Economic Growth In Australian Economy

This report will show an overview of the current state of the Australian economy and its management by the Federal government through examining economic indicators such as economic growth (GDP), unemployment, inflation and trade.

The budget aims to establish and stimulate a stable economy, invest in Australia’s future and provide a fairer tax and welfare system.

The figure obviously had not return to pre-crisis level. Moreover, recent commodity prices had fallen significantly which will affect Australia’s short and long term economy.

Over the four years from 2009-10 to 2012-2013, Labor had met its fiscal rule of keeping the average spending growth rate to less than 2% a year (Musgrave, R. A. n.d). This was the lowest period of spending growth in 23 years, meaning that not enough money was being injected into the circular flow of income. This reduced aggregate demand as consumer spending was low. In order to ensure that key spending was sustainable, structural improvements were required for the 2014-15 Budget. Overall, the Labor government has left a disastrous legacy of high debt for the Liberal government to try and overcome.

In the long term the increase of foreign debt can lead to a debt sustainability problem, if Australia becomes overwhelmed with debt the economy will find it hard to service current debts. If the size of the debt is rising faster then the increase of GDP the interest payments on the debt will progressively

(Kryger, 2014) Therefore loans and importing goods is a popular way to accumulate enough to start or grow a business or investment. When you look at our national saving as a proportion of gross domestic product there is a slight decline, whereas investment has stayed pretty much the same with an even slighter decline. This graph also indicates that during the late 70s and the early 80s people began to save less than what they were investing meaning there has been an increase in borrowings. This graphs also shows that with this decrease in savings and steady investment Australia’s current account deficit has been growing. With decreasing savings Australia’s investments must perform well enough to ensure we'll have the earnings to cover the servicing of the additional debt we're acquiring. Despite the growing current account deficit and the decreasing savings this graph also indicates we aren’t just importing for consumption we are importing for investment. In an attempt to increase savings to secure a reasonable standard of living in retirement for all Australian’s superannuation had become complusory, however these savings are difficult to use for investment purposes. If governments seek to reduce or foreign borrowings they could use Australian’s super as funds instead of

Increased government revenue will be reallocated into infrastructure such as roads. This will lead to increased employment, which will help Australia achieve its economic objectives. Weaknesses of the deficit levy reside in the circular flow of income, reducing economic activity from higher income earners. An increase in leakages within the flow will decrease aggregate income and the general level of economic activity. Further cause risk of disequilibrium within the circular flow of income and disrupting economic growth.

Australia has a long history of large and persistent current account deficits. During the 1960s the current account deficit averaged the equivalent of 2 per cent of gross domestic product. The CAD rose considerably, due to the floating of the Australian dollar and the opening of the capital account in 1980s, and by 1990s CAD has sustained around an average of about 4.5 per cent of GDP. However, in recent years the deficit has been falling and in 2011 it was just 2.25 per cent.

But even if we understand the changes, how can we compare the before and the after? What are the best parameters in doing so? What phenomenon is followed globally? This just summarizes one aspect of the essay which is followed by policy recommendations by the author in the later half. Though with the limited knowledge of the subject and experience the author has suggested a policy recommendation which aims at resolving existing or possible budding economic issues for Australia.

First we must look and account for the causes for the recent trends in balance of payments. This is very important as it reflects key features of the structure of the economy and highlights the imbalances in the relationship between Australia and the economy. In particular, we must inspect the current account deficit (CAD), which is when the debits are greater than the credits recorded as a percentage of GDP and is an accurate indicator of the economy’s current position.

We have a long story of debt, but it seems no one has been able to make it better. If the debt is increasing over time, the government has a budget deficit. Charles C. Turner, et al, defines the deficit as spending that exceed a revenue (482). In history, basic deficit or debt was usually from over spending from a war and economic issues like a recession or depression. Then the government had a budget deficit almost every year “between 1970 and 1997,” but the tax cut and more spending on defense by President Reagan in 1981 added more growth to the deficit. Also, another cause is from reducing of productivity seem in the GDP and lower tax rate (tax cut) (483). Even when the government had some budget surplus, still, it could not cover the debt. In 2012, the debt grew “over $ 16 trillion,” (482-483) and has increased more in recent year plus “2.9 percent” of the budget deficit in 2016 (The 2016 Long Term Budget Outlook, 2). To manage the economic depression, sometime policymakers cut the taxes and increase spending again by putting more money into the private sectors (Turner, 483); therefore, government goes further with the budget unbalancing. There are several reasons that lower the tax rate will not reduce the budget deficit closer to a balance.

The Department of Finance had estimated that a one per cent fall in Real GDP growth could lead to a decline in government revenues of about $5.3 billion dollars. Government expenditures have been expected to be a moderate $0.8 billion which would result in a net federal deficit of $4.8 billion dollars over the next year. With the accumulation of CMHC and the commercial banks liabilities the Canadian federal government’s debt to GDP ratio is now at an all time high.

With a GDP of over $1 trillion USD, the Australian economy is among the largest in the world (Cornett and Saunders, 2014). Australia is trading partners with the United States, China, and Japan, but their economic ties are mainly centered in the Pacific Rim. Exports are crucial to the country’s GDP and this has created problems regarding sustainability in the Australian economy.

There is general consensus that the principal reason behind the strong Aussie dollar is that Australia currently fits the needs of one of the fastest growing regions in the world Asia. Australia’s strong Asian ties and Asia’s demand for our resources all work in the favour of the Australian dollar, and have helped sustain the rise of the Australian dollar against other leading currencies. The strength of the Australian dollar is not only a product of weaknesses in other major currencies. With low government debt, steady unemployment levels and a Triple A credit status, Australia’s economy is in a relatively healthy position, particularly compared with other major currencies including the Euro, US dollar and the Pound.

In March 2015, Greg Jericho published an article called Weak, weak growth and six things about the state of Australia’s economy that outlined how in the past 6 out of 10 quarters the Australian