Describe the current performance of the Australian economy .Describe and evaluate the impact of either an expansionary fisical or monetary policy on the current Australian economy - Essay Example

Current Australian economy al Affiliation) Current Australian economy performance Australias economic is strong, and theoutlook is positive, with moderate unemployment, substantial growth, and contained inflation. The economy is in a strong position to endure any further worldwide volatility and is expected to have a competitive advantage against most of the developed countries over the forecast period. The transition is in progress from the resources investment boom to the no resources sectors and the Australian economy is well positioned to manage the transition.

While prospects remain positive, the challenges of changing from the resources mining investment boom to a broader-based growth are clear. The unemployment rate was 6¼ percent in mid‑2014 and then stabilised at that level in 2014‑15 as the growth returned to around the trend (WORLD BANK, pp37, 2013). There have additionally been significant changes in the forecast of nominal GDP growth. Major revisions to the trade terms on the back of weaker Chinese economic growth and lower forecast of wage growth have weighed greatly on the fiscal position and nominal GDP.

In recent times, strong economic results have been supported by a record increase in resources investment, as companies responded to greater commodity prices driven by high and proper growth in China and other emerging economies (Meredith, & Dyster, pp 19, 2014). Fiscal and monetary policies influence on the economy. In curbing the inflation rates, the reserve bank of Australia (RBA) through monetary policies controlled inflation between two and three percent through the setting of interest rates to charge local banks.

The interest ultimately influenced the behaviour of borrowers. In February 2015, the RBA reduced the cash rate by 25 basis points to ease on the inflation rate through influencing the borrowing patterns. In retrospection, while Australias fiscal position in 2013‑14 was apparently strong by global standards, the structural position was less vigorous than the headline numbers inferred as these were based on commodity Economic and financial market conditions. Tax cuts and new spending, aided by temporary increases in the capital gains and terms of trade, led to weakening of the structural budget position (Nieuwenhuysen, et.

al, pp 40, 2014). Furthermore, by not allowing budget surpluses to increase significantly, as revenues surged, government decisions prior to the global financial crisis meant that interest rates had to be increased elevated. The fiscal policies were necessary to manage inflation in an economy that was presenting signs of over‑heating (Groenewegen, pp 17, 2012). The Australian economy is strong, but the current persistent combination of falling commodity process coupled with the sustained high dollar has a great impact on the overall corporate profitability.

Tax receipts have significantly been influenced by weaker nominal GDP growth. The persistently high Australian dollar and weaker commodity prices have hit company’s profits across most of the country, including the resources sector. The changes have influenced the level of company tax receipts expected in 2014‑15 and over the forward estimates. Capital gains tax decrease and resource rent taxes have also compounded the fall in business tax receipts. Since the 2014‑15 Budget, tax revenues have since been revised down by around $17 billion.

Responding to shifting economic and fiscal circumstances is a core element of the governments financial strategy. The Australian Government has undertaken to recalibrate the pace of fiscal consolidation to guarantee that it does not abate economic growth in the near future. A more steady return to surplus is suitable given the major downgrades to revenue and the transition ongoing in the economy. The consolidation is sensibly paced; amounting to approximately half of a percentage point of GDP a year averagely from 2014‑15 to the end of the forward estimates (Enright, & Petty, pp 23, 2013) References Enright, M. J., & Petty, R. (2013). Australias Competitiveness From Lucky Country to Competitive Country.

Hoboken, Wiley. Groenewegen, P. D. (2012). Public finance in Australia: theory and practice. Sydney, Prentice-Hall of Australia. Meredith, D., & Dyster, B. (2014). Australia in the global economy: continuity and change. New York, Cambridge University Press. WORLD BANK. (2013). Risk and opportunity: managing risk for development Nieuwenhuysen, J. P., Lloyd, P., & Mead, M. (2014). Reshaping Australias economy: growth with equity and sustainability. Cambridge, UK, Cambridge University Press. .