Macroeconomic Policy: Part II, focusing on fiscal policy and its multiplier effect

University of New England Week 10 Macroeconomic Policy

University of New England Week 10 LO.1 LO.2 LO.3 Macroeconomic Policy: Part II ECON102 Week 10 Prescribed reading: Holden et. al., Chapter 23une

Learning Objectives

University of New England Learning Objectives Week 10 LO.1 LO.2 LO.3

1. The government sector
2. Fiscal policy
3. Government deficits and debtune

Total Government Spending in 2021

University of New England Total Government Spending Week 10 LO.1 LO.2 LO.3 The figure shows the breakdown of total government spending in 2021. The federal government spent about $659 billion (65%), the state governments spent about $310 billion (31%), and the local governments spent about $43 billion (4%). That adds up to almost $39,000 per person in Australia.

Local, $43b 4% State, $310b 31% Federal, $659b 65%une

Federal Government Spending Breakdown

University of New England Federal Government Spending Spending on social insurance programs, health, education, and defense account for roughly 60% of federal government spending.

Social insurance programs: Government provided insurance against bad outcomes such as unemployment, illness, disability, or outliving your savings.

Other purposes, 15% Other economic affairs, 13% Agriculture, forestry and fishing, 1% Social insurance Mining, manufacturing and construction, 1% + health + education + defence 60% Recreation and culture, 1% Public order and safety, 1% Housing and community amenities, 1% Fuel and energy, 1% Transport and communication, 2% General public services, 5% Week 10 LO.1 LO.2 LO.3the

Federal Government Spending Stability Over Decades

University of New England Federal Government Spending Has Been Roughly Stable Over Recent Decades Week 10 LO.1 LO.2 LO.3

Percent of GDP 35% 32% 30% 25% 20% 15% 10% 5% 0% 1971 1981 1991 2001 2011 2021

The level of government spending remained stable over the years, averaging 20-30% of annual real GDP. The spike in spending in 2021 was due to the additional spending in response to the COVID pandemic.the

Growth in Social Insurance Spending

University of New England Government Spending on Social Insurance Has Risen Over Time Week 10 LO.1 LO.2 LO.3

Percent of GDP 12% 11% 9% 6% 1980 1990 2000 2010 2020

Spending on social insurance has grown as a share of GDP in recent years. The projected growth in spending on the NDIS will likely see this number rise in coming years.the

Mandatory vs. Discretionary Federal Spending

University of New England Much of Future Federal Government Spending Is Already Determined Week 10 LO.1 LO.2 LO.3

Mandatory spending: spending on programs that does not get determined annually. Instead, it is set in law -> programs like age pension and Medicare. > Anything can become mandatory spending if Parliament passes legislation mandating it. Can only be cut if Parliament repeals or amends their earlier legislation.

Discretionary spending: spending that Parliament appropriates annually. Only accounts for 30% of federal government spending. About half of that is spent as revenue assistance to state and local governments. The rest is spent on things like housing, science, energy, environment, and international affairs.the

State and Local Government Spending Categories

University of New England State and Local Government Spending Week 10 LO.1 LO.2 LO.3

States provide health care, law enforcement, and education. Environmental protection, 2% Recreation, culture and religion, 2% Housing and community amenities, 3% Economic affairs, 5% General public services, 8% Health 30% Social protection, 9% Transport, 11% Education, 20% Public order and safety, 11%

Local government provides many of the government services you've interacted with in your life. Local kindergartens, parks, playgrounds, rubbish and recycling, among others. Education, 1% Health, 1% Public order and safety, 3% Social protection, 4% Economic affairs, 5% Housing and community amenities, 10% Transport 24% Environmental protection 15% General public services 22% Recreation, culture and religion 16%ine

Government Spending by Country Comparison

University of New England Government Spending by Country Week 10 LO.1 LO.2 LO.3

Total government spending is lower in Australia than in other developed countries.

Percent of GDP France 61% Italy 57% United Kingdom 52% Germany 51% United States 48% Japan 47% Australia 47%

In some other developed countries, governments tend to provide things that we pay for privately in Australia, e.g. the Scandinavian welfare states.une

Federal Government Revenue Sources

University of New England Federal Government Revenue Week 10 LO.1 LO.2 LO.3

Excise and customs duty, 9% Others, 10% GST 13% Income Taxes 68%

The federal government primarily collects revenue from income taxes and Goods and Services Tax (GST). Income taxes are withheld from your paycheck. Income taxes are a direct tax. GST only applies when you buy things. GST is an indirect tax.une

Income Taxes Explained

University of New England Income Taxes Week 10 LO.1 LO.2 LO.3

Income taxes: Taxes collected on all income regardless of its source. They include earned income from working and unearned income from investment, pensions, capital gains, and inheritance. Be careful: Don't confuse income and wealth, which is your stock of savings and assets. Income is all the money you receive in a year.the

Income Tax System Details

Progressive Tax System and Marginal Rates

University of New England A Closer Look at Income Tax Income taxes are progressive. Progressive tax system: The marginal tax rate you pay increases with your income. Marginal tax rate: the tax rate you pay if you earn another dollar.

