Evaluate the Effectiveness of Australian Government Economic Policies in Achieving Their Objectives

1930 Words Mar 11th, 2011 8 Pages
Evaluate the effectiveness of Australian Government economic policies in achieving their objectives.

The government implements an economic policy mix involving macroeconomic and microeconomic policy in order to achieve their objectives. The three main objectives include:

• Internal stability – low inflation (price stability) and full employment
• External stability – stable exchange rate, a sustainable level of foreign debt and the current account deficit (CAD) 
• Economic growth

Other government objectives include equal distribution of income and environmental management. Though, it is evident that not all of these objectives can be achieved simultaneously as some are conflicting. Thus the government must trade-off some of
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Another form of macroeconomic policy is fiscal policy, which involves the use of the Commonwealth Government’s budget in order to achieve the Government economic objectives. By varying the amount of government spending and revenue, the government can effectively alter the level of economic activity, which in turn will influence economic growth, inflation, unemployment and the external indicators of the economy.

The fiscal instrument is the budget, an annual statement from the government dealing with its income and expenditure plan for the next financial year. Fiscal Policy is an effective tool which can target specific sectors of the economy such as individual industries, unlike monetary policy which affects the economy as a whole; this is why the government implements a policy mix.

An indication of the overall impact of fiscal policy (FP) on the state of the economy is the fiscal outcome. The three possible outcomes include a fiscal surplus (positive balance where government expenditure exceeds revenue), fiscal deficit (a negative balance where government revenue exceeds expenditure), and fiscal balance (a zero balance where total government revenue equals expenditure). The main aim of fiscal policy is to achieve fiscal balance, on average, over the course of the economic cycle. The Howard Government targeted a fiscal surplus of 1% of GDP, whereas the current Rudd Government has raised this target to 1.5% of GDP,
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