Analyse the Role and Impact of Fiscal Policy

Traditionally, the Australian presidency has attempted to achieve its frugal objectives through the implementation of macroeconomic policies oddly fiscal policy (the budget). financial policy (FP) is a macroeconomic management policy as it plays a critical role in influencing the level of aggregate demand (AD) in the economy.It aids the government in achieving its economic objectives, of managing and stabilising the business cycle so that the economy experiences ind substantiallying balance (price stability & full employment), orthogonal stability (management of CAD, financing importee expenses with export income and the ability to service our debt) and relatively stable economic egression. graphical record Fiscal policy deals with the governments use of government pulmonary tuberculosis (G) and taxation (T) i. . the budget outcome to influence (AD) and election allocation and income distribution. Fiscal policy is all about budgetary outcomes as they give an sign on the st ate of the economy the 3 outcomes are neutral, expansionary and the governments current contractionary perspective where government revenue is greater than expenditure. A contractionary lieu may be used to s execrable the rate of economic getth and aid in reducing inflationary pressures.Within the budget in that location is a cyclical and a structural section. The structural discretionary instalment is the deliberate change to government revenue and taxation and the cyclical non-discretionary component involves the changes to government spending caused by changes in economic activity. The budget has deteriorated importantly on the back of a strong Australian dollar (AUD), locomote terms of trade, plateauing of the excavation boom and subdued consumer confidence resulting in a budget deficit of $19. b for 2012-13 and is forecasted for a deficit of $18b for 2013-14. The first economic objective is economic growth which aims to increase real income and spread the benefits of the mining boom and increase income distribution. In this budget the government has taken up a mildly contractionary stance delaying its short term goal of a budget surplus as it balances its commitment to fiscal consolidation against potential weaknesses in economic activity, increased unemployment and a lack of investment and growth.This stance allows the government to gradually services its debt and pass to surplus by 2016-17 as it realises slow set ashores in the economy as the mining boom has go of its peak and has plateaued a longsighted with commodity prices. The end of the mining boom exit see Australia move from mining back to the services sector where around 75% of labour is employed, this transition will see E. G grow below trend (3-4%) at 2. 75% in 2013-14 before travel to 3% by 2014-15. To ensure long term sustainable E. G the government will implemented key structural reforms like GONSKI ($9. 8b), NBN ($37. 4b), NDIS ($14. 3b) and the field Building Program (NB P $24b).They aim to improve the nations oil-bearing capacity by boosting humanity cap, infrastructure capacity, labour productivity levels and mortify capacity constraints restraining allowing Australia to capitalise on growth in Asia. To fund these reforms the government has found $43b in savings over the next 4years and they include the abolition of the baby bonus ($4. b), increase in the Medicare impose ($11. 8b) and deferring income tax cuts ($1. 5b). By abolishing the baby bonus and the family tax benefits in the short run it leads to income disagreement and a lower standard of living. Internal balance is another economic objective which looks at price stability by maintaining low inflationary pressures ensuring sustainable economic growth and full employment of the factors of production especially labour.The governments planned return to surplus by 2016-17 send packing be achieved by adopting a contractionary stance by reducing (G) in (AD). By reducing (G) it attend t os keep demand pull inflation down keeping to the RBAs target band of 3-4%, low inflation is sound for our external balance especially exports and also keeps E. G at sustainable levels. Two major government reforms are GONSKI which aims to improve educational and human capital levels and NDIS which looks to return the disabled into the workforce to increase employment levels.A govt instrument used to control internal balance and runny out fluctuations in the business cycle are automatic stabilisers which are a cyclical component as its used fit in to various economic conditions. The two auto-stabilisers are progressive taxation consequence that when workers start earning more(prenominal) they move into higher tax brackets paying more tax and welfare payments which are handed out to the unemployed to help stimulate growth during a downturn in the business cycle, they are used to help the even distribution of income and improve our gini-coefficient.Graph The utmost objective is external balance which is the ability of Australia to manage the CAD by financing import costs with export revenue as well as paying off debt. As the CAD may be deemed unsustainable if it exceeds 5% of gross domestic product which may lead to a debt trap, Australias debt to GDP ratio stands at 1. 3% significantly lower than other ripe(p) nations. Australias persistent CADs is a result of our set export base as we as the structural problem of low domestic savings.A narrow export base contributes to our CAD as domestic industries esp. the manufacturing isnt internationally competitive. To address this issue the government has taken to fiscal consolidation to attempt to increase national savings and abbreviate the savings investment gap as well as rivet inflationary pressures resulting in cheaper exports and reforms such as NBN and NBP look to reallocate resources to more efficient industries and improve out international competitiveness.These policies and reforms help increase sa vings and revenue hence reducing our reliance on foreign capital and investment will help reduce our foreign liabilities however delaying the return to surplus means we have increased foreign liabilities and servicing costs. The govts mildly contractionary stance aims to achieve its economic objectives of sustainable growth, internal and external balances. Through new reforms they are able to boost economic activity, resource allocation and distribution of income. GONSKI aims at improving our nations productive capacity to capitalise on growth in Asia and provide long term sustainable growth.Resources reallocated into the NBN and NBP to increase productivity and international competitiveness as well as internal and external balances. The NDIS funded by the increased Medicare levy is an example of distribution of income. By delaying the return to surplus it doesnt outdoor stage the economy as it goes through a transition period from mining to services, although the unemployment rate has risen to 5. 8% it still remains at low. stock-still it does mean an increased CAD and external balance. So the 2013-14 budget has been efficacious in achieving the governments economic objective.