Economics Assessment Task – The Budget

Darshil Shah

Part A

Glossary

Budget: An outline of the Government's priorities and plans for the coming
year, including an outline of the Nation’s fiscal and economic standing.
http://www.budget.qld.gov.au/readers-guide/glossary.shtml
Fiscal policy: Use of the federal government's powers of spending and taxation
to influence the levels of growth in the economy.
http://www.argmax.com/About/articles.php?name=saved/blf.htm
http://www.amosweb.com/cgi-
bin/awb_nav.pl?s=gls&c=dsp&k=fiscal%20policy
Fiscal Stance: The fiscal stance refers to the intended overall impact of the
budget on the level of economic activity in the coming and future years. It can
be neutral (G=T), expansionary (G>T) or contractionary (G<T).
http://www.hsc.csu.edu.au/economics/policies_mgt/2614/Topic4Tutorial2.html
Budget Outcome: Budget outcome is the projection of the total outlay of the
budget. It can be a surplus, deficit or a balance.
Taxation: It is the compulsory levy imposed by a government.
Australian Tax System – Some Concepts by MacVean
Budget surplus: The amount each year by which government income exceeds
government spending.
countrystudies.us/united-states/economy-12.htm
Budget deficit: The amount each year by which government spending exceeds
government income.
Budget outlays: Economic activity of the government.
Excise duty: A type of tax imposed on some goods and services due to their
revenue they can generate along with their inelasticity.
Excel Preliminary Economics by Jeremy Buultjens
Regressive tax: a tax for which the amount of an individual’s taxes falls as a
proportion of income as the person’s income increases
www.johnwiley.com.au/highered/eco2e/micro/student-res/glossary.html
Interest group: Organised collection of people who seek to influence political
decisions.
Automatic stabilisers: Devices built into the economy that triggers automatic
fiscal effects such as the reduction of fluctuations by government spending.
Tax scale: The levels of taxes imposed on income according to the income
earned.
Subsidy: Government financial assistance which is used to encourage the
production, purchase and/or use of the good.

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en.wikipedia.org/wiki/Subsidy
Rebate: A deduction from an amount charged or a return of a price paid by a
business or the government to encourage positive use of a good or a service.
www.simplyinsulate.com/content/faqs/glossary.html
Ecologically sustainable development: Using resources in a way that also
conserves them, so that ecological processes, on which progress and life
depend, are maintained.
Public sector: In an economy it is the sector in which government activities
occur. It is also where the Central Government resides.
Funds: Providing of capital for a project, a person, a business or any other
private or public institutions.
Liabilities: A present obligation from past events that must be looked over.
Environmentalists: People who typically favour policies that protect natural
environments and partial or full restoration of altered environments to their
natural state.
www.nativehabitat.org/definitions.html

Budget Analysis 2008/2009 – Short Response Questions

1. Fiscal Policy has the role of stabilising the level of economic activity. This
further means the maintenance of a low inflation rate, reduction of the level of
unemployment and achieving general policy goals. Growth rates must be stable
in an economy, and the fiscal policy is the main tool that allows this to happen.
It then directly and indirectly affects the unemployment level, policy goals and
future stability to markets and the economy.

2. The various budget outcomes the government could choose are a balanced
budget outcome (T=G), a budget surplus (T>G) or a budget deficit (T<G)

3. The different fiscal stances the government could choose are an

expansionary fiscal stance (increase economic activity), a contractionary fiscal
stance (decrease economic activity) or a neutral fiscal stance (no change in
economic activity).

4. Cyclical components of the budget refer it the changed to government

revenue and expenditure from changes in economic activity whereas the
structural component refer to deliberate revenue and expenditure changes
initiated by the government. This is also where the fiscal policy is revealed.

