Having a mildly contractionary stance with a deficit outcome of $29.4 billion, the coalition’s 2017/18 Federal Budget delivered by Treasurer Scott Morrison on the 9th of May features initiatives to stimulate employment through the promotion of economic growth. The prospect of achieving a surplus of $7.4 billion by 2020/21 is to the detriment of funding to universities, foreign aid and welfare payments.

To assess the impacts of budgetary changes on resource use, income distribution and economic activity, the HSC Economics Syllabus asks students to examine the key outcomes of past and current Federal Budgets in relation to fiscal policy.

Fiscal policy 

Fiscal policy is a macroeconomic tool used to influence resource allocation, the redistribution of income, and economic activity. Instruments include government spending, taxation and the budget outcome.

Resource use – what is it?

In an economic sense, resource use refers to the changes to taxation and the impacts of these shifts on the prosperity of the economy. There are both winners and losers stemming from changes to resource use in the 2017/18 Budget;

Winners:

o  Small businesses

Small businesses with a maximum turnover of $10 million are exempt from taxes on the purchases of capital equipment worth up to $20,000. Recent budgets have directly addressed small businesses, as they employ 4.7 million Australians, having a great impact upon domestic economic prosperity.

For instance in the 2016/17 Federal Budget, Treasurer Morrison announced the small business tax rate for those with a turnover of $10 million was to be lowered by 1% to 27.5% from July 1st 2016, affecting 870,000 more businesses than the initial tax cut introduced in 2015. By 2020, the coalition has the aim of increasing this threshold to encompass all businesses, regardless of turnover, to pay 25% company tax by 2023.

Losers:

o   Multinationals

The government aims to extend the Multinational Anti-Avoidance Law to cover transnational corporations that have foreign partnerships and trusts, which have been dodging tax on Australian soil.

Income distribution – a growing divide 

As you may recall from Topic Three (Economic Issues), the distribution of income and wealth is a crucial factor determining the level of inequality in the Australian economy, having both important economic and social costs and benefits. The winners and losers from policies regarding the redistribution of income policies include;

Winners:

o   Working parents

The government pledges to invest $37.3 billion into the childcare sector to lift the cost of living pressures for one million Australian families. This investment includes preschool, before and after school care. With this increased expenditure, the government aims to encourage workforce participation and support families who are willing to work more hours, and had been restrained in the past due to high childcare costs.

This influx of spending relates to the distribution of income as childcare support will be means-tested, allowing widespread access to quality early learning centres for those who need it the most.

Losers:

o   University and prospective university students

Possibly the most controversial element of the 2017/18 Federal Budget is the funding cuts of $2.8 billion to tertiary education. This reform essentially means that students will have to pay back a greater share of their degrees, and start paying back loans at a lower income threshold of $42,000 from mid-2018, a substantial cut from the current $55,000 threshold.

Can you think of the economic and social benefits and costs of the introduction of funding cuts to tertiary education?

Economic activity – aggregate demand and supply 

We’ve all heard the slogan; ‘jobs and growth’, right? Well in the 2017/18 Budget, the economy should experience a steady rise in growth (within target range) whilst stimulating employment.

The government’s 10-year nation-building program is set to create thousands of jobs, coming at a great time of need as Australia continue to transition off the back of the mining and mining-investment booms.

$5.3 billion will be invested into the new airport for Western Sydney at Badgerys Creek, Melbourne and Brisbane will be connected by a new rail link, and the government will gain more control over the Snowy Hydro scheme to stimulate local economic growth in NSW and Victoria, all within the next decade.

As the Budget is mildly contractionary, it is expected that there are more losers than winners, at least in the short term. This short overview provides only a small snapshot of the 2017/18 Federal Budget.

So with this in mind, in how many other ways does the 2017/18 Federal Budget relate to the HSC Economics Syllabus?

http://www.budget.gov.au

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Why?

A multitude of factors influenced the board to loosen monetary policy, including the steady increase in property market prices of domestic capital cities, the prospect of potential deflation, and uncertainty in the economy as exports continue to transition from mining to the unknown.

The current underlying inflation rate of 1.5%, a slight unprecedented recovery in pressures of 0.5% from July 2016, reflects marginally heightened household confidence (demand-pull inflation) over the past nine months. However, the prospect of deflation in the Australian economy is a true concern due to great fluctuations in the CPI above and below 0% over the past fiscal year.

Unemployment has remained relatively unchanged over the past year at 5.8%, 0.5% above the estimated non-accelerating inflation rate of unemployment (NAIRU), indicating cyclical unemployment of 0.5% in the economy. Expansionary monetary policy has thus been implemented to stimulate borrowing from businesses to invest in research and development, innovation and therefore heightened demand for human capital. However, the economy is yet to reap the benefits from this theory.

