Taxation - Inflation and Unemployment in Australia

Question: Discuss about the Taxation,Inflation and Unemployment in Australia. Answer: Introduction Economic Impact of the Tax Reform by the Government of Australia Australia government tries to be more liberal in fiscal policies by reducing tax and increases subsidies in 2016-17 budgets(Bhattarai, 2016). This tax reduction and subsidy expansion is a package of expansionary fiscal policy. Consumption and investment both increases and finally aggregate demand of an economy rise. It gives the prosperity stage of the business cycle. This expansionary fiscal policy has a very broad perspective for economic growth. Australia governments objective is to focus on jobs and growth(Argy, 2013). Firstly, the comparison will be in between the standard growth determinant unemployment and this policy view. The Australian government improves the tax pattern. It has the significant good impact on fall in unemployment. It is above mentioned that expansionary fiscal policy raises government expenditure(Chatterjee, et al., 2016). Reduction in income tax, the increment in subsidy to the producers is played like an incentive to individuals. Producers can be able to produce more and for that purpose, labours are needed. This phenomenon implies the creation of new jobs in Australia. So, the first focus of government is satisfied(Wells Fargo Research Team, 2016). Secondly, the comparison will be in between the standard growth determinant GDP and this policy view. If the government takes the expansionary fiscal policy, it will be acted as an incentive to the producers. It will lead to more GDP, and national income of Australia would rise. Therefore, the second focus of Australia government can be on the GDP figure(Crabb, 2016). This improvement in tax pattern also gives incentives to innovations, new entrepreneurship, and also creates new high technological jobs in the production system. These all are very fortunate factors for promoting a countrys economic growth(Besanko Braeutigam, 2010). Thirdly, the infrastructure will be the parameter for comparison and Australias new policy view. Infrastructure is critical for advancing the growth of a country. This tax improvement in the federal budget also promotes infrastructural growth by allocating government expenditure in different infrastructural projects(Bhattarai, 2016). This will improve both infrastructures and also generates employment and income for the economy. Improved infrastructure has more benefited International trade. This advanced infrastructure will make a forward linkage(Baumol Blinder, 2011). Figure 1: Impact of expansionary fiscal policy in an economy (Source: Author's creation) It is implied from the above process; the expansionary policy is needed in both domestic and external sectors to achieve the diversified economic growth in Australia. This is the focus of the federal budget 2016-17 in Australia. Fourthly, the comparison will be in between the standard growth determinant international trade and this policy view. Domestic expansionary fiscal policy increase more production and national income rises(World Bank, 2016). Therefore, it is beneficial for Australias export means there is an improvement in the trade balance. At the same time, Australia government wants more competitive, liberal trade agreement. If Australia government reduce trade barriers in the international trade negotiation, this situation will take place in Australia(Carter, et al., 2016). Relation between Inflation and Unemployment in Australia. According to Table 1, it is found that inflation rate individually declines, and the level of unemployment is smoothly increasing up to 2015. This two combined result is not impressive, and it can be treated as an alarm for future economic growth if this trend continues(Bhattarai, 2016). It can happen that due to this phenomenon, Australia governments objective is to focus on jobs and growth' in this current federal budget 2016-17(Long, 2016). The government wants to promote aggregate demand by adopting the expansionary fiscal policy. It is already mentioned that this policy can be able to bring sounder economic base for Australia. Table 1: Unemployment and Inflation Rates of Australia in the previous decade (Sources: OECD.org and World Development Indicators) Figure 2: Relation between inflation and unemployment in Australia (Source: Author's creation) Figure 2 show that there exists a negative relationship between unemployment rate and inflation in Australia. This study covers the period from 2005-2015 as reported in Table 1. It shows that the short-run Philips curve relationship holds in Australia. It is implied that there is a trade-off between unemployment and inflation in Australia(Long, 2016). It means when there is high unemployment, there must be low inflation, and when there is low unemployment, there will be high inflation. This Philips means business cycle activity in Australia will be same as stated in macroeconomic theory(Argy, 2013). Unemployment and inflation both are problems of an economy and at the same time, these two are the most significant variable for identifying business cycle stages. The combination of high unemployment and low inflation indicates the feature of economic recession and high inflation and low unemployment means economic boom(Besanko Braeutigam, 2010). References Argy, V., 2013. International Macroeconomics: Theory and Policy. 6th ed. Abingdon-on-Thames: routledge. Baumol, W. J. Blinder, A. S., 2011. Macroeconomics: Principles and Policy. 12th ed. Boston: Cengage Learning. Besanko, D. Braeutigam, R., 2010. Microeconomics. New York: John Wiley Sons. Bhattarai, K., 2016. Unemploymentinflation trade-offs in OECD countries. 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[Online] Available at: https://databank.worldbank.org/data/reports.aspx?source=2series=NY.GDP.MKTP.CDcountry= [Accessed 16 Sempember 2016].