Features Of Australian Federal Budget 2011 - Essay Example

Features Of Australian Federal Budget 2011 Introduction The Australian Federal Budget 2011-2012 is a comprehensive budget that intends to create potential opportunities for a greater number of Australians. By recruiting and training people for more rewarding jobs, this budget plans to increase the national economic prosperity. The budget also aspires to take advantage of the seismic shift in the global economic power, which greatly benefits the nation as this unexpected shift influences the economic growth in the country’s Asian region. Finally, the provisions of the budget would survive unanticipated financial economic contingencies. The Australian Federal Budget 2011-2012 have imposed strict spending limits in order to ensure that the country’s key priorities can effectively meet its funding needs. This paper will critically analyze the Australian Federal Budget 2011 in the context of inflation and unemployment. The impact of Federal Budget on inflation Wayne Swan, the Deputy Prime Minister and Treasurer of the Commonwealth of Australia, promises that the Australian Federal Budget 2011 will enable the country to return to surplus by 2012-13 and this situation, in turn, may benefit the nation to ease the pressures on inflation (Murdoch, 2011). The Australian Central Bank has warned the government that the country may experience price rises and interest rate hikes by the second half of 2011. By referring to this context, Swan argues that the framed budget would be capable of controlling inflation and hence it is possible to employ more people for work in an increasingly tight labor market. The Federal Budget has provisioned for $22 billion in spending cuts with intent to put a downward pressure on inflation (‘Australian high commission media release, May 2011). However, the designed budgetary provision would not be adequate to bring the inflation under normal levels. Economists argue that the budget planned spending commitments of $ 19bn for saving a sum of only $3bn. The Royal Bank of Scotland chief economist Kieran Davies opined that the framework of the Australian Federal Budget 2011 is not capable of exerting a downward pressure on inflation. By referring to the financial markets’ forecast of two interest rate rises over the next year, Davies said that the inflationary pressure would further increase according to the profile of the budget and an anticipated fall in the unemployment rate. The HSBC chief economist Paul Bloxham believes that the budget may have an adverse influence on the risk elements around the inflation outlook. He argues that the government’s increased spending on skills training and encouragement on skilled immigration may not help ease inflation. The impact of Federal Budget on unemployment The terms of the Australian Federal Budget 2011 indicates that the budget can significantly reduce the unemployment rate. The budget forecasts that the country’s real GDP growth would increase by 4 percent in 2011-12 whereas the exports in 2011-12 would rise by 6.5 percent; in addition, the budget expects that unemployment rate would fall from 5 to 4.5 percent during the next two years (‘Australian high commission media release- 12’, 2011). Presently, some of the households have not a breadwinner. Although, the Australian economy is badly in need of employees, unwilling and unskilled workers become a great threat to the country. However, the economy has created over 3000,000 jobs over the past year and hence it is estimated that the unemployment rate can be further reduced in 2013 by creating more job opportunities. The budget has set aside over $3 billion over six years as part of its “Building Australia’s Future Workforce” policy. This policy focuses on “developing stronger relations between industry and training organizations, modernizing apprenticeship programs, and reforming the national training system” (‘Employment & income support’, 2011,). The budget has provisioned for a $674 billion for productive strategies including employment outcomes. In addition, there is a $526.6 million provision in the Federal Budget for some other purposes which include the creation of employment opportunities for Indigenous Australians. Additionally, the government has designed a $8.5 million package over the next four years; one of the main objectives of this package is to improve the operational effectiveness of Job Services Australia and Disability Employment Services. Deficit in the Australian Federal Budget 2011 on Unemployment The budget indicates that the country may face an expected deficit of $22.6 billion in 2001-12 whereas the estimated deficit was $49.4 billion in 2010-11. The Federal budget also anticipates that the country can attain a surplus of $3.5 billion in 2012-13. Although, the budget predicts a fiscal surplus by 2012-13, the overall deficit in the Australian Federal Budget 2011 would adversely affect the unemployment rate. A fiscal deficit indicates the difference between a government's total expenditure and total receipts (excluding borrowing). Revenue deficit is one of the major elements of fiscal deficit and it stands for the difference between the government’s