RBA Governor Philip Lowe stated, a “growth in household borrowing, largely to purchase housing, continues to outpace growth in household income.” High levels of borrowing reflect Australia’s structural issue of the savings-investment gap, currently floating around 8% of GDP. Additionally, wage pressures of 1.88% p.a, the lowest ever on record, further denotes the dampened growth in household income, whilst undermining hopes for a recovery in inflationary pressures and a rise in GDP growth in the near future.

So what does this mean for the future of the Australian economy?

Considering the current economic conditions of growth at 2.4% p.a., expected to remain below-trend for two more years, and beneath the target GDP expansion rate of 3-4%, the rationale behind the RBA’s decision to use expansionary monetary policy to increase economic prosperity is apparent.

However, the effectiveness of monetary policy in the long-term is questionable, and an analysis of current and projected data suggests that an economic recovery to reach Australia’s economic objectives of internal and external stability in the near future is bleak.

So will Australia be able to recover from the back of the mining-investment boom with the use of monetary policy? Or will other measures need to be taken?

Reference Articles:

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Always much more of an English person, I considered Economics my weakness and really struggled in the beginning to write perfect essays. However, with a lot of practice I developed a formula that served me well in Trials and the HSC. I ended up getting a 97 in Eco and I think learning to write successful essays played a big part in that.

I’ve seen lots of example essays given out by teachers as exemplars that are heavy on theory (which is also important) but light on current information. I think this is where the real marks lie. Economics essays should be logical, clear, succinct and simply written. Here then are some of my tips for developing a kickass essay style:

1.

Your introduction should provide comprehensive but succinct definitions of all the terms in the question. Go to your textbook (especially the Riley one) for the best definitions and have lots of them up your sleeve in exams. Then briefly outline the answer to the question and list the points you will discuss, kind of like a table of contents. If it’s applicable, you can also give some brief information on the current situation in the economy i.e. statistics, currently policy stance etc.

Here’s a top-notch example of an introduction for the following essay question: 

Analyse the causes of an appreciation in the value of the $A and the impact of a sustained appreciation of the currency on the Australian economy.

An exchange rate refers to the price of one currency expressed in terms of another in order to give a measure of its purchasing power. The two main ways of measuring the $A are through a bilateral measurement (the $A measured against one other currency, usually the $US) or through the Trade Weighted Index, which measures the $A against the currencies of Australia’s major trading partners, weighted according to their importance to Australia’s trade. Since financial deregulation in 1983, Australia has had a floating exchange rate – meaning that the $A is determined by the market forces of supply and demand. An appreciation of the $A – which refers to an increase in the purchasing power of the currency – will therefore occur as a result of either an increase in demand or a decrease in supply. The major impacts of an appreciation of the $A include its effect on the BOGS component of the Balance of Payments, inflation in Australia, issues associated with international competitiveness and appropriate policy responses, as well as the valuation effect on Net Foreign Debt. 

So you’ve covered all the definitions, given a bit of background and outlined how you’re going to answer the two parts of the question. If this was still 2012 or 2013 you could briefly discuss the recent sustained appreciation and give some stats…but you get the gist.

2.

Now for the body! Before even putting pen to paper, it’s important to consider the most logical structure for the essay. I used to spend about 5 minutes during the exam quickly coming up with a structure and it was never time wasted. For example, you might split the essay into different parts to address different sections of the question separately. Or you might structure the essay in terms of cause and effect, domestic vs. global influences etc. Whatever you choose, make sure it’s logical. You can’t have stuff all over the place.

3.

In a great Economics essay, every paragraph will include simply-written but sophisticated theory. Unlike English, it’s best not to use big words and complicated senses. You just have to get to the point, and kind of treat the marker like an idiot…this means you have to explain every step in a process. Where applicable, include a clear diagram with an explanation. After the theory and the diagram comes the current information. SO IMPORTANT!! An Eco essay is nothing without some info from the real world, and a really good essay will be covered in numbers.

4.

You can be original with your conclusion. Obviously, sum up your points but it’s a good idea to include a brief discussion about the future of the issue e.g. consequences for policy, for the economy etc. Let’s use an essay on China as an example. In your conclusion you might talk about how China will have to find other sources of growth, will have to address growing environmental challenges…

Here’s my own conclusion:

While globalisation and government policies have contributed to increased trade, investment and financial flows and a consequential improvement in living standards, China still faces various challenges to its future economic growth and development – particularly environmental issues, disparities between regions and rebalancing the economy’s sources of growth. If government policies prove successful in managing these issues, China may very well become the world economic superpower in future decades. 

I hope these tips prove useful! And the one thing I can’t stress enough is practice, practice, practice. Sounds like the most obvious thing in the world but if you really commit to it, you’ll start seeing the results.

Don’t forget that you can submit practice essays or parts of essays to the HSC CoWorks online marking service and it will be marked with constructive feedback within 72 hours.

Nechama

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