Fiscal Policy Essay

Satisfactory Essays

“Fiscal policy involves varying the intended expenditure and revenue of the Australian government so as to assist in attaining the government’s economic objectives.” (Bulmer, 2014) One of the main influences on the fiscal policy in Australia is the budget; which is an estimate of income and expenditure for a set period of time. A famous economist called John Maynard Keynes discovered a remarkable economic principle called Keynesian Economics. Keynesian economics is a theory of total spending in the economy (called aggregate demand) and its effects on output and inflation. (Binder, 2008) This economic principle is continuously used in Australian economics and helps governments and economics make economically based decisions.

There are two main ways the government can achieve their fiscal policy: to raise taxes and to cut government expenditure.

(Waller, 2010)

Two Variations of Fiscal Policy

Fiscal policy consists of two basic variations called expansionary and contractionary fiscal policy. Each is recommended to correct different problems created by business-cycle instability.

(Miller, 2013)

The suggested fiscal policy to fix the issues of a trade-cycle recession is expansionary fiscal policy. This involves larger government purchases, a reduction in taxes, or an escalation in transfer payments. This fiscal policy substitute is intended to stimulate the economy by increasing aggregate expenditures and aggregate demand. It is primarily aimed at reducing unemployment, which is beneficial to the economy and the government.

Government Goals & Strategies

A key element of the Government's medium term fiscal strategy is to achieve budget surpluses, on average, over the medium term. This objective al...

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...n out the economy. It shows that in only 3 years, the budget will be nearly completely out of a deficit.


In conclusion as stated early, Fiscal policy is set by the budget and is then controlled by government expenditure and taxes. Fiscal policy is then spilt into two parts (expansionary and contractionary). The government goals for fiscal policy are summed up as the important four:

1. Inflation
2. Unemployment
3. External balance
4. GDP

With the new 2014 to 2015 budget now in place, the changes that have been made will dramatically affect future government decisions when concerned with fiscal policy. In reference to the budget, they will need to rethink their expenditure, they will have to recalculate the tax needed to keep inflation steady, to bring the levels of unemployment down, to keep external balance solid and to keep the GDP under control.