2016 BUDGET

[chuckiecheese]

Hi Guys,

need a hand on assessment: Analyse effectiveness of the recent budget to achieve the government's economic objectives

[relativity1]

-they have increased the 32.5% tax threshold from 80 grand to 87 grand. The small to medium business tax rate was lowered by 1% as well. This reduces income tax for individuals who earn 80,000 or more and people in small businesses and can lead to more demand or expansion of businesses (not sure what their intentions in raising this are exactly though)
-The government is trying to raise more revenue for fiscal consolidation (paying off debt), but it is somewhat restricted by low commodity prices and the need for the government to be spending due to low growth in wages and employment.
-It has opted for loose monetary policy to drop interest rates which means that fiscal policy will most likely remain loose as well (not definite though).
-They have introduced a 10 year enterprise tax plan that will help businesses obtain tax cuts. This will allow businesses to have more income which can be used to purchase capital and expand production thus creating more jobs and increasing REAL wages.

Theres heaps of others on the wikipedia page

[tasiakuz]

Hi! So i have been looking recently at income and wealth distribution and inequality, I have linked the the latest Liberal budget's “Income threshold being lifted from $80,000 to $87,000 where the marginal rate rises from 32.5 per cent to 37 per cent. The change benefiting the wealthiest 25 per cent of taxpayers for a maximum $6.04 a week or $315 a year” to being a macroeconomic fiscal measure that usually taxes the wealthiest groups to redistribute income to lower socio-economic groups. Yet this action actually gives the wealthier people more money by not taxing them as much which is something you can say is ineffective! Yet they are offsetting income inequality by “very high income earners…[being] hit by changes to superannuation tax concessions”.
This is my fave website its really simple and concise: http://www.smh.com.au/business/federal-budget/budget-2016-the-budget-in-five-minutes-20160502-gojs1o.html

[Spencerr]

The 2016-17 budget isn't really a budget for "jobs and growth". It's more of a political budget than an economic budget. If you actually analyse the measures that the budget proposes they have no real economic impact. I'll try and help out by discussing some of the big policies.

Ten Year Enterprise plan
The plan to cut company tax down to 25% will not go past the senate. The goal is not aggressive enough as well even though it will slightly make Aus. firms more internationally competitive. Economic modelling shows that in the long run (20 years) economic growth will only increase by 1% of GDP (which is pretty much negligible). Also most of the benefits of cutting company tax will go to overseas investors. Theoretically cutting company tax is meant to improve productivity, allowing profits to be reinvested into capital, training etc. but in practice that is not the case. Improvements in unemployment and productivity will also be negligible. However the tax cuts to small businesses to 27.5% will be slightly beneficial.

Income tax Cuts
Tax cuts will only affect the top 25% of income earners and will no nothing for low income earners. This will increase the level of income inequality in the nation. Also the tax cuts will only generate a meagre 6$ a week for those affected so once again an ineffective policy.

Superannuation tax concession reductions
This policy makes the situation less unfair. During the mining boom, the government was raking in so much money that they started handing out tax cuts to the rich (to get votes) and it has become a structural issue ever since. These super changes will work with the Low Income Superannuation Tax Offset policy to make income distribution as a result of superannuation less unfair. However the government's decision to increase the excise tax by 50% over the next 4 years is a regressive policy which will ultimately negate improvements to income equity.

Prepare Trial Hire
This policy intends to increase workforce participation and also improve the skills and quality of the workforce by providing unemployed youth vocational training or work placements. In theory this would work as the unemployed and the young have opportunities to garner experience and develop skills which can improve their human capital and employability. (targeting the issue of structural unemployment) however in practice, the policy distorts the labour market. The reason being is that employers might choose to higher "interns" over actual paid workers.

Infrastructure spending
50 bill to be spent on infrastructure over the next few years (forgot how many). In theory infrastructure spending is good. Who doesn't love infrastructure spending. Improvements in productivity, productive capacity, employment, economic growth!! But in reality, the government's projects when analysed by an external organisation (something Institute) are actually ineffective projects that will not do much to improve the level of productivity in the economy.

