise duties (tobacco, alcohol etc.)- Tariffs (imports)
Difference between G1 & G2
- G1 is consumable, needed for everyday- G2 used for long term G1 is an one time transaction, G2 will decrease the cost of production
Automatic Stabilizers
Changes in the budget that are in line with the business cycle- Lower taxation, higher welfare and social security
Discretionary stabilisers
Deliberate policy decisions designed to change receipts or outlays in an effort to influence economic activity
Fiscal Drag
When a household earns more money they get pushed into the higher tax bracket, causing them to pay more taxes
Budget Repair Strategy
- Any new spending initiatives will be more than offset by spending reductions elsewhere in the budget- Any cyclical improvement in the budget outcome will be 'banked' rather than spent, and;- A clear path to surplus is underpinned by decisions that build over time
Fiscal Consolidation
Government consolidating its finances by reducing expenditure and raising revenue in order to reduce the deficit or return the budget to surplus
Selling bonds to the RBA
- Causes inflation and is considered expansionary - RBA prints more money that wasn't in circulation previously to purchase the bonds - Introduces more money into circulation causes lower interest rates
Selling bonds to Australians
- Places upwards pressure on interest rates- Reduces the amount of money in the economy- Causes crowding out, where money gets allocated to the government who are less efficient at allocative efficiency
Selling bonds to overseas investors
- Higher demand for AUS dollar - Lower demand for exports- Lower AD
Budget Surplus
- Can either put in future fund - Or give to RBA causes crowding in, where more money becomes available and causes higher levels of purchasing- Undermines contractionary stance
Relationship between budget deficit and debt
- Inverse relationship- Smaller budget deficit slows growth of debt, but debt still grows- Budget surplus decreases debt
Affect of debt on budget
- Higher levels of debt causes higher deficit - Repayment of debt cause increases in deficit
Problems with expansionary budget
- Budget deficit can lead to lower AAA ratings due to higher debts and it becomes harder to repay back the money
Reasons for fiscal consolidation
- Maintains AAA rating - Better allows monetary policy to do its job
Strengths of budgetary policy
- Direct & Precise - Open to scrutiny - Can target economic goals
Weaknesses of budgetary policy
- Political bias- Inflexible (once a year) - Implementation lag
Income Tax (AD)
One-off $420 cost of living tax offset, increasing the LMITO from $1,080 to up to $1,500
Company Tax
$1 billion over the next four years to support small businesses to adopt new digital technology
AS Policy
$954 million over the next 4 years to support a new Australian Apprenticeships Incentive Scheme
Welfare Policy
$346.1 million, Dad and Partner Pay
Infrastructure Policy
$920 million for the Outer Metropolitan Ring Rail
Budgetary Policy Stance
2021-22 111 billion deficit2022-23 76 billion deficit