Regulation of the economic activity of the country can be done using Fiscal policies and Monetary policies. The Reserve bank controls the monetary side and the government controls the fiscal side. The government through fiscal policies adjusts its spending levels and tax rates that influence to achieve macroeconomic goals like price stability, decreasing the unemployment rate, and economic prosperity. Australia's unemployment rate rising from 7.4% in June to 7.5% in July. This has been the highest jobless rate since 1998. During the first three months of 2020 Australia witnesses 0.3% growth which is lower than 0.5% growth in the previous period. After 2011 this is the first slow growth as the economy was hit by natural calamities and the COVID 19 pandemic. During quarter 2 of 2020 consumer price dropped by 0.3% which was the first decline seen after quarter 3 of 1997, increase price is seen in the case of food insurance and financial services whereas cost slowdown for clothing and housing (Trading Economics,2020). The Australian government has engaged in expansionary fiscal and monetary policy to stimulate the economy(Hsing,2019). But still, the Australian economy is witnessing slower growth. The focus of the essay is agreeing with the statement the Australian government should not continue with expansionary fiscal policy, as it will create a negative impact on the Economic Prosperity of future generations.
The Government should not be continuing with the expansionary fiscal policy because it necessitates the government to borrow money from the private sector to increase its spending beyond its tax-based budget. This will lead to an increase in the government budget deficit. At 30 June 2020, the gross Australian government debt was $684.3 billion(34.4% of GDP), the budget deficit hit almost $ 86 billion last financial year. By the end of the year, the predicted unemployment rate will be 9 percent ("Federal Government, " 2020). Some economists also said that there is a need for broader policies and the sharp cutoff may damage the recovery and may lead to higher unemployment ("Australia's recovery, " 2000). Thus Expansionary fiscal policies created a negative impact on the economy.
Furthermore, according to Keynesian thought expansionary fiscal policy increases output resulting from increased aggregate demand. Due to tax cut by government people will divert their tax savings to buy more goods and services. This will create demand for goods and services. This demand will result in increased production. Increased production creates demand for labor in the economy thereby employment rate will increase. If these policies are used for a long time it will harm GDP growth. So expansionary fiscal policies should be used for the short term but not to be used as a tool for constant. Hsing 2019, mentioned that expansionary fiscal policies reduce output and affect other macroeconomic variables, and expansionary monetary policy increases output. Fiscal policies need to be examined carefully. During this time monetary policy may play a significant role. So expansionary fiscal policies are not always the permanent solution.
In times of slow economic growth expansionary fiscal policy helps to increase economic growth and minimize the growth of unemployment. The economic slowdown that Australia facing today is different from what it had faced previously. Here the government has deliberately shut down parts of the economy when the economy is already in slow progress for maintaining good health of the society. To bring back the economy into its normal condition the government of Australia has made some fiscal changes. $17.6 billion was released by the Australian government for supporting small and medium-sized businesses, introducing a new coronavirus supplement, relaxation measures in superannuation, reduction of deeming rate, and boosting cash flows for employers(Dennis, Grudnoff & Richardson,2020).
The additional spending by the government in the form of fiscal stimulus may cause a significant increase in the debt of the country. With this government support, the Australia economy is forecast to shrink by 3.75%(Lee,2020). So expansionary fiscal measures alone do not drive the economy in these difficult situations. In this regard, the government should work toward planning innovative approaches to run the economy smoothly.
Australia’s recovery depends on fiscal Policy, economists Say. (2020, June 24). Retrieved from Retrieved from https://www.bloomberg.com/news/articles/2020-06-25/australia-s- recovery-depends-on-fiscal-policy-economists-say
Dennis,R., Grudnoff,M., & Richardson.2020.Design principles for Fiscal policy in a pandemic- how to create jobs in the short term and lasting benefits in the long term. Retrieved from
Federal Government deficit hits a record high of $86 billion as coronavirus devastates the economy[Video file]. (2020, July 22 ).Retrieved from https://www.abc.net.au/news/2020-07-23/federal- government-coronavirus-deficit-economy-debt- frydenberg/12483360
Hsing, Y.2019. Is Expansionary Fiscal and Monetary Policy Effective in Australia?.Journal of Business, Economics, and Environmental Studies,9(3),5- 9.doi:10.13106/jbees.2019.vol9.no3.5
Hubbard, G., Garnett, A., Lewis, P. & O’Brien, T. 2013. Essentials of Economics 2nd Edition,
Pearson Australia.Trading Economics,. (2020). Retrieved from Trading Economics on August 24,2020https://tradingeconomics.com/australia/fiscal-expenditure
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