Lessons and Policy Implications †Free Samples to Students

Question: Discuss about the Lessons and Policy Implications Management. Answer: Introduction: Economy of Australia owes its importance in the very fact that it is a small economy with huge untapped potential to grow. The Australian economy consists of worlds one of the biggest mixed market economy possessing the rank of second wealthiest nation in terms of wealth held per adult. The country is mostly service sector driven that contributes 61% to GDP. These facts reveal how important these national economies are to the world economy. In the modern world, economic policies play pivotal role in the functioning of the economy as a whole taking care of the all the national economic challenges. Securing equilibrium and driving the equilibrium towards stability are something greatly depends on what and how the macroeconomic policies are undertaken. One of the important instruments of macroeconomic policies is the fiscal policy that mostly refers to the policies devised and executed by the government through the channels of tax and various form of and expenditure modulated by the government (Teles and Mussolini 2014). Fiscal policies are undertaken in order to stimulate a drooping economy or control a inflationary pressure of a booming economy. Primary focus is on boosting the consumption Management backed by increased income. Increased income can be obtained when tax is less so that disposable income is high which further allows more consumption demand to be made. Moreover, government increases autonomous expenditure i n order to stimulate the economic activity through increased employment and income. Contrastingly government can also resort to policies that deal with cutting back expenditures and leading to contraction in economic spending by consumers or producers. This paper aims to discuss the fiscal policies Australia adopted for the financial years 2014-15, 2015-16 and 2016-17 with subsequent focus on the economic overview of the country as well as the specific concerns regarding fiscal strategies.. As per the nominal gross domestic production, the country ranks 14th globally though in terms of purchasing power parity, it ranks 20th worldwide. According to IMF estimation, the country recorded its GDP at $1.258 trillion nominally. The growth rate of GDP is 1.8% annually. GDP per capita of the country is pretty high $51,850 which captures the higher per capita wealth. Australia ranks 2nd in the HDI positioned just after USA. The wealth growth rate of the country has been 4.4% annually owing to the constancy of exchange rate system. The economic activity is greatly contributed by the service sector, which comprises of largest workforce contributing to 61.1% of the GDP (Bova, Carcenac and Guerguil 2014). The next biggest component is construction and mining that contributes up to 8.1% and 6.9% respectively of the GDP. The manufacturing sector of the country produces 6% of the total national output. Agricultural production of the nation is accounted in nominal GDP only by 2.2%. the price level of coutry is moderate which is captured by the lower inflation rate recorded to be 1.9% as per 2017 data (Storm and Naastepad 2012). The country facing higher export demands, focuses more on production of goods being exported compared to the manufacturing production. This has increased the terms of trade of the country since 2000. The country is diagnosed with deeper current account deficit operating for almost 60 years till now. In 2016. the current account deficit has been recorded at AUD$ 44.5 billion almost accounting fo r 2.6% Of GDP (Cspedes and Velasco 2014). The inflation has always been controlled and well managed to prevail between 2 to 3%. Post great financial crisis and end of boom in mining sector, the cash rate has been fallingat steady rate from almost 4.75% in 2011 to 1.5% in 2016. Service sector include education, tourism, consultancies and financial services which additively contributes up to 69% of total GDP. Natural resource along with agricultural production holds 2-5% of the total GDP. They consist the maximum of the export basket mostly forwarding the good into China, Japan, South Korea, US and India. The country has been revolving around 5-6% recently after facing rise in post financial crisis reaching a peak of 6.25% (Jord and Taylor 2016). Keeping parity with the employment the wages in the country has not risen rather has been falling over time. Australia enjoys comparatively lower tax burden, public spending and public in the recent times among other OECD countries. The global financial crisis ruptured economic stability in Australia, which came back to normalcy only when the Australian government provided fiscal support to avoid recessionary pressure on economic output (Katsimi and Sarantides 2012). This has led to increasing fiscal deficit over time, which has been an alarming issue in the economy of Australia. Among the top economic issues prevailing in the Australian economy, major concern is attracted towards higher unemployment rate, higher public debts stemming from increasing fiscal deficit and housing affordability by chunk of national population. To address these issues, importance of proper fiscal policies targeted to bring stability is undeniable. Fiscal Policy Strategy: 2013-2014 The Government has inherited a budget in significant need of repair. Undertaking systemic fiscal repair to return the Budget to surplus and to reduce debt is a key election commitment of the Government. The Australian budget of 2013-14 is focused to conduct repairing the economy in order to push it to the budget surplus level. Reduction of debt is key target set behind the systematic fiscal policies (DeLong and Summers 2012). The government clearly promises the deliverance of the commitments made in form of fiscal policies. The government has aimed to restore finances of the public sector through letting the fiscal budget attain its surplus level with sustenance. It has been targeted to prevail around 1% of GDP in 6-7 years from now. To make assessment of the role and scope of government and to ensure proper usage of tax revenues, National