Commerce AT1 Flashcards
Fiscal Policy Individuals
Income Tax Cuts: As part of the 2021-2022 Federal Budget, the government announced personal income tax cuts worth AUD 7.8 billion.
First Home Loan Deposit Scheme: To help first-time homebuyers enter the property market, the government introduced the First Home Loan Deposit Scheme in 2020 and ends in June 2023. Under the scheme, eligible first-time homebuyers can purchase a home with a deposit as low as 5%, without having to pay for Lenders Mortgage Insurance (LMI).
JobKeeper Payment: The government introduced the JobKeeper Payment in March 2020 to support businesses affected by the COVID-19 pandemic. The scheme provided eligible employers with AUD 1,500 per fortnight for each eligible employee. The program ended in March 2021, with a total cost of AUD 90 billion.
Fiscal Policy Firms
Small Business Technology Investment Boost: Subject to law, small businesses (with aggregated annual turnover of less than $50 million) will be able to deduct an additional 20 per cent of the expenditure incurred for the purposes of business digital operations or digitising its operations on business expenses and depreciating assets such as portable payment devices, cyber security systems or subscriptions to cloud based services.
Instant Asset Write-Off: To encourage businesses to invest in new equipment and assets, the government increased the Instant Asset Write-Off threshold from AUD 30,000 to AUD 150,000 in March 2020. This threshold has been extended to December 31, 2022.
Modern Manufacturing Initiative: In October 2020, the government announced the Modern Manufacturing Initiative, a AUD 1.3 billion program to support the manufacturing sector. The program provides grants to businesses for investment in manufacturing projects that create jobs, support economic growth, and build technological infastructure. Lasts till 2023-2024
Fiscal Policy Overall
Federal Budget Deficit: The COVID-19 pandemic has had a significant impact on the Australian economy, resulting in a substantial increase in government spending. As a result, the federal budget deficit for the 2020-2021 financial year was AUD 106.6 billion, significantly higher than the projected deficit of AUD 213.7 billion in the 2020-2021 Federal Budget.
Infrastructure Spending: To support economic growth and job creation, the government has committed to significant infrastructure spending. In the 2020-2021 Federal Budget, the government announced a ten-year infrastructure investment program worth AUD 110 billion. This includes funding for transport, regional development, and water infrastructure projects.
Digital Economy Strategy: In May 2021, the government announced a Digital Economy Strategy, which includes a AUD 1.2 billion investment in digital technologies. The strategy aims to support economic growth and job creation by driving innovation and productivity in the digital economy.
Monetary Policy Individuals
Household Savings: The COVID-19 pandemic and associated restrictions have led to an increase in household savings in Australia ith the household saving ratio reaching a historic high of 22.1% in the June quarter of 2020. However, the household saving ratio declined from 7.1% to 4.5% in the fourth quarter of 2022. This indicates that more households are spending in a time of slow economic growth and high interest rates.
Home Loan Rates: The average variable home loan rate in Australia increased from 5.55% to 6.28% in 2023 due to the RBA’s cash rate hikes and other monetary policy measures. This has made it less affordable for individuals to take out home loans and invest in the property market.
Inflation in Australia has remained relatively low and stable over the past year, with the consumer price index (CPI) rising by 2.0% in the year to December 2022. This is within the RBA’s target range of 2-3%. However, there have been some concerns about rising inflationary pressures due to supply chain disruptions and rising energy prices
Monetary Policy Firms
Exchange Rate: The Australian dollar (AUD) has appreciated significantly against other currencies over the past year, reaching a three-year high against the US dollar in February 2023 of $0.78. This has made imports cheaper for consumers but has also made exports more expensive, which could have an impact on some industries.
Business Credit: The RBA’s monetary policy measures, including the Term Funding Facility (TFF), have helped to support credit availability for businesses. Business credit grew by 9.4% over the year to the December quarter of 2022, compared to 7.9% growth for housing credit over the same period. This has helped to support business investment and spending. Still ongoing.
Monetary Policy Overall
Cash Rate: The Reserve Bank of Australia (RBA) increased the cash rate to 3.60% in March 2023 to lower inflation back to target rates during a period of global inflation, with below average growth expected in 2023.
Quantitative Easing: In November 2020, the RBA announced a quantitative easing program, where it would purchase AUD 100 billion worth of government bonds over six months. By purchasing government bonds in the open market, the RBA aimed to reduce long-term interest rates and support economic growth, particularly in the face of the economic impacts of the COVID-19 pandemic.
Later, RBA halted quantitative easing and began quantitative tightening in February 2022 that would remove cash from the banks/economy and lead to slower growth and greater interest rates.
