Budget Expansionary? (1 Viewer)

[StGeorgeDragons]

was this an expansionary or contractionary budget, please explain

thankyou.

 

[monique66]

hehe..there was a thankyou before anyone replied.
In short- expansionary budget is aimed at stimulating economic growth (through aggragate deamand) thus, the budget is usually a deficit. This means the government has a higher expenditure then revenue.
Contractionary: the govt aims to curb eco growth (mainly because of inflation anda high CAD) and thus aims to reduce aggregate demand in the economy. The current budget is contractionary as the budget is in surplus so the govt is a net saver. Thus, people are more inclined to save as there is less money floating around...
Okay, that was just in simple terms...i'm sure you'll get some more points on it

 

[StGeorgeDragons]

are u sure about that,, less money floating around..???
i think theres alot more floating around

 

[monique66]

are u sure about that,, less money floating around..???
i think theres alot more floating around

If the govt reduces expenditure there will be less money in the economy. So basically Expenditure<Revenue. That means there will be less money spent on the economy.

 

[StGeorgeDragons]

So the government has reduced expenditure? But they did a large amount of tax cuts and seems to be alot of spending to stimulate the economy. And your saying they have increased revenue, however they abolish taxes and surcharges. Its seems to me that expenditure and revenue has both increased.

 

[roadcone]

i think that at present the budget is most probably defined as being revenue neutral... however once all is costed, im pretty sure it will become contractionary

 

[Jago]

They had a surplus and are leaving it in a fund to try and counter the aging population problem. So I guess they're taking money out of the economy.

Also, they're engaging in mircoeconomic reform policies with the work for the dole / single parents thing. They're trying to reduce the number of long term unemployed / increasing size of the workforce and trying to reduce welfare payments.

Imo anyway.

Edit: of course, this is just possible economic reasons. i have ignored the hidden political agendas.

 

[Ednaw]

Its a neutral budget in absolute terms - last budget was 1% or so of GDP and so is this one, that means its neutral (well balanced budget).

Btw its possible to have an expansionary surplus and a contractionary deficit, based on the same thing i used to deduce this was just a balanced budget (i.e the relationship with the previous year).

Really not much has changed and Costello, stated afterwards when he was interviewed they plan on running the budget at 1% surplus for the next couple of years as well.

 

[StGeorgeDragons]

I see, but does anyone know for sure what this would be classified as? Is it particularly defined as contractionary or expanionary or is it left to interpretation?

 

[mattchan]

from my opinion, it is contractionary. That is what Costello said i think and he also explained this stance as a deterent for the RBA increasing interest rates...

 

[iamsickofyear12]

In general surpuls = contractionary and deficit = expansionary, but I think there can be an expansionary budget even with a surplus because the policies and amount of spending may be expansionary without the need for all revenue to be spent.

 

[StGeorgeDragons]

Contractionary budgets slow down economics growth. How come this budget is expected to increase economic growth and has brought upon scares of interest rate rises? Tax cuts are usually expansionary... but ur saying the extra profits go into the future fund, so its the future fund which makes this contractionary. But what is the fiscal strategy?

 

[iamsickofyear12]

Contractionary budgets slow down economics growth. How come this budget is expected to increase economic growth and has brought upon scares of interest rate rises? Tax cuts are usually expansionary... but ur saying the extra profits go into the future fund, so its the future fund which makes this contractionary. But what is the fiscal strategy?

The point isn't really what the budget does to the economy, if there is a surplus it will always be considered contractionary, and thats what I don't really agree with.

 

[StGeorgeDragons]

Are you sure about that? A government could increase spending, reduce revenue and still be in surplus

 

[Will Hunting]

That's correct.

Balance need not be related to stance.

 

[iamsickofyear12]

That's correct.

Balance need not be related to stance.

Thats what I also think.

 

[StGeorgeDragons]

so whats this budget?

 

[monique66]

so whats this budget?

Bah! I don't think its easier to classify it as 'something' but theoretically it is meant to be contractionary in order to reduce CAD but thats just in really simplified terms...there are so many factors...

 

[iamsickofyear12]

so whats this budget?

It is contractionary because there is a surplus. But I would say the way it will effect spending would be expansionary. I don't know why it is but if there is a surplus it is always considered contractionary.

 

[mattchan]

As quoted from ross gittins, "this budget is clearly stimulatory and thus will cause inflation pressure to be higher than otherwise"