Commission of Audit has been established by the government. The Commission brings forth he recommendations that provides the building block of the 2014-15 budget mainly aiming for the reduction in the expenditures made by the government. The nation has been able to accelerate its economic growth and productivity rate so that it can deliver the growth in standard o living with sustenance over decades (Jord and Taylor 2016). As per the government plan, the strong growth of the economy can be ascertained by making investments to enhance the quality of infrastructure while reducing red tape and promoting integrated government system that would encourage the growth. As per the budget o 2014-15, the medium term fiscal strategy o the government is to derive surplus in the budget over the period of economic cycle. The fiscal strategies outline the commitment of the government into the budget setting policies of mid term while allowing for flexibilities regarding the economic condition changes. The three major policy elements underpins the fiscal policy of that year. Redirection of governments spending into quality investment. The motive behind such is to accelerate productivity and participation o workforce. Maintenance of strong disciplines in the fiscal policies in order to deduct the share o the government involving in the economic operations over the period (Fontana and Setterfield 2016). The major concern behind this policy is to free the resources up from the public spending and redirect them to private investment so that they can create new jobs, opportunity and income o the nation as a whole that further consolidates the economic growth. Th is further captures the reduction in the payments to GDP ratio, payment o debt through bringing stabilization and then making the government securities or commonwealth purpose fall based on issues in time. The next policy is to consolidate and make the balance sheet maintained by the government much stronger through improvement of net financial worth. Budget repairment strategy is devised to bring budget surplus in the economy that also by minimum 1% o GDP by 2023-24 keeping consistency with medium term fiscal strategy (DeLong and Summers 2012). This strategy demarks out the expenditures made newly will be offsetting the reduction of the public spending encountered. The changes in the economy will shits the receipts as well as payment that would be treated as benchmark for improvement in the national output through positive impacts. Clear declaration about setting path that leads the economy out of the deficit and push toward the surplus (Fazzari, Morley and Panovska 2015). The budg et repair strategy will prevail until strong surplus is achieved and unemployment rate become much lower and economic growth reaches its expected level. The outlook analysis o the policy depicts the comprehensive path that government has set out to achieve the fiscal objectives targeted in medium term. Compared to the unsustainable situation prevailing in former government reign, the budget position has improved. Even though weaker expectation have been made due to lower GDP growth over the past years, the average annual pace of the financial year 2014-15 has been remarkable with forward estimation o the MYEFO remaining at 0.06% o GDP in this year budget. Keeping parity with fiscal strategy, there has been all in the payment to GDP ratio from 25.9 % o of GDP to 25.2% from 2014-15 to 2017-18 (DeLong and Summers 2012). The projection, which is well below the average of long term at 24.9% o GDP. The fall in the ratio symbolizes all in the public debt share o the GDP and continuous effort taken in reducing this actually sets out the trajectory to propel the economy toward surplus o budget which is highly rated target o the nation. Fall i n the ratio also suggests lower tax rates as imposed by the government and greater respond to change in economic situation. The fiscal policy of the government provides necessary flexible position for the budget and let it vary according the economic situation. This makes provision o the automatic stabilizer to operate and contribute to the aggregate demand stability. Fiscal policy being responsible one looks beyond the period of forward estimation in order to promote the long run sustainability of fiscal policies. The MYEFO of 2013-14 depicted the importance of action in order to create net return to surplus making the debts reach $667 billion. The govt. spending was placed at more affordable trajectory while allowing for future tax relief after the tax to GDP ratio reaches 23.9% by the year 2020-21. The underlying cash balance is projected to reach surplus in 2019-20. Fiscal Policy Strategy: 2015-2016 Fiscal policy of Australia is ruled by broad target of achieving balanced budget or budget surplus in the federal budget. State governments have been able to manage only small balance as a result, they dont impact the fiscal stance substantially. The recent target of the government is adoption of operational goal that would help the budget surplus reach 1% of GDP which is efficient enough to bring down the debt-GDP ratio to a minimum level (Mankiw 2014). The prediction suggests that 1% of the budget surplus in the future years would cause the debt ratio to reach 25% of GDP by 20215-26 and further reach to zero by 2040. The balanced budget of Australia has implication of longstanding preference regarding achieving low debt burdens. The tax reform of recent time focuses more on the reduced corporate tax combating the base erosion and shift of profit under corporate taxation (Fazzari, Morley and Panovska 2015). The GST has been made applicable to online digital product purchase and low-value imported goods by making legislation by the government. Economic and efficient public spending creates a strong basis for public finance increasing the effectiveness of transfer payment and welfare. Government of Australia spends more to incur additional investment for public projects that have substantial long term returns conducting cost benefit analysis prior, The fiscal position guides the nation to maintain and improve trajectory of forward estimation