Assignment 1
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- Category: English
- Date Submitted: 01/23/2011 10:14 AM
- Pages: 2
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Changes in the budget outcome
One important observation from Table 1 is that, the amount of revenues, expenditures as well as budget outcomes change each year. There are two main reasons for these variations:
Discretionary changes in fiscal policy
Discretionary changes are deliberate changes inrevenue and expenditure levels by the government. For example, in the 2009–10 Budget, the government anounced a $22billion infrastructure investment. Such deliberate changes in fiscal stance alter the structural component of the budget, and are used to stabilise the economy in the medium-term.
Cyclical or non-discretionary changes in fiscal policy
Adjustments in levels of revenue and expenditure can result from changes in the level of economic activity (booms and recessions). These adjustments are beyond the control of the government and are known as automatic stabilisers. There are two main automatic stabilizers:
Unemployment benefits
In a recession, the level of economic activity falls and the unemployment rate increases. As a result, government expenditures on unemployment benefits and Job Search allowances automatically increase. This increase in government expenditure reduces the budget surplus or increases the deficit. As unemployment increases in the recession then spending on unemployment will rise, increasing the spending of unemployed people. This acts to offset the recession and increase spending in the community.
The opposite occurs during an upturn in economic activity. In this situation, jobs are created and the government spends less on unemployment benefits, which increases the budget surplus or reduces the deficit.
The PAYG income tax system
During times of economic growth, employment levels and incomes rise. Workers move into higher income brackets automatically increasing government taxation revenue. This process is known as fiscal drag or bracket creep. During a downswing in economic activity...
One important observation from Table 1 is that, the amount of revenues, expenditures as well as budget outcomes change each year. There are two main reasons for these variations:
Discretionary changes in fiscal policy
Discretionary changes are deliberate changes inrevenue and expenditure levels by the government. For example, in the 2009–10 Budget, the government anounced a $22billion infrastructure investment. Such deliberate changes in fiscal stance alter the structural component of the budget, and are used to stabilise the economy in the medium-term.
Cyclical or non-discretionary changes in fiscal policy
Adjustments in levels of revenue and expenditure can result from changes in the level of economic activity (booms and recessions). These adjustments are beyond the control of the government and are known as automatic stabilisers. There are two main automatic stabilizers:
Unemployment benefits
In a recession, the level of economic activity falls and the unemployment rate increases. As a result, government expenditures on unemployment benefits and Job Search allowances automatically increase. This increase in government expenditure reduces the budget surplus or increases the deficit. As unemployment increases in the recession then spending on unemployment will rise, increasing the spending of unemployed people. This acts to offset the recession and increase spending in the community.
The opposite occurs during an upturn in economic activity. In this situation, jobs are created and the government spends less on unemployment benefits, which increases the budget surplus or reduces the deficit.
The PAYG income tax system
During times of economic growth, employment levels and incomes rise. Workers move into higher income brackets automatically increasing government taxation revenue. This process is known as fiscal drag or bracket creep. During a downswing in economic activity...