Balance of payments, distribution of income and taxation Flashcards
Balance of payments dfn
The record of all economic transactions between Australian residents and the rest of the world.
Current account
Net goods (eg. Washing machines) Net services (eg. Ability to download music) Net income Primary income (Profit, Dividends, Interest Payments), Secondary income (Payments without getting anything in return- eg. Aid money, Samoa and China, fees to belong to UN)
Credits
Exports of G+S
Income receivable
Increase in foreign liability
Export of currency
Debit
Imports of g+s
Income payable
Increase in foreign assets
Import of currency
Capital and financial account-
Cap. -
Net capital transfer (eg. Bank accounts from migrants)
Net non-produced, non-financial assets (eg. Copywriters, patents and TMs)
Financial-
Direct investment (eg. Purchase/expansion of companies)
Portfolio investment (eg. Shares, debt, securities)
Other investment (eg. Loan, deposits, special transactions)
Net reserve assets (eg. RBA and govt transactions in foreign currency also IMF and UN)
Net errors and omissions- reflects any inaccuracy
Net x calculated
Credits- debits
Current account deficit CAD
Occurs when the total value of all current account debits exceeds the total value of all current credits for goods, services, primary and secondary income measured over a period of time
Effect of CAD
Weaken exchange rate
Increase foreign debt
Require govt policies to slow AD and ec activity
Increased local interest rates
Private income
Wages and salaries, income from investment
Gross income
Adding any transfer payments a household receives from the govt (before taxes)
Disposable income
Income left after taxes are deducted
Wealth
Is the current account value of assets a household has accumulated over time through savings, financial investments, business profits and inheritance
Wealth refers to the value of assets owned minus the value of liabilities owed.
Eg. Ownership of money
Etc.
Income
Households and individuals
- sum of all wages, salaries, profits, interest payments, rents and other forms of earning received in a given period of time
Firms
Generally net profit
i.e. Remains of revenue after expenses have been subtracted
Gini coefficient for income or wealth
A number between 0.0 and 1.0
Indicating the degree of inequality in the distribution of income or wealth
0 is absolute equality
1 is absolute inequality
It is the area under the line of equality between the Lorenz curve
Lorenz curve
Graphical representation of wealth distribution
Australias distribution of wealth
Much more uneven than lone of equality
Bottom quartile poorest 20% hold 1% of wealth
Top quartile hold 62% of wealth
Benefits of trade
Increase living standards bc consume outside PPF
Efficient Aus producers gain selling in world markets
Australian consumers gain purchasing products that were produced more efficiently overseas
Composition of Aus trade
Exports - oil, ores, gems/precious metals, meat, cereals, inorganic chemicals, machines, aluminium, copper, medical/technical equipment
Imports- personal travel services, crude petroleum, refined petroleum, passenger motor vehicles, telecom equipment, freight transport services, medicaments, computers, passenger transport services, goods vehicles
The direction of Australia’s trade
Exports- china, Japan, s. Korea
Import- china, US, Japan
Income distribution
Income distribution is the smoothness or equality with which income is dealt out among members of a society. If everyone earns exactly the same amount of money, then the income distribution is perfectly equal
Importance of Asia pacific region on Aus trade
Most of our trade partners are Asian. As China develops and industrialises they are reliant on our natural resources, our largest exports.
The importance of location is also relevant, trade partnerships are not only efficient but crucial for international relations and stability.
Why balance of trade balances
Current account + cap and financial= 0 A deficit must be mirrored by a surplus This is due to our economies floating exchange rate Ensuring supply (outflows on BoP)= demand (inflows on BoP) Diagram?
An increase in one account will
A decrease in one account will
Increase= decrease
Decrease= increase
Must equal 0
There is a cost to servicing debts despite it being a double account system
Direct vs indirect
Direct- on income (i. Tax), profit (company tax), increased wealth (capital gains tax)
The burden of tax can not be transferred elsewhere
Indirect- consumption (GST), use (passenger transfer tax), production (excise)
Whilst a business is legally required to pay the government they may transfer most of the cost to consumers
Progressive
Proportional
Regressive
Progressive= rises (eg. Income tax) Proportional= constant (eg company tax and flat income tax) Regressive= falls (GST and excise tax)
Main govt taxes
Personal income tax
(levied on all wage and salary income at a specific rate,direct, progressive burden)
Company tax
(Proportional, falls on individual company, in reality likely passed to consumers since ‘01 for turnover + $2mil 30c on $)
Fringe benefits tax
(Levied on non-cash benefits given to employees eg. Cars, children’s school fees ect, highest marginal rate, intro mid 80s for vertical and horizontal equity)
GST
(10% on price of most goods, state tax in Aus)
Excise duties
(Flat rate on domestically produced goods eg alcohol, cigarettes, oil, LPG, raises large amount for govt as inelastic goods)
Tax system assessed on
Equity h,v- taxpayers who earn the same amount pay same amount of tax, higher can pay more
Efficiency- benefits must outweigh costs of collection. Must minimise excise burden (occurs when distorts decision making of producers)/acts in a discriminatory manner)
Simplicity and certainty- can understand tax liability without much effort or cost and should be as convenient as possible for both parties
