The impact of the Global Financial Crisis on economic growth
As a result of the global recession, Australia’s GDP was forecasted to contract by 0.5% in 2009-10 in comparison to other advanced economies which were expected to contract by 3.75% in the same year. However minor the reductions in GDP, it was evident that Australia was not exempt from the global recession although is better placed and is expected to perform better than almost all other OECD economies. The global recession has also triggered a fall in household wealth and a disruption in consumer confidence with consumption forecasted to contract by 0.25% in 2009-10.
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Conversely, total expenditure for 2009-10 is forecasted to exceed revenue, increasing by 2% on estimated expenses since the February 2009 UEFO at $338.2 billion. It is illustrated that the majority of revenue the government receives is from Individuals income taxation and on the other hand, expenditure is expended most in the Social security and welfare sector.
In response to the advent of the global economic downturn in 2008, the Government utilised fiscal policy to provide an urgent stimulus to economic activity as well as a sustainable medium term boost to aggregate demand. The Labour Government had carried out an expansionary macroeconomic stance with a Budget recording $57.6 billion underlying fiscal deficit in 2009-10, which was equal to 4.9% of GDP (largest percentage of GDP on record for the last 40 years) and will remain a deficit until 2015-16.
Further, the Government employed deliberate Government policy decisions subsequent to the crisis, adding to a major expansionary impact on the Australian economy. Early and decisive spending initiatives have been put in place against the face of the global recession, ensuring the economy is secured to make the most of the global recovery. Some of the key initiatives consist of:
• The Government has spent $12.2 billion to assist households financially and support economic growth. The household stimulus package provides extensive support from low to middle-income earners and households that are most affected by the downturn. The package of measures consist of a tax bonus for working Australians, a single-income family bonus, a farmer’s hardship bonus, a training and learning bonus and a back to school bonus. Consequently, this will support economic growth as this will provide individuals with money allowing them to satisfy their wants, increasing demand of goods and services and hence stimulating economic activity.
• The one-off cash payments and the First Home Owners Boost (FHOB) in the Economic Security Strategy (ESS) valuing $10.4 billion (1% of GDP) were targeted at household consumption and dwelling investment. In effect, the FHOB has assisted in stimulating housing activity with 59,000 first home buyers to enter the housing market. To further support the positive growth in housing activity and the construction industry, the Government implemented an extension to the First Home Owners Boost for a further six months, costing $539 million. This in turn will continue the upward trend, stimulating demand and in turn boost economic growth.
• The Rudd Government has also injected a further $141 million to increase the Small Business and General Business Tax Break for small businesses. This will present them with a greater incentive for small businesses to invest in new capital items such as vehicles as well as new and improved technology. Small businesses will also be able to claim a bonus tax deduction of 50% of the cost of eligible assets, giving them the ability to claim an extra...