Fiscal Policy Essay

Fiscal policy refers to the use of the annual budget by the government to affect the level of economic activity, resource allocation and income distribution. In doing so this budgetary strategy can influence positive outcomes towards the economies objectives involving; growth, full employment, low inflation and external stability. The instruments which allow fiscal policy to do so are government spending and taxation. Changes in the level of these particular instruments can impact specific areas of the economic objectives therefore help enforce change.
Fiscal policy has been a major contestant in promoting Australia’s economic objectives, and in the years the effectiveness of this policy has shown how it can help stimulate or encourage action towards its objectives.
In promoting economic growth the Australian government took on the charter of budgetary honesty act in 1998. This ensured that the budget was kept in balance over the economic cycle, providing that there was no increase in the tax burden on 1996-97 levels and a commitment to the retirement of public debt through the accumulation of budget surpluses when economic growth was positive. In the years it’s shown that the government has achieved budget surpluses since 1996 and in 2005-06 the Australian’s public debt was paid off. The achievement of these budget surpluses and the retirement of public debt led to a lower interest rates, which further led to higher rates of sustainability by encouraging private consumption, investment spending and employment growth.
In fact supporting economic growth by use of fiscal policy was also used and was successful in doing so. The Australian government deliberately used fiscal policy to introduce fiscal stimulus measures to support aggregate demand, employment and growth in real GDP. These actions included short term cash transfers to low and middle income households in the years November 2008 and February 2009, and new spending on...