Question

Question 3 (Fiscal Policy):

The Treasurers department have made the following statement:

“The COVID-19 pandemic has had a profound impact on Australia’s health system, community and

economy, as it has all around the world… This is a once-in-a-century shock that requires an

unprecedented level of support across the economy. The Government’s initial response to the COVID19 pandemic provided $299 billion in overall support.”

Do you think the Australian Government have done enough help with economic recovery? In

answering the question, you need to include the following (these are suggested minimums. Do not

restrict yourself to only these points):

(i) Your understanding of Fiscal policy

(ii) the role of the treasurer’s department and the tools used in implementing fiscal policy

Answer 1

The Australian economy has done enough with the economic recovery in some aspects, while it does lack in some other aspects. The economy has focused on an expansionary fiscal policy where the government is trying to spend and help the economy recover as much as possible. As the revenue base has declined because of businesses being shut, the expenditure component has increased to speedfast economic recovery.  

Now the role of the treasurer is to focus on government taxation and the main tools in fiscal policy are that of taxes and spending. Now in times of recession, the government has to focus on increasing spending activity in the economy in order to increase the money in circulation and fastrack growth.

Now as compared to the number of people affected which are less as compared to other advanced nations, it has provided fiscal stimulus amounting to 14% of GDP, which is significant. There have been personal income tax cuts, spending on infrastructure, income support to households, working capital to businesses in order to increase job creation, free childcare measures, etc.

However it has to boost its domestic industries and not rely extensively on earnings from exports as global trade could be slow over the next coming years. The government needs to spend in building local capacities for mining goods in order to fastrack growth so that it doesn't rely extensively on demand coming in from global economies. It has to increase the resilience of the domestic economy by increasing demand for local goods and services so that even if other countries go on lockdown, the domestic economy is able to speedtrack growth.