Depends on how much income you receive throughout the year from all sources, and, more specifically, on your taxable income. Taxable income: The amount of income on that you pay taxes on. Taxable income = Total income received - Deductions

Income Taxes vs. Payroll Taxes

Income taxes have more nuance than payroll taxes. Payroll tax is a state or territory tax. Not all businesses have to pay payroll tax. You pay when your total Australian wages are over the tax-free threshold for the relevant state or territory. Week 10 LO.1 LO.2 LO.3une

Third-Stage Tax Cuts from 1 July 2024

University of New England Third-Stage Tax Cuts from 1 July 2024 Week 10 LO.1 LO.2 LO.3

Australian income tax rates for 2023-24 (residents) Income thresholds Rate Tax payable on this income $0- $18,200 0% Nil $18,201 - $45,000 19% 19c for each $1 over $18,200 $45,001 - $120,000 32.5% $5,092 plus 32.5c for each $1 over $45,000 $120,001 - $180,000 37% $29,467 plus 37c for each $1 over $120,000 $180,001 and over 45% $51,667 plus 45c for each $1 over $180,000

Australian income tax rates for 2024-25 onwards (residents) Income thresholds Rate Tax payable on this income $0 - $18,200 0% Nil $18,201 - $45,000 16% 16c for each $1 over $18,200 $45,001 - $135,000 30% $4,288 plus 30c for each $1 over $45,000 $135,001 - $190,000 37% $31,288 plus 37c for each $1 over $135,000 $190,001 and over 45% $51,638 plus 45c for each $1 over $190,000 5une

Company Taxes and Their Impact

University of New England Federal Government Revenue Week 10 LO.1 LO.2 LO.3

16% of federal tax revenue is collected from companies, but what does it mean for a company to pay a tax? Company taxes are paid by people! Paid by owners of the corporations Workers also bear some of the burden of company taxes. 1 Company taxes => Companies buy less capital => Make workers less productive => Stagnate real wage. Commonwealth Treasury estimates: For every dollar of company tax, shareholders lose 33 cents, and workers lose about 67 cents. Raising company taxes impose unintended consequences on workers.une

Global Company Tax Treaty: The 15% Club

University of New England Global Company Tax Treaty: The 15% Club More than 100 countries reach global deal for 15 per cent minimum corporate tax rate. What will it mean? Tax Sat 9 Oct 2021 YOCDE OECD ? OCDE POUR UNE VIE MEILLEURE DE DES POLITIQUES MEILLEURES POUR UNE VIE MEILLEURE ECD BETTER POLICIES FOR BETTER LIVES OCDE DES POLITIQU POUR UNE @>> OECD BETTER POLICIE FOR BETTER LIVE 3)> OECD BETTER FOR >> OCDE DES POLITIQUES MEILLEURES POUR UNE VIE MEILLEURE @>> OEC >> OCDE DES P POU TES OCDE @>> OECD BETTER POLICIES FOR BETTER LIVES ES MEILLEURES E MEILLEURE @>> OEC S POLITIQUES MEILLEURES UR UNE VIE MEILLEURE OCDE RÉUNION DU CONSEIL AU NIVEAU DES MINISTRES OECD MINISTERIAL COUNCA MEETING 2021 @>> OCDE DES POLITIQUES POUR UNE VIE OCDE RÉUNION DU CONSEIL AU NIVEAU DES MINISTRES 2021 OECD MINISTERIAL COUNTER MEETING 202 BETTER POLICIES FOR BETTER LIVES CD BETTER POLICIES FOR BETTER LIVES DES POLITIQUES MEILLEURES POUR UNE VIE MEILLEURE OECD FO > OCDE DES POLITIQUES MEILLE POUR UNE VIE MEILL 3>> OCDE DES POLITIQUES POUR UNE VIE DECD BETTER POLICIES FOR BETTER LIVES B>> OCDE LEURES LLEURE >> OECD F ALLEURES ANOECD ASSOCDE DES POLITIQUES MEILLEURES BETTER POLICIES OECD Secretary-General Mathias Cormann (right) has called the deal a "major victory". (AP: Patrick Semansky) Week 10 LO.1 LO.2 LO.3 FOR BETTER LIVES POUR UNE VIE MEILLEURE FOR BETTER LIVESthe

State and Local Government Tax Revenue Sources

University of New England State and Local Government Tax Revenue Week 10 LO.1 LO.2 LO.3

States and local government collect payroll taxes, property taxes, and stamp duties. Other, 12% Sale of goods and services, 9% Other Government Grants 24% Other Taxes, 9% GST 23% Gambling Taxes, 3% Land Tax, 3% Stamp Duties 10% Payroll Tax, 7%

A payroll tax is a tax on wages. Property tax is a tax on the value of property, usually real estate. Stamp duty is a tax paid to the state government to legally register a chance of ownership sometimes called a transfer duty.the

Housing Affordability and Stamp Duty

University of New England Will Abolishing Stamp Duty Improve Housing Affordability? Week 10 LO.1 LO.2 LO.3

Stamp duty is holding us back from moving homes - we've worked out how much By Nick Garvin The Conversation Housing Policy Mon 18 Mar FOR SALE Does stamp duty actually stop anyone moving? It's a claim more often made than assessed. (AAP: Glenn Hunt)une

Unoccupied Home Taxes and Rental Crisis

University of New England Can "Unoccupied Home Taxes" Fix the Rental Crisis? Week 10 LO.1 LO.2 LO.3

What's the link between low rental vacancy rates, housing crises, and unoccupied home taxes? By business reporter Gareth Hutchens Housing Policy Sun 19 May R FOR LEASE L What is the "rental vacancy rate" actually telling us? (ABC News: Gian De Poloni)une

Hidden Government Spending: Tax Expenditures

University of New England Hidden Government Spending: Tax Expenditures Week 10 LO.1 LO.2 LO.3

Tax expenditures: Special deductions, exemptions, or credits that lower your tax obligations, to encourage you to engage in certain kinds of activities. Example: The Low and Middle Income Tax Offset (LMITO) grants a tax reduction of up to $1,080 for anyone earning less than $126,000 per year from 2020-2024. Alternatively, Parliament could have mailed qualifying individuals a $1,080 check each year. Same result: Either way, you are $1,080 better off.