7/29/2019 Stabilizing the Australian Economy Through Fiscal Policies

http://slidepdf.com/reader/full/stabilizing-the-australian-economy-through-fiscal-policies 1/7

FiscalpoliciescanstabilizeAustralia’seconomy

byLeenaPalekar

Theroleofagovernmentistostabilizeeconomy,orsmoothout

businesscycles,aseconomicactivityinamarketeconomytendstofluctuateconsiderably.

Economicpolicytoolsthatarecapableofinfluencingspendingdecisionsofmillionsofbuyersaregovernmentspendingandtaxes(fiscalpolicy),andinterestratesandmoneysupply(monetarypolicy).

ThefollowinganalysisshowshowtheAustralianeconomyhasusedfiscalpoliciestosmoothouteconomicfluctuationsandreduceits

impactonconsumers.

Fiscalpolicyuseschangesingovernmentspendingand/orreducestaxestoinfluencethelevelofaggregatedemandtoimpactthegeneraldirectionoftheeconomy.Governmentsuseinfrastructureprojectsforthispurpose,whichinvolvebuildingorrepairingroads,bridges,parksandpublicbuildingsduringrecessionsespeciallywhentheconstructionindustryisparticularlydepressed.

Inaddition,governmentspendingontransferpaymentstopeopleundertheEmploymentInsuranceandWelfareprogramsincreaseduringarecessionandtherebyprovidesmoresupporttothelevelofAggregateDemand.

7/29/2019 Stabilizing the Australian Economy Through Fiscal Policies

http://slidepdf.com/reader/full/stabilizing-the-australian-economy-through-fiscal-policies 2/7

(Source:http://myweb.liu.edu)

TheRuddgovernmenttookdecisiveactiontocountertheeconomic

imbalancecausedbythe2008-2009globalfinancialcrisisthatcrippledtheeconomiesofitstradingpartnersJapan,theUnitedStatesandothers.

InOctober2008,PrimeMinisterKevinRuddannouncedacomprehensive$42billionNationBuildingEconomicStimulusPlantosupportAustralianjobsandbusinessesthatinvestedinthenationsvitalinfrastructure.Italsorolledouttaxbreaksforsmallbusinessesoncapitalexpenditureitems.Ifasmallbusinesspurchasedeligibleassetscosting$1,000ormorebetweenDecember13,2008andJune30,2009,itcouldclaimanadditional30percenttaxdeduction.

Thefollowingtablesindicatethefederalgovernment’sinitiativetopumpmoneyintosectorslikeeducation,social/defencehousing,transport/infrastructureandenergy-efficienthomes.

7/29/2019 Stabilizing the Australian Economy Through Fiscal Policies

http://slidepdf.com/reader/full/stabilizing-the-australian-economy-through-fiscal-policies 3/7

(Source:www.economicstimulusplan.gov.au )

Recentreportsindicatethatthegovernment’stwoyear$42billionNationBuildingPlanhasstimulatedtheAustralianeconomyandsupportedlocaljobsmakingAustralianotonlythebestperformingadvancedeconomyin2009,butalsotheonlyadvancedeconomytorecordpositivegrowthovertheperiod.

7/29/2019 Stabilizing the Australian Economy Through Fiscal Policies

http://slidepdf.com/reader/full/stabilizing-the-australian-economy-through-fiscal-policies 4/7

TreasurerWayneSwansaid,“thecommunityhasbackedintheGovernment’sstimulus;supportingjobsandgrowthduringthisglobalrecession.”

Amajorhighlightofthegovernment’sfiscalpolicyinitiativewastodelivertheNationBuildingPlanincooperationwithstateandterritorygovernmentsandlocalcouncils.

Thefirstphaseofthegovernment’sstimulusstrategybeganwiththeFirstHomeOwnersBoostinOctober2008,followedbyhandingoutmoneyordirectpaymentstohouseholds--toboostspending--inDecember2008withafurtherroundofpaymentsinMarchandApril2009.Thefirstphasehassupportedeconomicactivityandboostedconfidencewhiledirectpaymentstohouseholdshavehelpedretail

salestoremainbuoyant.

