Question about the "Budget" (1 Viewer)

[sy37]

So I'm good at knowing when I don't know stuff, and I don't know the budget properly. Can someone explain to me the limits of the budget? I read

>Government expenditure into the Budget is an injection into the economy. If the Government wants to increase economic growth it can increase expenditure and reduce taxation.


1. What are some specific examples of increase in expenditure? I'm thinking investment into scientific industries, railway projects..etc

2. The 'Budget' also deals with taxation. What are the parameter of the 'Budget'? What else can it deal with?

3. Why is a surplus linked to increased economic growth? A surplus means injections > leakages, but that doesn't mean the surplus funds are doing anything productive.

 

[xDM]

Hey there, here's my 2 cents on the topic:

1. The current fiscal stance is contractionary, designed to return the budget to surplus by 2019-2020 and as such you won't find too many areas of increased spending but a notable ones include an increase of 5.5bn into 'Growing jobs and small businesses package' in the hopes that it will promote entrepreneurial culture and bring about innovation as small businesses are major drivers of the economy (http://www.abc.net.au/news/2015-05-12/budget-2015-small-business-tax-breaks/6464928). Another area of spending noteworthy is an increase in 3.5bn into childcare subsidies, promoting mothers to return to the workforce and potentially increasing the participation rate (http://www.smartcompany.com.au/fina...tting-paid-parental-leave-double-dipping.html). Both of the examples I listed above can increase growth with the former more jobs -> greater income -> greater spending and the latter through increasing the quality of the workforce (aggregate supply)

2. As far as I'm aware of, the parameters of the fiscal budget relates to anything which can affect the expenditure and revenue for the government a particular. What you are most likely confusing for the 'budget' is the discretionary changes the government makes to the budget each year, outlined through their budget papers. Taxation and welfare payments are often considered the non-discretionary components of the budget which work to smooth out the business cycle automatically.

3. I think you are mistaken. A surplus does NOT link to increased economic growth. A budget's effect on economic growth is typically determined by the budgetary stace (contractionary, neutral, expansionary) which is a comparison on the current budget outcome relative to the previous year's. As currently, the budget has been recording deficits for multiple consecutive years, a surplus now would be considered contractionary (as G - T) has decreased. This is because taxation (revenue) has exceeded expenditure, making G - T negative (a decrease from previous years). Overall this will lead to a decrease in economic growth because greater leakages. Note: Taxation is a leakage from the circular flow, as a typical with surplus funds (i.e savings) so i think you got that part confused as well. Any spending, by a Keynesian analysis, will increase economic growth.


Hope this helps!

 

[sy37]

Hey there, here's my 2 cents on the topic:

1. The current fiscal stance is contractionary, designed to return the budget to surplus by 2019-2020 and as such you won't find too many areas of increased spending but a notable ones include an increase of 5.5bn into 'Growing jobs and small businesses package' in the hopes that it will promote entrepreneurial culture and bring about innovation as small businesses are major drivers of the economy (http://www.abc.net.au/news/2015-05-12/budget-2015-small-business-tax-breaks/6464928). Another area of spending noteworthy is an increase in 3.5bn into childcare subsidies, promoting mothers to return to the workforce and potentially increasing the participation rate (http://www.smartcompany.com.au/fina...tting-paid-parental-leave-double-dipping.html). Both of the examples I listed above can increase growth with the former more jobs -> greater income -> greater spending and the latter through increasing the quality of the workforce (aggregate supply)

2. As far as I'm aware of, the parameters of the fiscal budget relates to anything which can affect the expenditure and revenue for the government a particular. What you are most likely confusing for the 'budget' is the discretionary changes the government makes to the budget each year, outlined through their budget papers. Taxation and welfare payments are often considered the non-discretionary components of the budget which work to smooth out the business cycle automatically.

3. I think you are mistaken. A surplus does NOT link to increased economic growth. A budget's effect on economic growth is typically determined by the budgetary stace (contractionary, neutral, expansionary) which is a comparison on the current budget outcome relative to the previous year's. As currently, the budget has been recording deficits for multiple consecutive years, a surplus now would be considered contractionary (as G - T) has decreased. This is because taxation (revenue) has exceeded expenditure, making G - T negative (a decrease from previous years). Overall this will lead to a decrease in economic growth because greater leakages. Note: Taxation is a leakage from the circular flow, as a typical with surplus funds (i.e savings) so i think you got that part confused as well. Any spending, by a Keynesian analysis, will increase economic growth.


Hope this helps!

It does, I'll also save it for later thanks!