Government and the Macroeconomy

Comprehensive vocabulary flashcards covering the Australian government's role in the macroeconomy, tax structures and bases, macroeconomic objectives, and fiscal policy tools.

Modified Market Economy

An economy based on the free-market system where the government intervenes through the public sector to allocate resources more equitably, provide essential public goods and services, and stabilize fluctuations in the business cycle.

Tax Impact

The formal point where a tax is legally collected or levied by the government.

Tax Incidence

The final resting place of a tax burden, representing who actually bears the cost of the tax after any market adjustments.

Direct Taxation

Taxes levied directly on the income or profits of individuals or corporations, where both the legal impact and economic incidence fall on the same entity.

Indirect Taxation

Taxes collected on consumer expenditure for goods and services where the legal impact falls on the seller and the incidence falls on the consumer through higher prices.

Progressive Tax

A tax structure that claims an increasing proportion of income as income increases, placing a heavier burden on higher-income earners, such as Australia's personal income tax system.

Regressive Tax

A tax that takes a decreasing proportion of income as income increases, placing a relatively greater economic burden on lower-income earners (e.g., the Goods and Services Tax).

Proportional Tax

A tax that takes a constant proportion of income or profit regardless of earnings level, exemplified in Australia by company tax.

Ability-to-Pay Principle

Adam Smith's canon of equity stating that taxation should be proportional to income so that individuals with greater financial capacity contribute more than those who cannot afford to pay as much.

Canon of Certainty

Adam Smith's principle stating that tax obligations must be clear, transparent, and predictable, so that taxpayers know the exact amount, due date, and payment method.

Canon of Convenience

Adam Smith's principle stating that the timing and method of tax payment should be arranged to make compliance as easy and timely as possible for taxpayers.

Canon of Efficiency

Adam Smith's principle stating that the operational costs of collecting taxes should be kept to a minimum so the vast majority of revenue funds projects that benefit the public.

Personal Income Tax

A direct, progressive Commonwealth tax levied on wage and salary earnings according to marginal brackets that specify the rate applied to each additional dollar earned.

Company Tax

A direct, proportional tax levied on corporate profits, where companies with an annual turnover under $\$50\text{ million}$ pay $25\text{ cents}$ in the dollar.

Fringe Benefits Tax (FBT)

A direct tax introduced in the 1980s levied on the value of non-cash perks provided to employees as part of their remuneration packages, including company cars, school tuition, or subsidized loans.

Goods and Services Tax (GST)

A broad-based indirect, regressive tax of $10\%$ levied on most Australian consumer goods and services, collected federally and distributed directly to state governments.

Excise Duty

A flat-rate indirect tax levied on specific domestically produced goods with price-inelastic demand—including alcohol, cigarettes, petrol, and gas—designed to raise revenue and mitigate negative externalities.

Customs Duty

An indirect tax levied on imported goods that acts like a tariff to protect domestic producers from overseas competition.

Capital Gains Tax (CGT)

A progressive tax levied on profits from the sale of assets owned longer than $12\text{ months}$, adjusted for inflation and excluding primary personal assets such as family homes, vehicles, boats, and jewellery.

Keynesian Economics

A macroeconomic theory developed by John Maynard Keynes asserting that government borrowing and spending injections can lift income, stimulate aggregate demand, and generate employment during downturns.

Fiscal Policy

A demand-side macroeconomic policy involving adjustments in government spending and taxation to influence aggregate demand and moderate cyclical fluctuations.

Expansionary Fiscal Policy

A fiscal policy stance where the government increases expenditure, reduces taxation, or both to boost aggregate demand during an economic downswing or trough.

Contractionary Fiscal Policy

A fiscal policy stance where the government reduces expenditure, raises taxation, or both to dampen aggregate demand during an economic boom.

Sustainable Economic Growth Target

The macroeconomic goal to continuously expand productive capacity to satisfy community wants, measured by an annual rate of change in real GDP of $3.5\%$.

Price Stability Target

The macroeconomic objective of achieving little or no sustained rise in the general price level, measured by an annual CPI inflation rate target of $2\text{--}3\%$.

Full Employment Target

The state where cyclical unemployment is zero and the labor market operates at the non-accelerating inflation rate of unemployment (NAIRU), targeted at an unemployment rate of $4.5\%$.

Economic Shock

An unexpected or unpredictable event originating outside the basic circular flow of income, expenditure, and production that disrupts aggregate demand or short-run aggregate supply.

Gini Coefficient

A statistical indicator derived from the Lorenz Curve to measure income inequality across an economy, where a score of $0$ indicates perfect equality.