-
Finished your HSC? Check out our University Discussion, Non-School forums or help out next year's HSC students! -
YOU can help the next generation of students in the community! Share your trial papers and notes on our Notes & Resources page
Your Opinion On The budget .... (1 Viewer)
- Thread starter Lordsion
- Start date
U
Ubik
Guest
Who said that? It's obviously not. Not really a matter of opinion.Lordsion said:
michael1990
Active Member
- Joined
- May 25, 2007
- Messages
- 1,776
- Gender
- Male
- HSC
- 2008
It is expansionary.
All the policies the government is implementing is not helping inflation but contributing to it.
All the policies the government is implementing is not helping inflation but contributing to it.
U
Ubik
Guest
Economist Stephen Walters of JPMorgan, in a note to clients, gives the government credit for slowing spending in an effort to rein in inflation.michael1990 said:
Mr Walters said the jump in the size of the budget surplus compared with last year's estimate "means the budget is contractionary, as it should be if the Government is serious about confronting Australia's chronic inflation problem".
"In fact, the 1.8% of GDP surplus is the largest since 1999-00, so the government is doing some hard yards in attempting to slow growth in the economy and cap the upside for inflation," he wrote.
http://business.theage.com.au/budget-wont-tame-inflation-analysts-20080514-2dyz.html
It's contractionary Michael.
Last edited by a moderator:
U
Ubik
Guest
It is not not not not not NOT expansionary.
gnrlies
Member
- Joined
- May 12, 2003
- Messages
- 781
- Gender
- Male
- HSC
- 2003
Let me clear something up. Whether a budget is contractionary or expansionary is not determined by opinion, or anything like that. Its determined by the size of the fiscal balance (or underlying cash balance depending on which accounting system you choose to use) relative to the previous year (usually measured as a percentage of GDP).
In this case the surplus has risen from 1.5% of GDP to 1.8% (underlying cash balance). Therefore it is contractionary. There is no two ways about it. This does not mean to say that it was contractionary enough (which is a better description of the position some of you might hold); but nonetheless it is not expansionary.
Every budget will have both contractionary and expansionary features and if viewed in isolation you can come to a conclusion like 'the effect of the tax cuts is expansionary' but on aggregate you can only look at the budget outcome.
Just as an aside, it is possible that certain types of expenditure will be more expansionary than others. I.e. an increase in welfare is likely to be more expansionary than a decrease in tax cuts for high income earners. But this is rarely considered when looking at fiscal stance (mainly because the effects are hard to measure and may be insignificant)
In this case the surplus has risen from 1.5% of GDP to 1.8% (underlying cash balance). Therefore it is contractionary. There is no two ways about it. This does not mean to say that it was contractionary enough (which is a better description of the position some of you might hold); but nonetheless it is not expansionary.
Every budget will have both contractionary and expansionary features and if viewed in isolation you can come to a conclusion like 'the effect of the tax cuts is expansionary' but on aggregate you can only look at the budget outcome.
Just as an aside, it is possible that certain types of expenditure will be more expansionary than others. I.e. an increase in welfare is likely to be more expansionary than a decrease in tax cuts for high income earners. But this is rarely considered when looking at fiscal stance (mainly because the effects are hard to measure and may be insignificant)
BackCountrySnow
Active Member
Lol Michael.michael1990 said:
It's a 21.7 billion dollar surplus.
it's contractionary..
Even if it does not curb inflation for that matter, that doesn't mean it's expansionary
EDIT: after reading gnrlies post i'm kind of confused.
I thought a budget was expansionary if there is a deficit and contractionary if there is a surplus.
I didn't know it had anything to do with the Base year's budget because if there is a surplus (gov't spending>tax revenue) then it is a leakage from the circular flow which causes the economy to contract.
Last edited:
munchiecrunchie
Super Member
- Joined
- Apr 2, 2007
- Messages
- 432
- Gender
- Female
- HSC
- 2008
Its definitely contractionary - its a bigger surplus . . .
Gnrlies is correct.BackCountrySnow said:
It's not surplus = contractionary and deficit = expansionary even though that is a general trend I suppose.
Any increase in a surplus is contractionary, any decrease in a surplus is expansionary.
Any decrease in a deficit is contractionary, any increase in a deficit is expansionary.
gnrlies
Member
- Joined
- May 12, 2003
- Messages
- 781
- Gender
- Male
- HSC
- 2003
To all those confused above....
Whether it is in surplus or deficit is not a determinant of fiscal stance. Fiscal stance refers to the intended effect that the budget is likely to have on aggregate demand. Subsequently, we are looking at a change in aggregate demand.
In order to measure a change in aggregate demand we are always measuring such a change relative to another year. Subsequently if we are trying to work out the effect of a reduction in the surplus between years 1 and 2, the effect will be expansionary because all other things being equal, AD will be higher in the second year than it is in the first (as the leakage is smaller as the gap between government spending and revenues declines).
Such an increase in AD relative to the previous year will stimulate the economy and cause measures of output such as GDP, or GDP growth to rise. Subsequently we would call this expansionary even though we still have a surplus.
Whether it is in surplus or deficit is not a determinant of fiscal stance. Fiscal stance refers to the intended effect that the budget is likely to have on aggregate demand. Subsequently, we are looking at a change in aggregate demand.
In order to measure a change in aggregate demand we are always measuring such a change relative to another year. Subsequently if we are trying to work out the effect of a reduction in the surplus between years 1 and 2, the effect will be expansionary because all other things being equal, AD will be higher in the second year than it is in the first (as the leakage is smaller as the gap between government spending and revenues declines).
Such an increase in AD relative to the previous year will stimulate the economy and cause measures of output such as GDP, or GDP growth to rise. Subsequently we would call this expansionary even though we still have a surplus.
The 2008-09 Budget is definitely contractionary, since the surplus has increased as a proportion of real GDP (from about 1.5% of GDP to 1.8%). I believe that the question Lordsion might have intended to ask is " do you think the Budget will have a stimulatory effect on the economy or not?" Even though the fiscal stance is contractionary, the Budget could still have a stimulatory effect.
A lot of commentators think this Budget is more stimulatory than was needed (or at least does not do enough to dampen aggregate demand) given Australia's current high inflation climate. After all, the Budget still involved a 1.1% increase in real spending and there were significant tax cuts, particularly for low-income earners (who typically have a higher MPC). Also, there weren't any particularly hard-hitting spending cuts in many areas of significance. So I would probably lean towards saying it may have been better for inflation and interset rates if it had been a tougher Budget.
Over the past couple of decades, the first Budget for an incoming Government has typically contained much larger spending cuts. The Keating and Howard Governments both really wielded the axe in their first Budgets, in order to combat inflation, and in order to remove public sector debt contributing to the CAD, respectively (I think?, correct me if I'm wrong).
A lot of commentators think this Budget is more stimulatory than was needed (or at least does not do enough to dampen aggregate demand) given Australia's current high inflation climate. After all, the Budget still involved a 1.1% increase in real spending and there were significant tax cuts, particularly for low-income earners (who typically have a higher MPC). Also, there weren't any particularly hard-hitting spending cuts in many areas of significance. So I would probably lean towards saying it may have been better for inflation and interset rates if it had been a tougher Budget.
Over the past couple of decades, the first Budget for an incoming Government has typically contained much larger spending cuts. The Keating and Howard Governments both really wielded the axe in their first Budgets, in order to combat inflation, and in order to remove public sector debt contributing to the CAD, respectively (I think?, correct me if I'm wrong).