Australian Fiscal Policy in 2010-2011

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Page count 3
Word count 980
Read time 4 min
Subject Economics
Type Essay
Language 🇺🇸 US

Fiscal Policy

Fiscal policy refers to the approach that a government employs in collecting and spending money to achieve economic stability within a given period, usually one year (Belmann, 2010, p. 3). Therefore, each government introduces its fiscal policy annually to direct economic activities with a view of achieving growth for the country. As a result, the effects of any measures used by the government are felt by all the players in the economy.

For instance, a tax cut is useful for families as it increases the amount of money at hand. This money can be used to purchase more items. Therefore, fiscal policy is an important tool for adjusting government spending to influence countries’ economic activity within a given year.

Instruments of Fiscal Policy

As highlighted above, governments use fiscal policies to control economic activities. The instruments employed fall under two main categories: expenditure and revenue generation policies. Expenditure policies aimed at boosting consumer spending as well as increasing the standards of living for the citizens. Revenue generation plans, on the other hand, include the various ways in which a government collects taxes and tariffs from consumers and businesses. Taxation is an important instrument of fiscal policy. In essence, when a government increases or reduces taxes, in reality, it increases or decreases the amount of money available to consumers in an economy.

A tax cut puts more money in the pockets of consumers and vice versa. When people have more money, they spend more, which leads to high revenues for businesses. Therefore, cutting taxes is an important measure that boosts economic growth. Another instrument is government spending. Expenditures by governments can stimulate economic growth and create more employment. For instance, if a government sets some money aside to build a road, the funds are used in hiring workers. This reduces unemployment and injects more money into the economy (Helpman, 2004, p. 54). Therefore, a government that spends more will promote employment as well as stimulate economic growth.

Explain using statistics of government expenditure, personal taxation, and transfer payments what Fiscal Policy Stance did the 2010-11 Federal Budget take?

Governments usually employ a raft of measures in any given year to achieve several policy objectives that might include dealing with market failures as well as improving equality by ensuring equitable distribution of resources. Government spending is one approach that can be used to implement its policies and the other method is stimulating demand in the economy through taxation and transfer payments (Weil, 2007, p. 66).

Australia’s fiscal outlook was seriously affected in 2009 as a result of the global financial turmoil, which forced the government to increase its spending. In the 2009-10 budget, the government spent 236 billion, which was about 20.5 % of the total GDP (Colonial First State Global Asset Management, 2012, p. 2). In the 2010-11 budget, the government spent about 15 billion more, excluding payments to goods and services. Indeed, over the years, the government has continued to increase its spending, to sustain government finances by focusing on measures that boost the governments’ productive capacity.

As the economy continues to recover, the Australian government envisages that the size of its fiscal deficit will go down and achieve a surplus by 2012-13. This is possible due to projected improvement in company and tax receipts in addition to reduced growth in welfare spending (Weil, 2007, p. 67).

The government also cut taxes on individuals and families. From July 2011, individuals will have a discount of up to 50% on interest earnings (Colonial First State Global Asset Management, 2012, p. 3). This tax discount aims to help individuals increase their savings. A tax cut in the 2010-11 budget is likely to boost income distribution from low to high earners. Also, transfer payments have the advantage of improving income distribution as it gives disadvantaged members of society some source of income.

Indeed, transfer payment to those who are not working, the elderly and those who are physically disadvantaged will minimize income inequality in Australia (Sabillon, 2008). Panel B (Fig 1) illustrates the effects of these measures. Aggregate demand increases outwards due to reduced taxation, increased transfer payment, and increased government spending and vice versa as shown in panel A.


Appropriateness of the government’s Fiscal Policy Stance to the present economic situation

The consequences of the global financial turmoil have been felt in virtually all countries, which led to reduced economic growth. Production and demand worldwide are in a downward trend, which has seen a significant drop in the prices of goods and services. Because of this, it is not expected that there will be many investments shortly. Indeed, households are having reduced purchasing power, which prompted the government to reduce taxes on families and individuals (Colonial First State Global Asset Management, 2012, p. 1).

Australia was able to overcome the pressure better than other countries due to a steady financial system. Also, expansionary fiscal policy and low-interest rates were able to dilute the effects of the global financial turmoil on the economy. The level of unemployment rose in 2009-10 and was sustained in the 2010-11 period. Moreover, inflation was at a moderate rate over this period (Organization for Economic Co-operation and Development, 2010, p. 22).

The fiscal policy in Australia is expansionary and this is not so good for the economy. However, once the inflationary pressures go down, it will be possible to wind down the deficit to achieve a long term sustainable level. Focusing on the long term, it is very much in Australia’s’ interest that an appropriate mechanism be instituted to achieve better coordination of the countries fiscal outlook about the larger EU block. If this is not done, Australia might face the same misfortune occasioned by the financial crisis. However, the existing mechanisms are not effective as they do not have appropriate economic focus. Therefore, there is an urgent need to establish such a mechanism.

Reference List

Belmann, S.J. 2010, Fiscal Policy, GRIN Verlag, New York.

Colonial First State Global Asset Management. 2012. 2010/11 Australian Budget: better than all the rest. Web.

Helpman, E. 2005, The Mystery of Economic Growth, Harvard University Press Harvard.

Organization for Economic Co-operation and Development (2010), OECD Economic Survey: Australia, 2010. OECD, New York.

Sabillon, C. 2008, On the Causes of Economic Growth: the lessons of history, Harvard University Press, Harvard.

Weil, N.D. 2007, Economic Growth, Academic Books, New York.

Cite this paper


EduRaven. (2021, October 28). Australian Fiscal Policy in 2010-2011. Retrieved from


EduRaven. (2021, October 28). Australian Fiscal Policy in 2010-2011.

Work Cited

"Australian Fiscal Policy in 2010-2011." EduRaven, 28 Oct. 2021,


EduRaven. (2021) 'Australian Fiscal Policy in 2010-2011'. 28 October.


EduRaven. 2021. "Australian Fiscal Policy in 2010-2011." October 28, 2021.

1. EduRaven. "Australian Fiscal Policy in 2010-2011." October 28, 2021.


EduRaven. "Australian Fiscal Policy in 2010-2011." October 28, 2021.


EduRaven. 2021. "Australian Fiscal Policy in 2010-2011." October 28, 2021.

1. EduRaven. "Australian Fiscal Policy in 2010-2011." October 28, 2021.


EduRaven. "Australian Fiscal Policy in 2010-2011." October 28, 2021.