Recent Fiscal Policy in Australia - Case Study Example

1. The changes that have been witnessed in the federal budget which resulted in a surplus of $1.5 billion in the year 2012-13 in comparison to the fiscal deficit of $47.7 billion in the year 2011-12 was primarily due to the policies that the government has adopted. The steps that the government has taken can be considered as a contractionary measure because the government looked towards increasing their taxes by $39 billion and a reduction in expenditure by $7 billion which resulted in a change in a change in aggregate demand by 2 percent (Budget Overview, 2012). The government has looked towards developing the process of fiscal consolidation which has helped them to control debt and ensure that the fiscal budget will help to control the manner in which the economic crisis is worsening. The fiscal policies that the Australian government has looked towards enacting looks towards ensuring that the public debt doesn’t rise over a long period of time in relation to GDP. The government looks towards ensuring that the government might look towards using a strategy where they look towards increasing the debt ratio during period of recession but has to be brought back to normalcy when the economy recovers. The budget for the year 2012-13 highlights the same as shown below (Budget Overview, 2012) The fiscal policies highlight that since the financial crisis the Australian government had witnessed an increase in fiscal deficit which increased the level of pressure that the government had to deal with. This resulted in a change in 2012-13 where the government increased the tax rate and resulted in an increase in receipts by $39 billion which is around 2.6% of the GDP. The government also reduced there expenditure slightly by $7 billion which resulted in a fiscal deficit to be turned around in a surplus of $1.5 billion (Budget Overview, 2012). The steps taken by the government clearly highlights that the strategies were contractionary policies as the government looked towards cutting down expenses instead of increasing their expenditure. This clearly highlights that the Australian government has looked towards adopting contractionary policies so that they are able to reduce their fiscal deficit and will look towards determining the manner in which the government has been able to develop their policies. Thus, the overall policy adopted by the Australian government shows the use of contractionary policies to bring down the fiscal deficit (Romer, 2012). 2. The Australian government has looked towards identifying strategies through which the government has looked towards reducing the fiscal deficit by brining change in the fiscal policies which will help to deal with the issues in the most productive manner. Some of the major fiscal policy changes that have been witnessed are as A change in the tax structure where the Australian government has looked towards increasing the tax rate so that the government can be able to control its fiscal deficit. The increase in the tax rate resulted in generating excess receipts for the government which was in tune of $39 billion. The contribution of the excess tax results in a contribution towards GDP by 2.6%. This helped the Australia government to ensure that they were able to bring a change in the fiscal deficit and reduce their fiscal deficit through which maximum productivity could have been generated for the business (Historical Australian Government Data, 2012). A deduction in the government expenditure especially capital expenditure which the government has postponed so that the fiscal deficit can be reduced. This has contributed positively towards the process of reducing fiscal deficit as cutting down capital expenditure by $7 billion has helped the government to curb the unnecessary expenditure. This has thereby contributed positively towards the fiscal deficit that the country was facing and has helped to control them (Historical Australian Government Data, 2012). The fiscal policy changes implemented by the Australian government thereby looks towards raising taxes and at the same time reducing the expenditure that the government makes. This has helped to provide the necessary push and changes in reforms through which the fiscal deficit was controlled and helped to transform the overall structure into one which looked towards increasing the fiscal budget and having a positive fiscal budget which will help the government o indulge into expansionary policies in the future. This will also help to control the government debt ratio and will prove fruitful and beneficial for the government over a longer period of time (IMF, 2012). 