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Macro Economic Issues Impacting Australian Economy

Article: ‘Budget on track for $17 billion surplus’, The Australian, 2 May 2008.

Introduction
Macroeconomics, as defined by Gans et al 2005, is “the study of economy-wide phenomena including inflation, unemployment and economic growth” and inflation is defined as “an increase in the overall level of prices in the economy”.   This article primarily relates to economic growth, inflation and global influences.

Economic outlook
The current economic outlook is uncertain.   Counteracting forces are creating relatively high domestic inflation and international economic turbulence, and weaker global growth and the effects of monetary policy are causing a slowdown in the economy.   Inflation has increased, pushing up interest rates and there has been eight interest rate rises in three years.   These circumstances are expected to see Australian economic growth moderate to 2¾ per cent in 2008-09 (Swan, 2008).

Strong global economic forces are also at play.   Many countries, including Australia, are being effected by slower growth in the US and world financial market turbulence.

Budget principles
The article relates to the Hon Wayne Swan MHR, Treasurer’s claims to have designed the Federal Budget to meet the “big challenges of the future”, at this time of macroeconomic instability.   The Government has described its medium term fiscal strategy as:
•achieving budget surpluses, on average, over the medium term;
•keeping taxation as a share of GDP on average below the level for 2007 08; and
•improving the Government's net financial worth over the medium term (Budget Paper No. 1, 2008).

The underlying assumption of the article is that achieving a budget surplus (primarily through tax revenues) is desirable.   The purpose of a surplus is, partly, to protect the Australian economy from global economic shocks and stimulate growth.   By reducing or eliminating government debt, some contend that private investment is stimulated and this leads to growth.   Others, however,...