Asevidentinthementionedcharts,inJune2009,retailsaleswere5.2percenthigherthanthepre-stimuluslevelsinNovember2008.

Consumersentimentandbusinessconfidencehavereboundedstrongly,supportedbytheeffectsofthestimulusmeasures.

RetailTradeConfidence

(Source:www.economicstimulusplan.gov.au )

7/29/2019 Stabilizing the Australian Economy Through Fiscal Policies

http://slidepdf.com/reader/full/stabilizing-the-australian-economy-through-fiscal-policies 5/7

TheimpactoftheFirstHomeOwnersBoostisevidentinthechartbelow.Thenumberofcommitmentsforfinanceforresidentialoccupationhasincreasedby32percentsinceSeptember2008,whilethenumberofcommitmentsforfinanceforthepurchaseor

constructionofnewpropertieshasincreasedby59percentoverthesameperiod.

HousingFinance

(Source:www.economicstimulusplan.gov.au )

TheboosttoconsumptionhascontributedsignificantlytowardsAustralia’srelativelystrongergrowthperformancecomparedwith

othercountries.Thisisreflectedinthegrossdomesticproductgrowthratesfor2008/2009untilthefirstquarterof2010.

ThesepolicieshavehelpedAustralia’seconomytoreboundafterjustonequarterofnegativegrowth.Theeconomygrew1.5percentduringthefirstthreequartersof2009–thebestperformanceintheOECD.Withoutthestimuluspaymentsflowingthroughtoconsumption,theTreasuryestimatedthattheAustralianeconomy

wouldhavecontracted.

7/29/2019 Stabilizing the Australian Economy Through Fiscal Policies

http://slidepdf.com/reader/full/stabilizing-the-australian-economy-through-fiscal-policies 6/7

Unemployment,originallyexpectedtoreach8to10percent,peakedat5.8percentinlate2009andfellto5.3percentbyFebruary2010.

Apartfromthesemeasures,Australiawasoneofthefirstadvancedeconomytoraiseinterestrates--threetimes--sinceOctober2009.Besides,thegovernment’sinsulationrebateisalsointendedtoreducetheenergybillsofAustralianhouseholds.( http://myefficientplanet.com )

AccordingtoDun&Bradstreet’slatestEconomic&RiskOutlookReport,16countriesaroundtheglobehavehadtheircountryratingsdowngradedsincethebeginningof2010.(http://dnb.com.au)

However,thecontinuingimprovementinAustralia’slocal

macroeconomicenvironmenthasresultedinthecountry’srisktrendbeingupgraded–thenationhasalsobeenratedoneofthesafestcountriestoinvestglobally.

TheInternationalMonetaryFundhassingledoutAustraliaforpraise.AnewreportbytheIMFinApril2010says,“Australiaisoneoftheleadersastheglobaleconomyrecoversfromthesevererecession.”

Citingtheurgentneedforadvancedeconomiestoaddressdebtlevels,Australiahasstoodoutthroughitsrelativelylowlevelsof

indebtedness–bothpublicandprivate,whichareseenasstrongfactorstoperformbetterthanotherOECDnations,despiteintroducingstimulusmeasures.

Asseeninthechartbelow,Australia’sprojectednetdebtpositionisestimatedtobe1percentofGDPcomparedwith48percentfortheOECD.TheIMFhaspredicteda3percentgrowthrateforAustraliain2010.

7/29/2019 Stabilizing the Australian Economy Through Fiscal Policies

http://slidepdf.com/reader/full/stabilizing-the-australian-economy-through-fiscal-policies 7/7

 AustralianandG-7publicsectornetdebt

(Source:www.treasury.gov.au )

Inconclusion,combinedfiscalandmonetarypoliciesinfluenceaneconomy’sperformance.Australiahassofarimprovedthe

probabilityofmaintainingareasonablebalancebetweenthedemandsideandthesupplysideoftheeconomy,therebyavoidingtheextremesofrecession.

REFERENCES

Lyons,Brian2001‘CanadianMacroeconomics:problemsandpolicies’,PrenticeHallPublishers,Toronto

http://myefficientplanet.com

http://myweb.liu.edu

www.treasury.gov.au

www.economicstimulusplan.gov.au