5. The projected fiscal outcome for 2008/2009 is $21.7 billion.

6. Top revenue items:-

1. Individual income taxation ($123700 million)
2. Company and petroleum resource rent taxation ($76410 million)
3. Sales tax ($48160 million)

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 4. Non-tax revenue ($20229 million)
5. Petroleum excise ($16100 million)

Top expenditure items:-

1. Social security and welfare ($102439 million)
2. General government services ($79270 million)
3. Health ($46032 million)
4. Education ($18764 million)
5. Defence ($17896 million)

7. The budget has revealed many initiatives that will affect the nation. Some of
these initiatives are a good step towards the underlying problem and provide
suitable externalities whereas some come as the wrong decision. Three
initiatives introduced by the government in the budget are: Tax cuts of $31
billion, Emission reductions with the use of $500 million and $1 billion to put
computers on every desk of a year 9-12 student.
The tax cuts will offer a decrease in taxation on specific tax brackets and hence
offer relief to working families. However, this was certainly a forced effect
from the pressure of the opposition Liberal government. In a path to satisfy
public votes and provide appropriate basis of comparison, the budget has
heavily been influenced to deliver to the public while in a way losing its main
aim to lower inflation and fight other economic problems. Certainly this will
put money back into the economy rather than the conventional attempt to lower
spending. Nonetheless, it provides comfort to families struggling in the rising
inflation/rising interest rates. This initiative uses an unorthodox approach to
both keep the people happy and in the long term keep the economists happy.
This is demonstrated with the deliberate introduction of ignorance towards their
part in inflation hence lowering the risk of panic and events occurring
therewith.
Environment and the climate has become a sudden and important issue that
affects the nation and the world. The federal budget has allocated $500 million
to help the reduction of emissions from cars, factories and other sources. Even
though this is a good start for the action of reduction of gases which sustains
Earth, it is debatable as not being enough. This initiative will certainly start the
renewal process of nature and encourage other businesses to adapt to the new
motion of saving energy and minimising emissions. Along with this, there will
be increased activity and market interest in ways to reduce this, hence
increasing production for desired goods. However, as mentioned, this initiative
is misjudged and misdelivered in a way that not enough will be delivered,
causing havoc in ‘green’ activists. As ‘green’ as this initiative gets, there is still
discomfort over the ratio in which what rate of industry is to be sacrificed over
the rate of lowering carbon emissions.
One of the famous promises by the Rudd government was to offer computer
access to every single student in schools. That was however made unpopular by
decreasing it to one in two students. Nonetheless, this initiative is better than
nothing and will allow the technological leap in education that so many other

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countries have taken. Positively, the budget is investing in the much needed
area of education and starting general reform to the education system. It is also
a good allocation of resources the government possess which will in the end
encourage positive progress to education. On the other hand, this seems to be
an unnecessary and overrated initiative that has grabbed the public’s attention.
It will need to be more refined in order to properly affect what the government
wants to achieve.

8. The budget holds an important role in the budget as it outlines where the
tremendous money flows/suctions will occur and how the powerful
maintenance of the economy will occur. There are many effects, both long and
short, good or bad and expected or unexpected.
In the short term, the budged will likely increase the spending due to tax cuts.
Even though this is not the convention to lower the interest rate, it was
necessary in order to satisfy the public. This tax cut will increase the inflation
rate, to a degree, but will introduce the downturn of the growth rate later on.
However with the increased spending on public services and reform, the budget
will decrease the revenue the government receives. This is demonstrated due to
the increased spending on education, health and further investment into funds
that will help on periods of bad economic circumstances.
In the long term, the inflationary rate will decrease along with the
government’s revenue. Australia will undergo scheduled reforms, leading to
certain change in Australian economy. Certainly in 2009 and onwards the trade
and net income balance will decrease to a noticeable extent. However, these are
all forecasts and in reality, economic activity will greatly vary to the
consumers’ demands and the effectiveness of government stabilisation
techniques. Fiscal policy will lower expansionary rates while the monetary
policy will hopefully act on its behalf and lower its interest rates. All needs to
work correspondingly in order for it to achieve the desired rate of the economy
and at the same time be flexible in Australia’s trade policy.
Even though everything needs to be in accordance, the economy in the long
term will stabilise, while having a slight surge in the short term. It will all be
worth it in the end, as the short scare will outbalance the supposed economic
stabilisation.

