The Macroeconomic Environment of Australia and the Role of Fiscal Policy

Running head: ECONOMICS 1
The macroeconomic environment of Australia and the role of fiscal policy as
a stabilization tool
Name
Affiliation
Date

ECONOMICS 2
Introduction
Australia’s economic status is 80.9 moving its economy in the fifth position in
2019 index. Australia’s economic status as per the available statistics has
been constant from 2018 to date. It has got a higher freedom of labor
movement, freedom of trade within and outside the country, government
integrity and a favorable fiscal health. Australia is said to be the fourth out of
the forty-three countries within the Pacific-Asia region and so its total
economic status is well off all over the world (Razak,2015). However,
Australia’s economy is currently going through structural changes due to
increased mining in the country since 2012.The Australia government has
positively influenced the country’s economy through reforms in the labor
market, reduction of corporate tax and also negotiating about free trade with
governments of other countries. Through the effective and favoring
government policies that encourage entrepreneurship development, the
free-market democracy has benefited since most of the industries are open
to foreign competition and the workforce is skilled (Rivera, 2018). This makes
Australia to be attractive for the investors. Australia is among the wealthiest
countries within the Asian-Pacific region for now more than two decades of
economic expansion. Overall, Australia is globally competitive in matters of
finance and insurance, technology and high quality manufactured goods
(Export Enterprise, 2019).
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The major exports of the Country are agricultural products and minerals.
Australia made free-trade agreements with countries such as United States,
Japan, China, South Korea and the ASEAN countries. Australia is still making
agreements with the European Union and its expected to negotiate with the
United Kingdom since Britain left the European Union. Australia has got a
convenient and a well- established political system, a strong legal system,
good governance and free from bureaucratic tendencies and this makes the
country corruption free. The top income tax rate is currently 45% and that of
flat tax is 30%. Other taxes available are value-added and capital gains tax
(Klein,2017). The overall burden of the tax is approximately 28.2% of the
total domestic income. For the past three years, government expenditure
has raised to 36.5% of the country’s Gross Domestic Product (GDP) and has
a budget deficit of 2.5% of Gross Domestic Product. Australia has got a
public debt of about 41.6% 0f Gross Domestic Product. The total value of
exports and imports of Australia is equivalent to 41.9%. The tariff rate
charged is 1.2%. In 2018, World Trade Organization provided a report that
showed that Australia had 322 non-tariff measures in place. The capital
markets are left to the investors to intervene; foreign firms freely compete
with financial institutions within the country.
Australia’s economic growth
Currently, the economic growth of Australia is expected to rise. However,
due to the falling rate of investment and reducing consumer spending, the
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GDP growth will have to reduce this year. Increasing global trade tensions
and a slowdown in China’s economic status show downside risks in the
outlook. Australia’s Gross Domestic Product is expected to increase to 2.2%
in 2019 which is less than 0.1% from last year and 2.6% as forecasted in
2020 (Export Enterprise.2019). Australia as an economy went through 26
years of stable economic growth. It was the only country that never
experienced a financial crisis during the recession period and this made it
become the world’s 13th largest economy having a high growth rate
(Kenton,2019). In the year 2018, Australia had a high Gross Domestic
Product of about 3.2%. The country’s economy is highly determined by the
business sector and increasing government expenditure (Export Enterprise.
2019).
The large-scale exports particularly for agricultural products and minerals
have greatly contributed to the growth of the economy. In 2019 and 2020,
the Australian Treasury forecasts that the Gross Domestic Product to be
2.8% and 2,7% respectively since there is a belief that household
consumption will recover due to continued strengthening in the labour force
of Australia (Kagan, 2018).
The inflation rate of Australia in 2018 was calculated to be approximately
2.2% which is anticipated to raise to 2.3 at the end of 2019 and 2.5 by
2020.Currently, the Australian government is said to have a deficit of -1.2%
of Gross Domestic Product brought about by an increase in the prices of
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commodities. The government is now trying to raise National appeal relative
to its fellow competitors in foreign trade to boost its trade relations. Australia
is also strengthening its relationship with the trade partners with the Asian-
Pacific region more so China and Europe with whom it has signed trade
agreements while keeping its relations with United States. However, the rate
of underemployment is said to have increased.
Australia has experienced a stable economy over the past 27 year compared
to other continents such as Europe and America that were affected by the
great depression which occurred some years back (Amadeo, .2018). A
business cycle is said to have four stages and these are; Expansion which
portrays an increase in the Gross Domestic Product of an economy, peak
where the economy reaches highest level of growth, contraction phase
where the Gross Domestic Product declines and finally the trough where the
economy clicks its lowest point of economic growth. Currently the economic
indicators of Australia are as below;
Main
Indicators
2016 2017 2018 (e) 2019 (e) 2
GDP
(billions
USD)
1,264.52 1,379.55e 1,427.77 1,464.41 1
GDP
(Constan 2.6 2.2 3.2 2.8 2
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Main
Indicators
2016 2017 2018 (e) 2019 (e) 2
t Prices,
Annual %
Change)
GDP per
Capita
(USD)
51,861 55,693 56,698 57,204 5
General
Government
Balance
(in %
of GDP)
-2.2 -1.5e -1.2 -1.0 -0
General
Government
Gross
Debt
(in % of
GDP)
40.6 40.8 40.5 40.7
Inflation
Rate
(%)
1.3 2.0 2.2 2.3
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