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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 first three months of 2020 Australia witnesses 0.3% growth which is lower than 0.5% growth in previous period. After 2011 this is the first slow growth as economy was hit by natural calmities, and the corona virus pandemic. Household consumption fell to -1.1% from 0.5% in Q4 2019 (Trading Economics,2020).The country's budget deficit is forecasted to reach 85.8 billion dollars. To control this slow progression in economy fiscal policy and monetary policy are used. The Reserve bank controls the monetary side and government controls fiscal side. The government adjusts its spending levels and tax rates that influence the macroeconomic condition of the country through Fiscal policies. It helps to control unemployment rates, inflation, stabilize trade cycles and they also have an influence on interest rates prevailing in the country's economy. Government uses expansionary fiscal policies to increase aggregate demand by way of increasing government spending and tax cuts. This essay will discuss whether the Australian government should not continue with expansionary Fiscal Policy, as it will create a negative impact on the Economic Prosperity of future generations.
According to Hubbard, Garnett, Lewis & O'Brien (2013),expansionary fiscal policy aims to increase aggregate demand by way of increase in government spending and tax cut. In times of slow economic growth expansion fiscal policy helps to increase economic growth and minimize the growth of unemployment. The economic slowdown that Australia facing today is different from it had faced previously. Here the government has deliberately shutdown parts of economy when economy is already in slow progress for maintaining good health of the society .
To bring back the economy into its normal condition government of Australia has made some fiscal changes. Australian Government released $17.6 billion economic plan for supporting business investment, providing cash flow incentives for small and medium sized business, targeted support to the sectors and group which are severely affected and providing household stimulus payments. On 22nd March some more fiscal measures are introduced by the government such as introducing a new coronovirus supplement, relaxation measures in superannuation, reduction of deeming rate and boosting cash flows for employers(Dennis, Grudnoff & Richardson,2020)
According to Chief economist Besa Deda from St. George Bank (2020), mentioned that given the likely long term effect of pandemic the government cannot keep these program open forever so policies have to be defined broadly. Ian Harper persuade the government to implement "tappering arrangement" saying that sharp cut off would damage the recovery and may leads to higher unemployment(Veroude,2020).
The additional spending by government in the form of fiscal stimulus may cause significant increase in debt of the country. With this government support Australia economy is forecast to shrink by 3.75%(Lee,2020).So expansionary fiscal measures alone not drive the economy in these difficult situation. Government needs to plan and implement innovative ideas to drive the economy
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
Hubbard, G., Garnett, A., Lewis, P. & O’Brien, T. 2013. Essentials of Economics 2nd Edition,
Trading Economics,. (2020). Tradingeconomics.com. Retrieved from https://tradingeconomics.com/australia/fiscal-expenditure
Veroude,A.2020. Australia’s recovery depends on fiscal Policy, economists Say. Retrieved from https://www.bloomberg.com/news/articles/2020-06-25/australia-s-recovery- depends- on-fiscal-policy-economists-say
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