9. Decisions are not only made by the acting government alone but are
influenced by many interest groups, unions, parties and the media. The
government is not only elected by the public alone, but rather political
supporters who fund and further advance their party. The amount of seats are
varied across each year and that further plays an important role towards what
decisions are passed on the country and what influence is brought on the
leading party.
Political parties strategically impact the leading party’s decisions where either
some functions are not performed (due to inadequate votes) or change the
policy making in slow favour of the opposing party. Also, the parties that have
representatives of them in parliament influence the decisions that government

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makes and orders some policy to be in favour of them. The budget would have
to be influenced by the conservation found in the Liberal party and some
extensive measure from the Greens and other offbeat parties.
Interest groups consist of people who possess knowledge on specific areas with
a will to influence the political decision (including the budget). The budget
essentially will outline plans to how to expense its funds and how to gather its
funds. Interest group usually form in a cluster, and with this comes their power
to speak for their area of concern. What allows them to reach out to
governmental bodies is their formation of organisations, which allow great
influence on the people’s though and hence the government reaction. Examples
in which interest groups influenced the 2008/09 budget were the Australian
Pensioners Agency, urging the government to provide more care to aged
people.
Unions can also influence the decision making as they can hold tremendous
power to influence their followers and therefore the government. Nearly ¼ of
workers are members of their respective unions, having power to speak on
behalf of the workers. The large amount of workers can demand or change their
working conditions through their unions in a wave of movement. The
government must comply with many of the requests in fear of facing a strike
detrimental to the Australian industry. In the 2008/09 budget, unions of all
general workers showed demand in changing the WorkChoices introduced by
the Howard government. This has to be done, as discontent cannot be withheld
in a newly appointed government.
The media might be the most important media to spark controversy and thought
on governmental policies/decisions. The media has the power to present
happenings of the word to the general public, whether it is biased or unbiased.
The media can influence the public yet again to question current happenings
and use that to indirectly affect governmental decision making process. An
example includes the use of striking and sometimes over exaggerated scenes of
healthcare, causing widespread panic and hence demands for more policies that
deal with the specific issue.
Overall, there are many bodies of influence that affect the decision making
process of the government. There were current issues, ideas and discussions
which to some extent influenced the government to deliver the budget to what
it is now. Without these public processes the requirements of individuals and
groups would not be met.

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10.
i) Angelo Gavrielatos, representing the Australian
Education Union puts forward his opinion of an
underfunded education system and the failure to deliver
what is really necessary for parents/students. Angelo
Gavrielatos is entirely correct in his evaluation. It seems
the budget has announced the policies for education in
favour of public popularity and not considering the real
improvements needed that have long been neglected.
Education is debatable to whether its operation is correct
or malfunctioned. However, it is evident that Australia
needs a clear reshape to the education system allowing
greater expression from students and better funding to
provide resources that will empower their future.
However, it has not been addressed in the current
budget. This can better be described in an analogy where
shiny things are the means of people to get excited and
be attracted to. This is exactly the behaviour received in
the 2008/09 budget, avoiding the real issues that need to
be faced. In the end however, Mr. Gavrielatos’ opinion is
highly acceptable and comprehendible as the budget
does need some redefinition
along with a deeper look to what
is required.

ii) Paul Kerin of the Melbourne Business School offers

a mixed opinion of the budget, showing some good
moves but no real reform. As with anything, there are
negatives and positives for all. In saying that, Paul
Kerin offers a fair perspective towards the budget, and
outlines bad decisions such as the non-means tested
first home buyers’ grant and the good decisions such as
the changed perspective towards same-sex
relationships. The concurrent argument throughout
many economists seems the lack of great reform which
was in a way needed to spark a new economic system
in hope for lowering inflation. The argument presented
is not the strongest due to the generalisations but offer
a good overview of misjudged decisions that will be
costly to the government and society.

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iii) Lyne Pezzullo describes the measures of the
budget in relation to Health. The budget of
2008/09 seems to have delivered the results
required in the short term, but has doubts of long
term sustainability. Further, Lyne shows the
governments speed in the recent months and with
this health is greatly focused on. The general
funding will allow Health services to grow and at
the same time allow some much needed reform.
The opinion presented is greatly agreeable but
with a sense of questioning in areas such as the
immediate praising of the health system. The
Medicare levy increase is in fact a good decision,
and will offer benefits to people who don’t
require private health insurance in that income
bracket. It is likely that some policies introduced
in the budget help Health, yet public
dissatisfaction will continue as regular
complaints in wait times and common faults will
be overlooked.