Overall the budget pretty much sucks and lacks major economic reform.

Defense Spending

[olivercutbill]

It is also useful contextually to view the budget in light of past budgets -- for political and economic reasons.

An overall picture of the Australian economy will aid you, in it's current manifestation and in the recent past.

Good Luck!

[Klexos]

Reading through the previous responses, I reckon that knowing about the labour market reform policies (microeconomic) "Youth Jobs PaTH Program" is crucial because it addresses unemployment and its aim to reach full employment (so you can address the NAIRU with this aspect of the budget as well!)

From memory, here is a TLDR of the Youth Jobs PaTH Program:
- Encapsulates an emphasis on ensuring young people with an opportunity to secure employment in a constantly changing economy (this refers to structural unemployment)
- Investment of $840 million to assist up to 120,000 young people
- Provides intensive pre-employment skills training, work experience and monetary incentives for both active young job seekers and employers
- Used to encourage the decrease of labour force underutilisation (which was 14.2% in Feb 2016)

[Spencerr]

Reading through the previous responses, I reckon that knowing about the labour market reform policies (microeconomic) "Youth Jobs PaTH Program" is crucial because it addresses unemployment and its aim to reach full employment (so you can address the NAIRU with this aspect of the budget as well!)

From memory, here is a TLDR of the Youth Jobs PaTH Program:
- Encapsulates an emphasis on ensuring young people with an opportunity to secure employment in a constantly changing economy (this refers to structural unemployment)
- Investment of $840 million to assist up to 120,000 young people
- Provides intensive pre-employment skills training, work experience and monetary incentives for both active young job seekers and employers
- Used to encourage the decrease of labour force underutilisation (which was 14.2% in Feb 2016)

Hey there, for the sake of discussion, I would classify it as just a labour market policy as reform is where you change the labour market structurally such as enterprise bargaining and wage decentralisation. Also if you want to elevate your essay response with regards to this policy, you should mention how this is all theoretical in the sense that this is the intended effect of the policy. addressing youth unemployment, improving skills, increasing workforce participation, reducing structural unemployment etc. In practice, the policy is a significant distortion of the labour market, impeding upon efficiency and could also reduce unemployment. This is because the policy offers a subsidy of up to 10 000 for employers to hire these workers and that these workers are only paid 4$ per hour by the employer. This is a significant distrotion as it is way below the minimum wage for those who aren't part of the program and it is very much in the incentive for the employer to actually hire these interns for labour work as opposed to actual paid workers that are outside the program. So in a sense, it will help slightly improve skills etc. but it constitutes exploitation and potential unemployment for workers outside the program.

[Klexos]

Hey there, for the sake of discussion, I would classify it as just a labour market policy as reform is where you change the labour market structurally such as enterprise bargaining and wage decentralisation. Also if you want to elevate your essay response with regards to this policy, you should mention how this is all theoretical in the sense that this is the intended effect of the policy. addressing youth unemployment, improving skills, increasing workforce participation, reducing structural unemployment etc. In practice, the policy is a significant distortion of the labour market, impeding upon efficiency and could also reduce unemployment. This is because the policy offers a subsidy of up to 10 000 for employers to hire these workers and that these workers are only paid 4$ per hour by the employer. This is a significant distrotion as it is way below the minimum wage for those who aren't part of the program and it is very much in the incentive for the employer to actually hire these interns for labour work as opposed to actual paid workers that are outside the program. So in a sense, it will help slightly improve skills etc. but it constitutes exploitation and potential unemployment for workers outside the program.

Definitely! There are also underlying faults with these microeconomic policies. In particular, I hear the Youth Jobs PaTH program addresses reducing unemployment numerically but not underemployment because it also creates a lot of part time jobs (resulting in people not working enough hours etc...) which essentially just exacerbates the rate of labour underutilisation.I just try simplify and not bring too much of that actual consequences that aren't ideal into the essay to not over-complicate my discussion XD

But its so interesting to hear that even though subsidies are provided that they are working below minimum wage!