keeping consistency with the commitment of the government to return to the balanced budget and lead toward surplus over the while keeping the debts as low as possible. As per the estimations made in PEFO 2016, surplus in the cash balance is projected by the 2020-21. Cash deficit is expected to fall 2.1% to 0.5% of GDP. There has been remarkable revision in the expected level of fiscal deficit falling to 0.3% from 2.4% of GDP (Fazzari, Morley and Panovska 2015). As usual the budget sheds focus on the implementation of governments plan for growth stimulation and job creation. The imposition of ten year tax plan on enterprise is god source of increasing national as well as household incomes that also makes provision for the investors. This brings innovation and create employment too while keeping the tax payment of the business fair and contributing to the growth of GDP. The investment in infrastructure by the government is major component of fiscal strategy in this financial budget. Over $50 billion has been estimated to be invested between 2013 and 2020 (Coady and Gupta 2012). The another major component of government expenditure has been defense and security of the Australians. The government is making provision of $29.9 billion investment in defense through the approval of Defense White Paper in order to enhance and strengthen the capabilities of the sector (Rendahl 2016). In this fiscal, government provides enormous financial assistance as fund to the schools and hospitals for reformation as well as enhancing the quality and safety. This consolidates the long term funds for sustainable growth in these sectors too. The fiscal strategy adopted by Australian government follows the requirement of the Charter of Budget Honesty Act 1998 (Jord and Taylor 2016). Same as the previous fiscal years, the prime focus of the government is to achieve the surpl us in the budget over the course of economic cycle. Estimatation About Fiscal Policies: 2017-18 If we look at the current economic situation, the investment boom in the mining sector has gone underway. The current budget stands upon the announcements made by the government already regarding stimulating growth and create more jobs to deal with higher unemployment. The successful transition of the Australian economy is supported by the budget that brings forth such national plan. The major focus is on the tax cut to mainly businesses operating in the country in order to encourage more investments in the business (Bodie 2013). Making the export deals secured is also major focus since export is the source o exposure to new markets and opportunities. Investment in the national defense industry and defense infrastructure translates into economic growth through long run improvement in the productivity. The commitment of government is to invest in strong economy by making redirection in its investment that would boost productivity and growth. The action of government through fiscal str ategy is to handle the pressure of cost that is faced by business and household sector. Higher priorities are given on funding the main services provided by government on which mass of population depend. The government ensures the benefits are accessed and utilized by Australians mostly rural people. The budget of 2017-18 is a depiction of fairness and responsibility towards balance pathway of the economy. The cash balance of the economy is having an expectation to improve and increase from a deficit of $29.4 billion (1.6 per cent of GDP) in 2017 to a projected surplus of $7.4 billion (0.4 per cent of GDP) in 2020. This financial budget is a proper mechanism to demonstrate fiscal discipline of the government. The restraints on government expenditure and policy of budget repairing caused projected growth in the bottom line of $11.4 billion ranging over 2017-2021 as compared to 2016-17 budget. In relation to the negotiations made in Senate, new expenditure decisions are offset by reduction in the same (Arestis 2012). The expectation regarding net operation balance indicates an improvement from a deficit of $19.8 billion (1.1 per cent of GDP) in 2017-18 to reach a projected surplus of $7.6 billion (0.4 per cent of GDP) in 2019-20 and reach almost $17.5 billion (0.8 per cent of GDP) in 2020-21. The cash balance is forecasted to continue being in surplus reaching 0.5% of GDP in 2024-25 (Armingeon 2012.). The government has long borne strategy of achieving and sustaining the surplus budget is also carried out in this budget too in order to maintain the fiscal discipline (Afonso and Sousa 2012). Conso lidating the balance sheet of the government and redirection in spending and investment decisions are also the major factors that have been remained to be same for over past five years now that targets mostly to take the economy out of fiscal deficit and propel toward surplus one along with stimulating the growth in overall economy through the channel of productivity and workforce participation. Conclusion: From the above analysis, it is quite clear that the economy of Australia captures much of global attention. The country has been managing to sustain a stable economic growth over time. The Great Financial Crisis had worse impact on Australia even though the nation was not directly involved or linked to the poor performance of capital or failure of lending. However since the country is linked with US and other nations through channel of international trade, the post crisis global halt affected economic outcome of the nation leading to all in GDP growth rate and international trade volume contracted too. This recessionary impact of the country was counteracted by the expansionary monetary as well as fiscal policies adopted by the national government in order to boost the economic activity. This has led to huge debt burden on the country. The public debt ratio to GDP and the payment to GDP ratio has been greater over the years. This has led to stringent fiscal policies like increase in tax burden, reduction in government spending in order to take the nation out of the shackles of higher fiscal deficit and lead toward budget surplus. 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