Introduction
Fiscal policy has been moderately effective in smoothing out fluctuations
in economic activity in recent years. Fiscal policy refers to the
government's implementation of its annual budget through changes to
revenue and expenditure to influence leakages and injections within an
economy. In recent years, during the COVID-19 pandemic in 2020-21, the
Australian government implemented an expansionary fiscal stance running
consecutive budget deficits, increasing spending and reducing taxation to
lift the nation out of its first recession in 27 years and improving the worst
unemployment levels seen in a decade. Following this, during the
economic recovery period of 2022-23 and in current economic conditions,
the Australian government faces new pressures such as the rise cost of
living and increasing inflation. As a result, current fiscal stance is
contractionary in nature with the outcome of running a budget surplus.
Body Paragraph 1 – Expansionary fiscal (budget outcome deficit)
Body Paragraph 2 – Contractionary fiscal (budget outcome surplus)
BODY 1 Point - The unprecedented shock to the Australian economy as a result of the
COVID-19 pandemic in 2020 required a highly expansinary fiscal stance, the
most substantial injection of fiscal stimulus seen in Australian economic
history.
Define – An expansionary fiscal stance refers to the increase in government
expenditure and reduction in taxation revenue creating a budget deficit
outcome.
Explain (THE STANCE) - The forced shutdown of the economy and
subsequent loss of millions of jobs led to the government’s largest fiscal
response to date, with $291 Bn being spent (14.7% GDP), worsening the budget
deficit from a -4.3% to -7.8% in 2020-21(Treasury, 2020). The injection was
dominated by the JobKeeper payments (approximately $100bn) and JobSeeker
supplement payments ($17bn). JobKeeper being the largest component of the
Government’s macroeconomic stimulus package, delivered to support
households and businesses during lockdown and improve the prospects for
economic recovery once restrictions were eased.
Analysis (IMPACT ON ECONOMY) - As a result of stimulus packages, this
increased the level of disposable income for consumers contributed to a 0.35%
surge in economic growth (treasury 2021) and an improvement in
unemployment following months of JobKeeper and JobSeeker, with
unemployment improving from 7.4% June, 2020 at the height of the pandemic
to 4% in May 2022.
Link (SUMMARY) - As a result, although the initial effects of the COVID-19
pandemic induced the first recession in 27 years, Australia since 2020 has
generally sustained around 3-4% economic growth, peaking in 2021 at 10.6%
(Trading Economics, 2024). As, such the impact of expansionary fiscal policy
in improving economic activity was significant during 2020-21, however, this
also led to new pressures such as a rise in inflation following the reopening of
the economy.
BODY 1 - (250-300 words)
The unprecedented shock to the Australian economy as a result of the COVID-19 pandemic
in 2020 required a highly expansinary fiscal stance, the most substantial injection of fiscal
stimulus seen in Australian economic history. An expansionary fiscal stance refers to the
increase in government expenditure and reduction in taxation revenue creating a budget
deficit outcome. The forced shutdown of the economy and subsequent loss of millions of jobs
led to the government’s largest fiscal response to date, with $291 Bn being spent (14.7%
GDP), worsening the budget deficit from a -4.3% to -7.8% in 2020-21(Treasury, 2020). The
injection was dominated by the JobKeeper payments (approximately $100bn) and
JobSeeker supplement payments ($17bn). JobKeeper being the largest component of the
Government’s macroeconomic stimulus package, delivered to support households and
businesses during lockdown and improve the prospects for economic recovery once
restrictions were eased. As a result of stimulus packages, this increased the level of
disposable income for consumers contributed to a 0.35% surge in economic growth (treasury
2021) and an improvement in unemployment following months of JobKeeper and JobSeeker,
with unemployment improving from 7.4% June, 2020 at the height of the pandemic to 4% in
May 2022. As a result, although the initial effects of the COVID-19 pandemic induced the
first recession in 27 years, Australia since 2020 has generally sustained around 3-4%
economic growth, peaking in 2021 at 10.6% (Trading Economics, 2024). As, such the impact
of expansionary fiscal policy in improving economic activity was significant during 2020-21,
however, this also led to new pressures such as a rise in inflation following the reopening of
the economy.