IFM- Influence of government

Question 1

the influence of government

Answer 1

the government influences a business’s financial management decision making with economic policies, legislation and the various roles of government bodies who are responsible for monitoring and administration

Question 2

economic policies of government

Answer 2

governments have two main levers they can pull to impact the level of economic activity: monetary policy and fiscal policy

the aim of these two policies is to either stimulate (increase) or contract (decrease) the level of economic activity

Question 3

monetary policy AKA (interest rates)

Answer 3

the government has empowered the reserve bank of Australia to set the level of the interest rates at which banks borrow (known as the cash rate)

each month, RBA meets to consider the health of the economy.
It can increase, decrease or keep interest rates on hold.

Question 4

Increasing interest rates (contractionary monetary policy)

Answer 4

will increase the cost of borrowing, which banks are most likely to pass on to consumers by increasing the interest rates of mortgages and other loans

This will act as a handbrake to economic activity as individuals and businesses will be less likely to spend and prefer to save (due to better interest rates)

Question 5

Decreasing interest rates (expansionary monetary policy)

Answer 5

will decrease the cost of borrowing, which banks are most likely to pass on to consumers by decreasing the interest rates of mortgages and other loans

This will act as a boost to economic activity as individuals and businesses will be more likely to spend and invest then save

Question 6

Fiscal policy (AKA the budget)

Answer 6

Each year the federal government (and the state governments too) map out their spending priorities for their next 12 months, known as the federal budget

Governments collect revenue through taxation and allocate revenue to a range of services.

also determine whether they spend more or save more in a given financial year according to their perceived health of the economy

federal government may decide to spend more money than previous years to stimulate economic activity (expansionary fiscal policy) by investing in various infrastructures, offering tax cuts or other financial incentives

occurred recently to deal with the economic impacts of COVID-19 restrictions

federal government may decide to spend less money than previous years to slow economic activity (contractionary fiscal policy) by reducing investment in infrastructure, raising tax rates or other financial disincentives

Question 7

Legislation affecting financial management - company taxation.

Answer 7

All Australian businesses that have been incorporated – that is, all private and public companies – are required to pay company tax on profits

This tax is levied at a flat rate of 26 or 30 per cent of net profit, unlike personal income taxes, which use a more progressive scale.

Company tax is paid before profits are distributed to shareholders as dividends.

Question 8

arguments for reducing company tax

Answer 8

Higher profit, international businesses might be more interested in setting up a businesses in Australia

Question 9

arguments against reducing company tax

Answer 9

We need company tax’s to redistribute millions dollar’s of profit to fix things like crumbling infrastructure, health care issues.

Question 10

other financial requirements from government

Answer 10

Quartey completion of BAS (business activity statement) and payment of GST (if turnover exceeds $75,000)

Payroll tax (state based tax on amount paid to employees

Capital gains tax (for business investments)
Fringe benefits tax (for perks provided to employees)

PAYG withholding(business pay income tax on behalf of individual)

Superannuation (requirement of business to pay 9.5%)

Council rates (local government charge for use of land)

And other specific to the industry of the business (licenses, credits, WPHS checks)

These all costs money and diverts the funds away from allocated activities in the business and therefore having an effective on financial management.

Question 11

government bodies and financial regulators - Australian securities and investment commissions

Answer 11

ASIC is an independent regulatory body enforcing and administering the corporations Act (2001) protecting consumers in areas of investments, insurance, superannuation and banking (except lending) in Australia

Aim of ASIC is assisting in reducing fraud and unfair practices in financial markets and financial products

If a business breaches the law, ASIC investigate the matter and determines appropriate remedy’s.

Can pursue a variety of remedies depending on the seriousness of misconduct, such as imprisonment and monetary penalties

Question 12

government bodies and financial regulators - Australian prudential regulatory authority

Answer 12

APRA, independent statutory authority supervising institutions across banking, insurance and promotes financial system stability in Australia

Prudential regulation is concerned with maintaining the safety and soundness of financial institutions

Tasked with protecting interests of depositors, policyholders and superannuation fund members

Question 13

(interim report – banking royal commission)

Answer 13

“the conduct regulator, ASIC, rarely went to court to seek public denunciation of an punishment for misconduct”

Question 14

Professor Alan Fels (former head of APRA)

Answer 14

“it was made crystal clear in an embarrassing way at the royal commission… [APRA has] a long term culture of weak law enforcement”