Chalter 15 Flashcards
How can as or productive capacity be increased?
The quantity of labour resources can be enhanced by increasing the participation rate or the population (labour force)
The quality of resources can be enhanced by increasing productivity
Main sources of got tax revenue
Personal income tax
Company tax
GST
Budgetary policy conduced via as usually involves the manipulation of
Infrastructure spending
Company taxing
Define tax concessions
The government providing taxpaying entities with the ability to reduce their assessable income and tax liability. Includes tax rebates or allowances provided by the government allowing businesses to reduce their effective tax liability
Theses
Explain tax concessions
Theses concessions enable the government to focus on particular assets or investments, and are particularly powerful in influencing resource allocation.
A common example is an R+D tax concession that is designed to encourage business investment in innovative products, processes and services, such that Australia can benefit from an increase in ‘productive capacity’ and ‘international competiveness’
R+D not only benefit of the firm itself but can also assist other businesses to improve their practices or productivity and become more internationally competitive – therefore seen as a ‘positive externality’ to the economy
Explain rebates
are sometimes referred to as tax brackets and work just like R+D tax concessions.
The government will often offer businesses an additional tax deduction on top of already allowable deductions to encourage business investment in specific assets. This encourages greater business investment, boosts productive capacity and provides the range of AS benefits.
‘accelerated depreciation allowances’ – can also be used to encourage businesses to invest in ‘high-tech’ capital equitement – whilst this type of allowance does not actually reduce tax liability over the life of any asset, it helps to generate cash flow benefits by brining forward the tax deductible depreciation expense. These types of tax initiatives are increasingly used around the world to encourage industry investment in ‘green technology’ assisting combat against climate change
Deference between tax cuts and tax concessions
Tax cuts also refer to tax concessions (because a business’ tax liability is effectively cut) but they ordinary involve a reduction in the rate of tax. Tax cuts tend to be more permanent in nature and unlike tax concessions, are generally not used to focus on particular types of investments
Define company tax and how changes affect as
tax paid by corporations currently at flat proportional rate of 30% of all profits
A reduction in company tax would significantly boost investment and also attract significant foreign direct investment into Australia. As businsses invest more in a whole range of assets; such as plant, machinery and equiptement, we should expect there to be an expansion in AD – followed by a boost in productive capacity once the investment is fully operational within industries. The lower company tax rate should also act to effectively lower costs of production for firms and increase their willingness and ability to supply
Define income tax and how it can affect as
tax that is paid to the government based on income earned (direct tax)
While changes in income tax rates will have powerful effects on AD, the government also has the ability to reduce these tax levels as a means of further boosting AS levels
Explain how income tax changes affect as
Create additional incentives to work harder/longer. With higher rate of disposable income, workers may decide to increase their efforts in their work in which wages are closely linked to performance and some individuals will have a greater incentive to improve their skills via education or training, resulting in a boost in labour productivity and AS levels
Can lead to a bigger labour force participation rate as those out of the labour force may decide to offer their labour because employment becomes more financially rewarding, in addition, lower tax rates can attract increased immigration as Australia is likely to have more competitive income tax environment – these factors exert additional pressures on those in employment to increase effort and boost productivity further boosting AS
Places downward pressure on labour costs as bigger labour supply tends to ‘loosen’ the labour market by reducing any labour shortages and/or increasing (creating) labour surpluses. With lower real unit labour costs, there is downward pressure on production costs, supply conditions for businesses improvements resulting in larger AS
Because some unincorporated businesses (such as sole traders) to see income tax in the same way that a company view a cut in the company tax rate. When rates are lowered, this provides the owner with greater incentive to expand the business via investment and/or exert additional effort, thereby to boost and productivity and decrease production costs
Explain reducing complience for business
Businesses not only face actual taxation costs associated with running their businesses, but also the administrative burden of complying with the extensive tax legislation. These tax compliance costs can sometimes be finically significant, adding to production costs and negatively contributing to supply conditions for businesses. As a consequence governments seek to improve the efficiency of the system so that any given volume of tax is collected with lowest possible ‘burden’ being placed on taxpayers
One 2016 example of tax changes
Most recent budget initiative = lowering company tax rate from 28.5% to 27.5% for all businesses with less than 10 Million in turn over – provides an incentive to access new technology (capital Deeping) and plant and equipment – increasing efficiency of businesses and therefore AS and productive capacity
Explain the importance of infrastructure
Infrastructure is vitally important to the economy because it provides the ‘building blocks’ around which economic activity takes place. Infrastructure items like roads, telecommunication networks and airports will facilitate the transportation of goods and services around the country and also the world.
Gov’t endorses importance of infrastructure for economy:
“Sustained investment in Australia’s infrastructure and infrastructure markets is crucial for boosting national productivity. It will also drive a more diverse, competitive and sustainable economy that generates substantial lasting economic, social and environmental benefits”
While much of the infrastructure investment is provided by the government, there has been a general move away from government provision to the ‘contracting out’ of government infrastructure projects, such as road building or the establishment of markets where the private sector provides infrastructure assets, the government will tend to subsidies the project in order to account for any positive externalities and therefore avoid under-investment.
Supply side support for infrastructure projects can be taken in the form of
Direct provision by governments
Subsides for the production of private infrastructure
Tax concessions for investment in private infrastructure
Recent areas of gov’t infrastructure
The most significant ongoing investment is the National Broadband Network – the aim is to provide advanced broadband services to all regions of Australia, which should boost Australia’s long-term economic prosperity. The gov’t argues without such investment, businesses in Australia may suffer in the future – given the rapid changes in technology they may not be able to remain competitive.
‘Infrastructure growth package’ – designed to boost productivity and reduce bottlenecks. Bottlenecks occur when key infrastructure becomes congested and deliveries take longer than they should. If road and rail networks are expanded and improved than commute times will fall and transportation of goods becomes more efficient (e.g. lower fuel costs and faster delivery times) This will reduce the cost of production, paving the way for lower prices and an increase in international competiveness. This should then generate more demand, create additional employment and lift Australian living standards
The gov’t has also recognised the need to invest in healthcare infrastructure. While much of this is in response to the ‘ageing population’ there is some aspects of the spending that may help to improve Australia’s rate of economic growth. If spending in theses areas are successful in reducing the incidence of disease and time lost to sick days, than it could be argued that productivity will increase and businesses costs will decrease as resources are more efficiently utilized
One areas the government undertakes a huge amount of investment is in the area of education and training. Ensuring Australia’s future workforce is flexible, innovative and highly productive. Boosting spending on education and training reforms is seen as a long-term investment because educated employees are more likely to be productive and innovative which helps to achieve greater efficiency and prosperity overtime. Training may also help to fill some of the skill shortages that have surfaced over the last 10 years – this would provide necessary resources for businesses that are looking to expand the size of their operations. It will also mean that fewer resources in the economy are idle as the structurally unemployed can move towards factor incomes.
