Economics 2024-25 budgetary policy

Question 1

The three main budgetary policy initiatives

Answer 1

Low/stable inflation budgetary policy
SSEG budgetary policy initiative
Full employment budgetary policy

Question 2

Define low/stable inflation budgetary policy

Answer 2

Energy bill relief
Rent assitence

Question 3

Define the SSEG budgetary policy initiative

Answer 3

Tax cuts for every Australian taxpayer
Debt relief for students

Question 4

Define the full employment budgetary policy

Answer 4

Building more homes for Australians
Investing in better infrastructure

Question 5

what is the budget outcome for 2022-23

Answer 5

Surplus of 22.1 billion

Question 6

what is the budget outcome for 2023-24

Answer 6

A deficit of 13.9 billion

Question 7

2 cyclical factors that caused the budget outcome of 2023-24

Answer 7

Economic slowdown
Increased welfare payments

Question 8

Define economic slowdown

Answer 8

weaker global economic performance which reduces tax revenues from businesses and individuals, which increases the budget deficit

Question 9

Define increased welfare payments

Answer 9

higher unemployment rates and more individuals needing government support lead to more spending on support payments and welfare payments, contributing to a larger deficit

Question 10

Define energy bill relief

Answer 10

The government provides 3.5 billion in energy bill relief for all Australian households and 1 million small businesses

Provides $300 rebates for every Australian household and $325 to small eligible businesses

Estimated to reduce headline inflation by half of a percentage and is not expected to add to inflationary pressures

Question 11

Define rent assistance

Answer 11

Provides increased rent assitence by 15% for eligible houses

Govt is allocating 2 billion to enhance rent assistance

Question 12

Define tax cuts for every Australian taxpayer

Question 13

Define debt relief for students

Answer 13

Provides 20% reduction on student loans

Govt investing 4billion into debt relief for students aiming to reduce financial burdens and promoting education accessibility

Aimed to ease financial stress for recent graduates, encouraging further education and boosting workforce participation without adversely affecting inflation

Question 14

Define building more homes for australians

Answer 14

Launching housing construction initiative to construct 50,000 new homes
Govt is committing 10billion to the construction of affordable housing
Aims to reduce homelessness and increase housing supply

Question 15

Define investing in infrastructure

Answer 15

The government is to invest 8 billion in better transport connectivity

Question 16

Budgetary policy

Answer 16

To manage demand and achieve economic objectives, the policy outlines the government spending and its taxation policies

Question 17

Federal government revenue

Answer 17

The government gets money from taxes, revenue from government businesses and sales of government assets

Question 18

direct taxation

Answer 18

taxation on income and wealth

Question 19

indirect taxation

Answer 19

taxes via goods and services

Question 20

Budget 23-24 personal direct taxation amount?

Answer 20

254 billion dollars in receipts

Question 21

Objectives of the budgetary poliy

Answer 21

Internal stability
Greater equity in the distribution of income and wealth
External stability
Overal improvement in living standards

Question 22

Why a surplus?

Answer 22

Helps buffer Australia against future economic decline

Generate international investor confidence (AAA rating)

Allows cyclical component to reduce the deficit as economy recovers

Leads to crowding in private and external sector

Question 23

Underlying cash outcome

Answer 23

The headline cash outcome, but excluding the net cash flows from investment in financial assets

Question 24

Headline cash outcome

Answer 24

overall net result of cash flows for businesses or a project, summarising all cash flows, money spent and generated (sales revenue, investment etc)

Question 25

Budget surplus

Answer 25

Government is receiving more money than it is spending, meaning extra money

Question 26

Financing a deficit

Answer 26

Government need to raise funds to finance a deficit,

Question 27

Selling bonds to australian investors

Answer 27

Domestic bond put upward pressure on interest rate, least expansionary bond

Increase the price of money

Question 28

selling bonds to oversea investors

Answer 28

Results in capital inflow which increases NFD and grows the size of CAD
Leads to carrying out of external sector (impacts x-d component) reduces expansionary impact of budget defict

Question 29

selling bonds to the RBA

Answer 29

Most expansionary policy, money previously not in the money supply is released into circulation

RBA is unlikely to fund a deficit through the purchase of commonwealth government securities

Question 30

Discretionary policy

Answer 30

Deliberate policies, aimed to change the receipts/outlays to influence economic activity

Question 31

Automatic stabilisers

Answer 31

Changes to budget which occur without deliberate government intervention, results from changes in the level of economic activity

Question 32

Fiscal drag

Answer 32

An automatic stabilisers which relies on inflation changes instead of GDP growth, to change the budget outcome automatically

Question 33

Budget during weak economic growth

Answer 33

economic growth is weak, cyclical unemployment is rising thus budget stance becomes expansionary

Automatic reduction in tax receipts and rises in welfare outlays

Discretionary reduction in tax receipts and rises in outlays

Question 34

Budget during strong economic growth

Answer 34

To combat inflationary pressures, budget becomes more contradictory as stimulus is withdrawn and brakes are applied to slow AD

• cyclical and structural budget becomes budget surplus
  1. Automatic receipts will rise and welfare outlays will fall
  2. Discretionary stimulus from previous budgets will be withdrawn through deliberate rises in budget receipts and cuts in outlays

Question 35

Strength of budgetary policy

Answer 35

1. can target particular sectors/industries in the economy
2. Can target a greater range of economic goals better than monetary policy
3. The impact lag is shorter compared to the monetary policy
4. The budget bill must be pass through both houses of parliament.

Question 36

Weaknesses of budgetary policy

Answer 36

1. Subject to political hurdles that prevent good policies from being implemented
2. Prone to political bias, particularly in an election year. Bad policy decisions can be made in the process of trying to buy votes
3. The implementation lag can be long given that the budget Bills must pass through both houses of Parliament
4. Most budgetary polices are announced in May, resulting in the policy becoming less responsive to the needs to electorate over the financial year.