revenue expenditure and total current receipts (excluding borrowing) and capital expenditure. According to different macroeconomic theories, inflation and rise in interest rates are some the issues associated with financing fiscal deficit. As a result of these issues, the stock market may negatively react to the news of increasing fiscal deficits. Under such conditions, the government needs to raise extra funds for keeping the country’s financial stability, and therefore it may not have the adequate finance to declare employment packages. In addition, the immense financial difficulties may force organizations to terminate their employees, which in turn would worsen the unemployment rate. In total, the overall deficit in the Australian Federal Budget 2011 would negatively affect inflation, as well as interest rates and this situation in turn, may raise threats to the employment structure of the country. Inflation and Unemployment It seems that some of the individual items in the Australian Federal Budget 2011 greatly influence inflation and unemployment. According to the budget provisions, it is clear that the Australian business houses have to deal with “the amendments to the fringe benefits tax regime as it applies to the valuation of car benefits, with a move to a standard statutory fraction of 20% which is estimated to raise tax collections by $ 954 million over four years” (‘The 2011-12 budget- A stronger economy for all Australians’, 2011). Similarly, tax structure proposed in the new budget may cause the loss of the Low Income Tax Offset; and this situation would eventually impose a significant tax cost to small businesses. When taxes rise, suppliers often pass the burden of increased tax rates to consumers. Traders would not be willing to withdraw the price rises even if the taxes are reduced later. Hence, the Australian Federal Budget’s tax structure may lead to a rise in inflation rate. Similarly, some of the spending cuts in the federal budget seem to cause adverse effects on the employment opportunities in the country. For instance, the government cuts a $1.3 billion in defense spending. Such a spending cut will influence the defense ministry to downsize the military recruitment activities in order to cop up with the fund limitations. In addition, this budget has recommended a $1.1 billion cut in public service spending. The trimming down of public service expenses would also adversely affect unemployment rate of the country since public sector cannot create sufficient employment opportunities with the restricted access to funds. Efficacy of the Australian Federal Budget 2011 The next Australian federal election will be held on 30th November 2013. Although the Australian Federal Budget 2011 anticipates a surplus of $3.5 in 2012-13, it would be difficult for the Australian economy to bring the deficit under control before the next election. As discussed earlier, the Australian Federal Budget 2011 cannot exert a downward pressure on inflation. As a result, the government would be compelled to focus more on monetary financial policies rather than country’s economic growth. In other words, the government would be forced to adopt a defensive financial approach to overcome the issues associated with inflation. Therefore, it would be difficult for the Australian economy to reach a surplus in 2013 by covering the present deficit of $22.6 billion. In addition, the country's economic growth is stunted by some other factors which are beyond the control of the 2011 federal budget. The recent experiences show that natural disaster plays a devastating role in communities, businesses, and ultimately on an economy. The Australian economy and even the 2011 federal budget are still experiencing the aftereffects of global financial crisis since the period duration of the crisis was longer than actually anticipated. Australian consumers’ caution also contributes to the economic downturn of the country (The 2011-12 budget- A stronger economy for all Australians’, 2011). In short, it would be a cumbersome task for the Australian economy to bring the deficit levels under control before the next election. Conclusion Evidently, the provisions of this federal budget cannot exert a downward pressure on inflation. At the same time, it would be capable of improving the unemployment rate of the Australian economy. Similarly, overall deficit in the budget may cause threats to the Australian employment opportunities. Some of the individual items in the federal budget including tax policies and spending cuts can have an adverse impact on inflation and unemployment. In short, the country may not attain a favorable deficit level before the next election. References Australian Government: Budget 2011-12, Viewed 06 September 2011, ‘Australian high commission media release- 12 May 2011’, 2011, Australian High Court: Canada, Viewed 06 September 2011, ‘Employment & income support’, 2011, LexisNexis, Viewed 06 September 2011, ‘The 2011-12 budget- A stronger economy for all Australians’, 2011, Deputy Prime Ministers and Treasures, Viewed 06 September 2011, Murdoch, S 2011, ‘Budget cuts ‘won’t stop inflation’, National Affairs: The Australian, Viewed 06 September 2011, Read More