Topic 6

What kind of policy is fiscal policy?

It is a macroeconomic policy

Who made the ideas that fiscal policy is based on?

John Maynard Keyes

What did Keyes argue?

that governments could stabilise the business cycle and regulate economic output by adjusting spending and taxation measures

What does fiscal policy use?

Fiscal policy involves the use of taxation and spending to achieve the government’s economic objections

What does altering levels of G and T influence?

sustained economic growth, low inflation, full employment, external stability

What can further changes in G and T lead to?

reallocation of resources and redistribution of income

when is the Budget presented?

Usually in May

What does the budget show?

It shows planned revenue and expenditure for the next financial year

How much does income tax make up of the total revenure?

70%

What is income tax?

taxes earned from both individuals and companies

How much of revenue does company tax make up?

20% of revenue

What percentage of personal income tax is in the total cash reciepts?

48%

What percentage oftotal tax collection is GST?

13%

What percentage of revenue is exercise + customs?

6%

What percentage of revenue is other tax (charges, fees, fines)?

1-2%

What percentage of revenue is non tax (profit form enterprises)?

8%

How is provision of infrastructure linked to the government’s economic objectives?

increases productive capacity of the economy and reduced infrastructure bottlenecks, leading to increased economic growth

How is social security and welfare linked to the government’s economic objectives?

the largest commonwealth government outlay, this represents transfer payments (redistributing income)

How is health linked to the government’s economic objectives?

while the delivery of healthcare services is primarily the responsibility of state and territory governments, the commonwealth fund medicare and the pharmaceutical benefits scheme as well as contributing to the funding of public hosptials

How is education linked to the government’s economic objectives?

the commonwealth provides education funding to the universities vocational education and training providers as well as government and non-government pramry and secondary schools

How is protecting the environment and promoting ecologically sustainable developments linked to the government’s economic objectives?

protecting the environment and promoting ecologically sustainable developments includes clean water, low carbon emission technologies and energy efficiency measures

What is a balanced budget?

planned government revenue + planned government expenditure = zero balance

What is a budget surplus?

planned government revenue > planned government expenditure = positive balance

what is a budget deficit?

planned government revenue < planned government expenditure = negative balance

The budget outcome changes reflects the impact of what two key factors?

changing economic conditions, changes in government policy

what is the economic impact of an expansionary stance?

stimulates economic demand, and may increase inflation

what is the economic impact of a contractionary stance?

dampens economic demand, may increase unemployment

what is the economic impact of a neutral stance?

generally no overall effect on aggregate demand

What are the two parts of the budget to consider?

cyclical components and structural component

What is cyclical component also known as?

non-discretionary, as it is not a government decision

What does cyclical component as a non-discretionary mean?

it is an automatic stabilizer

cyclical component involves changes in G&T which results from changes in what?

changes in the level of economic activity

What is structural component also known as?

discretionary policy decisions, a government made decision

What does structural component represent?

delicate revenue and expenditure charges

What do automatic stabilisers offset?

the extremes of the business cycle

What are the main automatic stabilisers?

unemployment benefits, progressive income tax system

What is the key driver of the fiscal policy stance?

structural component

What are some examples of structural components?

capital gains tax reform, NDIS reform

How do political parties influence government policy in australia?

major policy changes must be authorised by the political party at the time, and each party has different concerns for which they focus policies on

How do business influence government policy in australia?

political parties rely on donations from businesses to fund campaigns, and are sometimes accused of changing policies because of the financial contributions of business groups

How do unions influence government policy in australia?

they are the largest organisation by membership in Australia, and represent the interest of workers,with a focus on industrial relation policy, work health and safety issues, and measures that affect low income earners

What is the responsibility of the local government?

To maintain and improve public utilities in the local area, and providing welfare services

What is the responsibility of the state government?

To maintain and improve public services in states, for example education

What is the responsibility of the commonwealth government?

laws affecting the nation

What are the different sources of revenue for the local government?

grants, rates, fines, fees and charges

What are the different sources of revenue for the state government?

Grants, taxes, income from PTE, fines, revenue from private utilities

What are the different sources of revenue for the commonwealth government?

income tax, GST, company tax, customs, capital gains tax

How much of GDP does the spending of the three levels of government account for

43.1%

Commonwealth budget spednidng represents how much of the public sector?

27.3%

How much of employment makes up the public sector?

