Impact Of The Federal Budget On The Economy

Impact of the federal budget on the Australian economy

To succeed you must;

a) give a definition of the federal budget

The federal budget is delivered in may of each year by the house of representatives and is delivered in two parts: government income/receipts (what the government earns) and government expenditure/outlays (what the government spends). The correct title to the budget is the Ð''Appropriation Bill 2006/07,' it is commonly referred to as the supply bill.

The summary of the Appropriation Bill takes approximately 30 minutes to read, however the actual budget is very extensive and consists of many thousands of pages.

The Federal Budget is basically an estimate of the federal governments income and expenditure for a one year period. E.g. 2006/07.

Federal government income/receipts are mainly come from personal income tax, company tax, sales tax, excise duty, customs duty, fringe benefits tax and capital gains tax.

b) list fiscal policy and economic objectives

economic objectives of the federal government fall into four categories;

1. economic growth

2. reallocation of resources

3. external stability ~ in relation to the sustainability of our interaction with the world. e.g. trade

~ ability to export enough for our imports (or borrow money) to sustain our debts

~is being internationally competitive include sale of exports and viable import replacement industries

~ being able to service in a sustainable manner, interest on the foreign debt and dividends sent overseas due to equity financing.

4. internal stability ~is sustainable economic growth

~ is employment growth and low unemployment

~ stable prices (inflation in 2-3% range)

Federal budget

Revenue

Taxation Ð'- personal income tax (60%)

- company tax (proportional 30%)

- excise tax (fuel, alcohol, tobacco)

- (GST collected on behalf of states) not in budget

- Departure tax

- Fee's Ð'- GBE's profit, e.g. Aust Post

Expenditure

-social welfare e.g. youth allowance, age pension, disability pension etc.

- Defence (army, navy, air force)

- health

- education

Type sof federal budget

Expansionary G > T

Neutral G = T

Contractionary T > G

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Types of budget;

Budgets are classified according to their Ð''stance.'

Stance Ð'- the arm of the budget whether it is expansionary, neutral or contractionary. Stance is the impact of the budget on the economy.

Three types of budgets;

1. balanced G = T (tens to be a neutral budget on economic activity)

2. surplus T > G (can be contractionary- not always)

3. deficit G > T (usually but not always expansionary)

Components of the budget

2 components

1. the structural component Ð'- this is the deliberate (explicit) spending and taxing decisions of the government.

2. the cyclical component Ð'- this is the non-discretionary spending, taxing and spending of the budget Ð'- often called automatic stabilizers.

c) list possible outcomes of the budget on the economy

There are three possible outcomes of a budget on the economy. These being

1. balanced