Question

The Australian federal government’s budget was in surplus by almost $20 billion in 2007/08 and in deficit by over $54 billion in 2009/10. What does this information tell us about fiscal policy actions taken by the government during these years?

Answer 1

Answer: From the information given above the following interpretation can be made

Australian federal government’s budget was in surplus by almost $20 billion in 2007/08

A government budget is said to be a surplus budget if the expected government revenues exceed the estimated government expenditure in a particular financial year. This means that the government's earnings from taxes levied are greater than the amount the government spends on public welfare

A surplus by almost $20 billion in 2007/08 might implies that the Australian government has extra funds; these funds might be allocated to pay debts, which reduces the interest payable and helps the economy in the future. For example, a budget surplus can reduce taxes this might be on of the motives of Australian Government

Secondly,A budget surplus occurs when tax revenue is greater than government spending. With a budget surplus, the government can use the surplus revenue to pay off public sector debt. This might also be one of the intention of the government.

Although Budget surpluses are quite rare in modern economies because of the temptation for politicians to spend more money and cut taxes.

In addition, a surplus can reduce the public debt, fund the military, infrastructure, energy, and public works, pay salaries, implement policy, or be saved to spend in the future once a deficit occurs. A budget surplus occurs after a reduction in costs and spending or both. An increase in taxes can also result in a surplus. A surplus decreases consumer demand, lowers consumer prices and slows down the economy.This might also be another of intention of the Australian federal government’s budget in 2007-2008.

The Australian federal government’s budget was in deficit by over $54 billion in 2009/10

Since in previous two year Australian federal Government was in surplus so they might have invested heavily to overcome the new arised problem.A budget deficit is when spending exceeds income. The term applies to governments, although individuals, companies, and other organizations can run deficits. A deficit must be paid. If it isn't, then it creates debt. Each year's deficit adds to the debt.

Many situations can cause Australian Government's spending to exceed revenue. It might be any or few or all of the following

a) An involuntary job loss can eliminate revenue.

b) The debtor keeps charging, and only paying the minimum payment. It's only when interest charges become excessive that overspending becomes too painful.

c)Unlike families, the Australian federal government had to  keep adding each year's deficit to the debt for a long time. As long as interest rates remain low, the interest on the national debt is reasonable.

What ever might be the issue the investment by Australian Government with respect to the return of revenue in 2009/10 have paid the heavily in the the subsequent year .