17.2%

What is the aim of reallocating resources?

to direct resources towards the production of Merit goods and away from demerit goods, promoting more efficient use of scarce resources

How can the government affect the allocation of resources through behaviour?

by influencing consumer and business behaviour through taxation, and spending measures

How can the government affect the allocation of resources through production?

producing the goods and service themself

What are direct taxes?

Paid by the individual or firm on which they are levied can’t be passed on

What are some examples of direct tax?

income tax, company tax, capital gains tax

What are indirect taxes?

levied on individual/firms but can be passed on, attached to good/service rather than individual/company

What is an example of indirect tax?

sales tax

What else can taxes lead to?

shifting resources away from their production like tobacco, and for the higher prices to lead to fewer customers and benfit society

What is a benefit of the government providing goods and services?

they are better able to provide important G&S to a larger number of people at a lower price.

What does the government providing goods and services ensure?

that monopoly ownership does not lead to overpricing and exploitation

What is a cost of the government providing goods and services?

inefficient in operating their enterprises, which increased costs for customs, because they do not have strong incentives to make a profit

What is the aim of redistribution of income?

to create a more equitable distribution of income

How is the redistribution of income achieved?

Through taxation, transfer payments such as social welfare

What is a tax base?

the items that are taxes, such as income, wealth and consumption

What is the Average rate of tax (ART)?

the proportion of total income earned that is paid in the form of tax

What is the marginal rate of tax (MRT)?

the proportion of any increase in income that must be paid as tax, therefore it represents how many cents in every extra dollar that is taxes

What is progressive tax?

higher income earners pay greater proportion of income as tax than lower income earners, ART rises as income increases

What is regressive tax?

higher income earners pay smaller proportion of income compared to lower income earners, ART falls as income increases

What is proportional tax?

higher income earners, pay greater proportion of income as tax than lower income earners, ART remains constant as income rises

What is the tax free threshold?

Income level below which no tax payable

What is the current tax free threshold?

18,200

What are transfer payments?

Social welfare, redistribution tax payments to lower income earners

What is a government business enterprise (GBE)?

are businesses owned and managed by a government at either common wealth or state level

What is a corporatisation?

occurs when the government encourages public trading enterprises to operate independently from the government as if they are private businesses in order to improve efficiency and profitability

What is privatisation?

Occurs when the government sells public trading enterprises to the private sector

What is competition?

is the pressure on business firms in a market economy to lower prices or improve the quality of output to increase their sales of G&S to customers

What are the key ideas in competition policy?

to have competition that is compatible with the market system, which produces more efficient use of resources

What are the key ideas in consumer protection?

to ensure fair business conduct by prohibiting practices that restrict competition and imposing penalties

What are the key ideas in Environmental policy?

the impact of economic activity on the environment and sustainability

What are the two debates in environmental policy?

the use of renewable or non-renewable energy and to what extent does the price mechanism not reflect externalities involved in production

What is optimum allocation?

resources used efficiently

What is equitable distribution?

fair spread of income and wealth

What is economic stability

steady growth and low inflation

What is the price ceiling?

the maximum price that can be charged for a particular commodity

When is a price ceiling implemented?

When the market price for some items is too high

What is a price floor?

the minimum price that can be charged for a particular commondity

When is a price floor implemented?

when the market price for some items is too low

What does non-excludable mean for a public good?

it cannot exclude people from the benefit of the good, it cannot ensure all users pay, therefore no incentive for the private sector to provide

What does non-rival mean for a public good?

one person’s enjoyment does not diminish the potential for others enjoyment

What is a merit good?

are goods that benefit the whole community, not only individuals who gain direct benefits

What is a demerit good?

a good that brings harm to the community

What is a collective good/service

It is provided by the government to benefit the whole community

What is a natural monopoly?

goods that can only efficiently be provided by one supplier

What is absolute poverty?

when individuals earn an income below the minimum income benchmark (poverty line)

What is relative poverty?

when an individual earns an income below the average standard of living compared to the rest of the population as a whole

What are externalities (spill overs)?

external costs and benefits of private actions on the community as a whole, which are not fully reflected in market prices

What are positive externalities?

external benefits not considered in the decision making process that can be good for third parties

What are negative externalities?

harmful spillover effects of production and other economic activities on the economy

What is a monopolisation?

market power used to eliminate and prevent potential competiters