Question

Discussion (Fiscal Policy)

Look up (google) estimates of Australia's structural budget deficit at various points in time. What do these figures mean? Why is even the historical data an 'estimate' rather than a known figure? How do these figures change your understanding of Australia's budget balance compared to just looking at the actual budget balance figures?

Answer 1

1) Structural Budget Deficit- Excess of public spending over revenues, which would persist if the economy were to grow steadily at the highest sustainable employment rate . The fiscal imbalance that are structural caused by fundamental chnage in economy are growth will not necessarily improve the deficit . The strucutral deficit is driven by an ageing populaton and expenditure on age related health problem will grow irrespectviely of the state of the economy . These data tell us about health of the economy of state .

2) As we knew tha budget deficit data tells us about state of the economy . if deficit is less than economy is in better position and in case of high deficit economy will face some problem in future like in Balance of payment etc. And knowing of the reason of the deficit whether it is structural or cyclic help policy maker to make better policy for the economy . The historical data enable us to understand how over economy performing in that time help policy maker to make efficent policy . That's why we use historical estimated data . Structural fiscal indicators aim to adjust for the effects of the real economic cycle on the budget balance by identifying the extent to which budget aggregates are affected by the cycle.

The historical data on the underlying structure of the economy enable us to produce better informed backward looking estimates of the output gap than those which can be produced contemporaneously.

3) The estimating of strucutral fiscal data is to estimate the economy's potential output

By comparing Actual data and structural data the structural fiscal position suggest that Australia was in structural surplus in each of last six year . There is estimated structural surplus of 0.6% of the the GDP.

It gives better picture about the health of the economy . How australian economy is doing in actual and structural. There is always difference between Actual data and structural data

Note . Structural data is not published by australian govt. it is published by the OECD and IMF because Structral data is requried significant assumptions about the economy’s potential output level and the cyclical sensitivity of revenues .