Federal Budget Discussion (1 Viewer)

[Maxwell]

Soon, the Federal Budget is to be released. I am actually kind of keen to see it and apply economic concepts to it. Especially so because our teacher is doing macroeconomic policy so we can apply our newly learnt content to real life economic situations.

What are your current thoughts regarding the plans for the Federal Budget?

Do you have anything you'd specifically like to see in this year's Federal Budget? Do you have any contentions with what's currently planned for the Federal Budget?

Do you even care about the Federal Budget? lol


Discuss.

 

[Phaze]

Too late at night for me to bother in terms of writing a long proper response but TLDR, the budget is going to be stupid, it's basic economics that government policy is meant to be counter-cyclical, if the economy is experiencing strong growth then policy should try and contain that growth and slow the economy down, and likewise if we have slow growth the government should try and increase Aggregate Demand and increase Economic Growth. Instead our government has decided to forget Economics and just go with Politics and trying to make everyone happy by delivering a Surplus (which they can't now) So now they plan to do it over a period of time by delivering net contractionary budgets which go against what the economy needs right now which is economic growth.

For all I know, they might end up delivering an amazing budget which is injecting money into the economy but from what they promised and what they have said they planned to do it is highly unlikely and isn't going to be of much help. GGWP. Prepare for a weird term of politics and economics.

 

[kiwi703]

...TLDR, the budget is going to be stupid, it's basic economics that government policy is meant to be counter-cyclical...Instead our government has decided to forget Economics and just go with Politics and trying to make everyone happy by delivering a Surplus

At one point I used to think like this, that downswings should be met with budget deficits to restore growth in the economy. However you must realise that looking at the budget as a purely counter-cyclical tool to regulate upswings and downswings of the economy is incredibly simplistic and completely ignores all elements of managing external balance, long term microeconomic reform and social reform.

While monetary policy (changing interest rates) certainly functions as a counter-cyclical tool, fiscal policy (i.e. the budget) involves a redistribution of funds throughout the economy for the purpose of creating an ideal, more equitable society. This is why we have progressive taxation, so the rich implicitly pay to support the needs of the poor, creating a more even society. Yes, economic growth is an important factor for creating a healthy society where our standard of living is always on the rise, but there are many other significant things that must be balanced. It is important our Net Foreign Debt (and especially public foreign debt) is contained to a reasonable level to maintain our international credit rating, which in simple terms allows us to remain competitive in the long run. Since our NFD is already high and has trended higher over the past eight years, more budget deficits will further harm our external balance. We also need to cater to our aging population problem. Left unattended, Australia faces a budget deficit blowout in the future as revenue will struggle to keep up with our rapidly growing expenditure on social welfare (e.g. the pension). Hence the focus on microeconomic reform, evident in Joe Hockey trying to push the retirement age out to 70 and super contributions increasing from 9.25% to 12%.

In short, there is more to the budget than managing economic growth. If you want to be technical about it, since the Howard Government fiscal policy has always been aimed at managing external balance, while counter-cyclical stabilisation is the role of monetary policy. Economic growth is not the primary focus of the budget!!

 

[Phaze]

At one point I used to think like this, that downswings should be met with budget deficits to restore growth in the economy. However you must realise that looking at the budget as a purely counter-cyclical tool to regulate upswings and downswings of the economy is incredibly simplistic and completely ignores all elements of managing external balance, long term microeconomic reform and social reform.

I pretty much agree with everything you say there, as I said it was a very basic and short response it was late at night and I wasn't willing to go into everything I thought, you're completely right! There is more to consider when looking at what the purpose of the budget is but it's also worth considering that the government may not be achieving those goals in the most economically sound and effective manner.

 

[kiwi703]

@phaze it looks like you have a good attitude towards learning, which is great to see! And I agree with you, it is definitely worth considering (and especially evaluating in an extended response type question) how effectively the government has met (or is expected to meet) its goals!