3. The changes in the government policies with regard to the manner in which the fiscal deficit will be dealt will have an effect on the consumers. This is primarily due to the fact that certain section of the society who earns low income will have to pay extra taxes. This will reduce the disposable income in the hand of the people due to which the amount of money being spent on consumption will decrease. This will thereby lead towards a decrease in aggregate demand. In addition to it certain section of the society will refrain from taking loan to meet their current requirements. This will make them reduce their present consumption and save for the future on the belief that a further increase in taxes will impact them drastically and will make them search for alternatives through which they will be able to finance their consumption expenditure. Thus, the consumers will be affected badly due to the increase in taxes which will directly impact the aggregate demand that the society has for food and services. In addition to it reducing the amount of expenditure that the government makes will reduce the amount of funds that the workers have. This is primarily on the fact that reduced spending by the government will reduce the employment opportunities and will directly have an impact on the amount of money that the people have to be spent on consumer products. This will thereby have a negative impact on the consumer and will impact the society as the society will witness a decrease in employment opportunities and the amount of disposable income that they have. The only positive thing will be for the government as they will be able to ensure that through the contractionary policies will help them to control the fiscal deficit that they are witnessing. This will thereby provide an opportunity through which the Australian government will be able to use expansionary policy in the future. This will provide an opportunity through which better control can be exercised and the policies of the government will provide the required push through which developments can be made in the future. This will thereby ensure that better productivity is gained and the future policies of the government don’t make them fall in a liquidity crunch. The overall situation will ensure that over a long run the government is able to deal with the financials better but presents a difficult period if the short run is considered. 4. The economic policy that the Australian government has adopted during the period 2009 and 2012 is appropriate because of the fact that the government had a huge fiscal deficit. This will have an effect on the government coffers and will complicate the matter for the government as being able to deal with the deficiency with regard to finance will be difficult. Using a contractionary measure here is appropriate as will help the government to ensure that the deficit which the Australian government has with regard to the fiscal budget turns positive (Leigh, 2012). It is true that the contractionary fiscal policies will have an effect on the short term as it might affect the aggregrate demand due to decrease in the disposable income that the society has. This will have slight effect on the present performance and might result in reducing the consumption but considering a longer horizon the government will be able to ensure that they don’t get engulfed into a liquidity trap. It will ensure that the government has a positive fiscal budget which will help them to finance the different projects through which maximum efficiency will be achieved and the government will be able to develop policies which helps towards the growth and development of the economy (Leigh, 2012). The step that the Australian government has adopted will look towards ensuring that the government looked towards using contractionary policies to develop a positive framework through which they are able to finance the different projects better. This will provide an opportunity through which the excess funds that the government has can be used towards improving the economic condition and financing different projects through which the government will be able to garner maximum efficiency and will be able to bring changes through which the economic condition further improves. The fiscal policy changes implemented by the Australian government thereby looks towards raising taxes and at the same time reducing the expenditure that the government makes. This has helped to provide the necessary push and changes in reforms through which the fiscal deficit was controlled and helped to transform the overall structure into one which looked towards increasing the fiscal budget and having a positive fiscal budget which will help the government o indulge into expansionary policies in the future. This will also help to control the government debt ratio and will prove fruitful and beneficial for the government over a longer period of time. This will ensure that the government is better placed and has an opportunity through which they are able to bring changes in the manner in which the economy is performing and will be able to revive their economy and will be able to make major changes through which the overall economic condition of Australia improves. References Budget Overview, 2012. Budget 2012-13, Australian Government, Canberra: Retrieved on December 2, 2012 from http://www.budget.gov.au/2012-13/content/overview/html/index.htm Historical Australian Government Data, 2012. Budget 2012-13, Budget Paper No 1, Statement 10, Australian Government, Canberra: Retrieved on December 2, 2012 from http://www.budget.gov.au/2012-13/content/bp1/download/bp1_bst10.pdf IMF, 2012. International Financial Statistics, International Monetary Fund, Washington. Leigh, A. 2012. How Much Did the 2009 Australian Fiscal Stimulus Boost Demand? Evidence from Household-Reported Spending Effects, B.E. Journal of Macroeconomics, Volume 12, Issue 1. Romer, D. 2012. Advanced Macroeconomics, 4th ed., New York: McGraw-Hill Read More