The Australian Federal Budget for 2014/2015 Essay

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.

Using the latest technology, Australian border forces and investing $35 billion, the government aims to reduce the threat of terrorism at our borders in an effort to keep our country secure.

A fiscal deficit is when a government's total expenditures exceed the tax revenues that it generates. A budget deficit can be cut by either reducing public expenditure or raising taxes. In this essay, I am going to analyse the benefits and costs of increasing tax rates to reduce fiscal deficits instead of cutting government expenditure.

An economic downturn automatically paves way to a decline in taxation and an increase in government spending. This causes deficit. Nevertheless, if the government tries to reverse the situation by increasing tax rates, it would further result in a deflated economy leading to more unemployment and lower economic growth. A negative multiplier effect may give rise to an increase in deficit. Thus, deficit increases AD in a recession (Carbaugh, 2011).

The first and obvious effect would be a deficit in national budget. Without enough money to operate and satisfy community’s needs, the government could be in serious trouble. For taxes cover numerous aspects that directly influence people’s lives, once it displayed signs of insufficiency, standard of living would subsequently go down. According to Center on Budget and Policy Priorities, most of the federal government’s funding goes into defense, social security, and major health problems, with a total of 55 percent for three categories and only 8 percent for benefits for federal retirees and veterans, as well as 3 percent for all other purposes. Allowing tax cuts thus means letting community services weaken in quality and putting the national security at risk. Additionally, budget deficit can also lead to reduction in investment, net exports, and international asset flows, as analyzed by Laurence Ball and N. Gregory Mankiw, research associates of the National Bureau of Economic Research, in their “What Do Budget Deficit Do?” article. What results from these abatements evidently affects the economy heavily, both by devaluing the nation’s currency and decreasing the overall GDP. Considering such possible consequences, hence, it is no longer valid to state that lowering taxes equals growing the economic

Many contend that deficit reduction is imperative to our prosperity and economic recovery. The deficit is blamed for a variety of economic ills including high interest rates, unemployment, the trade deficit, the low rate of national saving and low productivity growth (Shaviro, 1997).

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.

The government needs to take more caution creating the federal budget. Edwards stated that “Consider Canada's experience. In the mid-1990s, the federal government faced a debt crisis caused by overspending, which is similar to America's current situation. But the Canadian government reversed course and slashed spending from 23 percent of GDP in 1993, to 17 percent by 2000, to just 15 percent today. The Canadian economy did not sink into a recession from the cuts as Keynesians would have expected but instead grew strongly during the 1990s and 2000s."

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.

The government of Australia highly impacts the economic inequality in Australia with doing things such as bringing in polices and aiming the budget at certain demographics. After the highly anticipated budget release of 2016, the government told Australians of the major budget measures that were going to affect them. This included a raise of the tax bracket for middle income earners, redefining it as $87,000 rather than the current $80,000. Currently, the bracket is for those who earn $37,001 - $80,000. “Tax

The announcement of the current federal budget by the Abbot government is driving the message of cutting Australia’s debt. There are threats of lots of job cuts especially in Canberra where the Public service is a major employer with n unemployment rate of 6.4% (Rba.gov.au, 2014). In turn this means people have less disposable income to be spent on landscaping work. As landscaping is a

The shortage in domestic investment could lead to the closure of many firms or movement abroad and that will doubtless cause unemployment in Australia. Furthermore, while Australia imposes this tax to help alleviate a global concern, it doesn’t necessarily mean its competitors will and the extra production costs for Australian firms will give it an unfair disadvantage. The

Deficit spending applies to businesses, governments, and individuals alike. In relation to governments, deficit spending refers to spending more money than taking in over a given period (Investopedia, n.d.). Some Keynesian economists argue that deficits are a necessary evil needed to stimulate an economy. In theory, the deficit spending fills a gap in consumer spending during a recession by increasing government purchases to balance out the aggregate demand and stabilize the unemployment rate (Investopedia, n.d.). However, the downsides to deficit spending include possibly lowering GDP and increasing debt. Lastly, crowding out is known as the process where high government spending takes opportunities away from private sectors, hence the name “crowding out” (Investopedia, n.d.). This paper will explain some of the advantages and disadvantages to deficit spending while reviewing some of the effects of crowding out in an economy.

Considering the climate of political paralysis until some time ago and high unemployment rates, the country’s minority government unveiled more spending on social measures in a delayed draft budget for 2017, thus a great cloud of uncertainty surrounds the future of austerity policies. This means that the government can easily fall short of its budget targets.

Minsky, A. (2016, November 14). Deeper deficits, no sign of balanced budgets in economic forecast. Retrieved March 15, 2017, from http://globalnews.ca/news/3038932/finance-minister-bill-morneau-releases-economic-outlook/