What's australia fiscal stance currently? (1 Viewer)

[sadpwner]

It's expansionary right? It has to be right?

 

[Ekman]

As a matter of fact it is contractionary, ever since the 2010-11 budget. Australia currently has a deficit of $33bn so its the government's current objective to turn it back into a surplus, however you may think its expansionary due to the recent assistance for small businesses in the recent budgets. That's because the government has a mixed objective of maintaining economic growth and reducing the budget deficit.

 

[Ekman]

Precisely this!

I would add on that there is a trade off between economic growth and financing the budget deficit, as well as the political constraints involved in this issue but the question just asked what was the stance of the current budget. I go overboard in my explanations sometimes in eco.

 

[Intrinsic]

I'm quite sure this year's budget is expansionary - there has been no introduction of new taxes, and little cut back on spending. But rather, expansionary fiscal has been used because, like Ekman said, there are political constraints. This budget was delivered to assist not only small businesses but to raise the popularity of the LNP (I don't think it's a good idea raising the point of popularity in an exam). In short, the budget's objective is 'spend money to make money', afterall small businesses are the "engine drivers of this economy"...

 

[Ekman]

Are you alluding to the fact that if the government increases taxation and reduces expenditure as part of a contractionary fiscal policy, it will lessen aggregate demand, thereby lessening economic growth? Is that the trade off?

And nah, if you explain everything clearly in eco, it should be ok.

That as well as the 'crowding out' effect. When the government borrows large sums of money from the private sector, in a closed economy, it will cause a reduction in aggregate supply as there would be less investment into small businesses, reducing our overall supply. In terms of Australia, this hasn't really occurred as Australia is delaying their projected budget surplus as they want to maintain a certain level of economic growth which would potentially help them out in the long run.

 

[PhysicsMaths]

contractionary fiscal stance, highly expansionary monetary policy

 

[Axio]

An overall contractionary fiscal stance can still have expansionary policies present.

 

[sadpwner]

As a matter of fact it is contractionary, ever since the 2010-11 budget. Australia currently has a deficit of $33bn so its the government's current objective to turn it back into a surplus, however you may think its expansionary due to the recent assistance for small businesses in the recent budgets. That's because the government has a mixed objective of maintaining economic growth and reducing the budget deficit.

I had a look at 2010-2011 budget but wasn't it an contractionary stance since they spent less?

 

[pomsky]

I had a look at 2010-2011 budget but wasn't it an contractionary stance since they spent less?

A contractionary stance usually, but not always, occurs with a reduction in spending. It is rare, but possible to see contractionary policies occur simultaneously with an increase in government spending (will probably operate alongside higher taxes etc.). Technically, fiscal consolidation yields contractionary effects but I've seen some sources say that based on the policies alone, the current budget stance is expansionary (note contractionary and expansionary stances are based off a comparison to last year's stance).

So it's fairly contentious tbh lol.

Your quote agrees with Ekman's statement btw : P

 

[sadpwner]

A contractionary stance usually, but not always, occurs with a reduction in spending. It is rare, but possible to see contractionary policies occur simultaneously with an increase in government spending (will probably operate alongside higher taxes etc.). Technically, fiscal consolidation yields contractionary effects but I've seen some sources say that based on the policies alone, the current budget stance is expansionary (note contractionary and expansionary stances are based off a comparison to last year's stance).

So it's fairly contentious tbh lol.

Your quote agrees with Ekman's statement btw : P

Do you whether you use the underlying cash balance or the fiscal balance to determine the fiscal stance?