Budgetary Policy
Definition
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Budgetary policy (aka fiscal policy) relates
to anticipated changes in the level and
composition of federal government revenues
(receipts) and expenditures (outlays) for the
year ahead.
Budgetary policy is regarded as a key
macroeconomic policy instrument because
the levels of revenues and expenses can have
a powerful effect on total expenditure,
national production, employment.
Features of the tax system
Tax mix refers to the balance between
direct and indirect taxes as sources of
revenue – around 70% is from direct
taxation
 Tax base refers to how broadly the
particular tax is applied
 Tax burden relates to the rates of direct or
indirect tax that are applied. Tax burden
automatically rises over time due to
bracket creep.
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Principles of Taxation
1.
2.
3.
Simplicity – tax should be easy to
understand, simple to administer and
with minimal compliance costs
Fairness – people should be taxed
according to their capacity to pay
Efficiency – tax should have a fairly
neutral impact on the decisions of both
consumers and producers
Types of Taxation
Direct Taxation – is a tax paid directly to the
government by the individuals or businesses
responsible for the tax.
 The most important source of direct taxation
is:
 Personal income tax – a tax paid by
employed and self employed people
according to the amount of income earned.
 Personal income tax is progressive in
nature meaning the more you earn the
higher the tax rate.
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Tax rates 2013-14
The following rates for 2013-14 apply from 1 July 2013.
Taxable income
0 - $18,200
$18,201 - $37,000
$37,001 - $80,000
$80,001 - $180,000
$180,001 and over
Tax on this income
Nil
19c for each $1 over $18,200
$3,572 plus 32.5c for each $1 over $37,000
$17,547 plus 37c for each $1 over $80,000
$54,547 plus 45c for each $1 over $180,000
Types of Taxation
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Other examples of direct taxation:
Company tax is paid on the size of company
profit.
Capital gains tax: profits gained from the sale
of assets such as share, land and investment
properties are also taxed
Fringe benefits tax is a tax paid by employers
on expenditures designed to provide income-inkind to employees such as company cars
Minerals resource rent tax is paid by coal and
iron ore companies when their profits reach
$75M
Types of Taxation
Indirect taxation is a tax levied on the
customer but collected by a third party at the
point of sale and subsequently given to the
government.
 Examples include:
 Goods and Services Tax (GST): 10% on most
goods and services added to the price and paid
by the customers. It is collected by the
business and passed onto the ATO
 Excise duties – tax levied directly on alcohol,
cigarettes, petrol
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Budget Revenues
Budget revenues are the federal
government’s incoming receipts of money
that help fund government expenditure.
 Revenue consists of the following types:
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◦ Direct taxes levied on the incomes of
individuals and companies
◦ Indirect taxes placed on the sale of goods and
services and added onto the price of items
◦ Non-tax revenue from sources other than
taxation such as the sale of government
enterprises or other government owned assets
Budget Revenues
Budget Expenditures
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Budget expenditures or outlays represent
how the federal government uses the
revenue it collects, to provide goods and
services for the community.
Budget Expenditures
Budget Expenditures
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Budget expenditures are classified in the
following ways:
◦ Government consumption expenditure (G1)
includes payment of wages and salaries for
government employees as well as day-to-day
operating expenses for government departments
◦ Government capital expenditure (G2) involves
outlays on building new infrastructure
◦ Government transfer payments paid to
individuals mainly cover welfare benefits. These
are not regarded as G1or G2 because it is the
recipient that spends the money.
Deficit Budget Outcome
When the budget outcome is negative or
in deficit.
 This means the value of government
revenues are expected to be less than the
value of government expenses
 Deficit budget: Revenues < Expenses
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Balanced Budget Outcome
A balanced budget outcome is a situation
where the value of government revenues
is expected to exactly equal the value of
expenses
 Balanced budget: Revenues = Expenses
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Surplus budget outcome
A surplus budget outcome is where the
expected value of government revenues is
greater than the value of government
expenses.
 Surplus budget: Revenue > Expenses
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