ECON11026 – Macroeconomic Assignment
ECON11026 Assessment 3- Take Home Paper- Case Study
Due date: Friday 10 February 2017 (Week 12- Term 3) ASSESSMENT
Weighting: 40% weighting (5 marks for in-text referencing & reference list, presentation, clarity of explanation and evidence of reading and research, original thinking backed by research supporting your arguments) 3
Length: Approximately 2500 -3000 words
Case Study is based on topics covering weeks 7-11
This assessment item relates to course learning outcomes 6 to 7 as listed in the course profile.
Tasks to be undertaken in this Assignment:
• You should have a good understanding of macroeconomic objectives, economic growth, demand-side policies including fiscal policy, taxation and budget stances. Refer to relevant chapters from the set textbook or any other economics textbook.
• Carefully read the ABC News article on – MYEFO Budget Deficit forecast.
• Make notes on the main factors affecting the Federal Government’s budget bottom line. Making notes will help you to answer the questions by applying the theory to real life example of economics at work.
• Conduct research (Click “View MYEFO documents” to get more details about the Government’s fiscal position and find related reports and search the Budget website: http://www.budget.gov.au/2015-16/content/myefo/html/index.htm) relevant to the issue. Research on the major expenditure categories of the Federal Government. Find out why generally a surplus budget is preferred to a deficit budget. Also read articles related to problems of deepening budget deficits, low economic growth, taxation reforms, rising unemployment rate and ageing population to enhance the quality of their response.
• You may present additional information using tables, graphs etc. to show current rates of economic growth, unemployment rate and the level of taxation to draw conclusions and justify your answers. Visit ABS website for latest macroeconomic indicators: http://www.abs.gov.au. However, theory-based analysis is what is required rather than presenting information.
• Apply the DADA framework (Definitions, Assumptions, Diagrams and Analysis) while answering the questions. On-campus students will be attempting some exercises in the classroom. Off-campus students should attempt weekly activities from the textbook boxed case studies. These exercises will help and guide your response.
• NOTE: Students should answer the questions in an essay format. In preparing your assignment, you need to ensure that you refer to the “essay writing guide for students studying economics” available on the course website in Moodle. It is important that you interpret the question clearly, use diagrams and tables from secondary sources and apply what you learnt in the class to real world economic examples. You can use sub-headings if you want to.
• CQUniversity takes plagiarism seriously. Your Turnitin similarity index should be low. Make sure you include in-text references and provide a reference list. Contact Academic Learning Centre (ALC) if you need help with essay writing, paraphrasing and referencing. The School of Business and Law uses APA referencing style.
MYEFO: Budget deficit increases to $37b as Government releases economic update
By political reporter Naomi Woodley and Stephanie Anderson, ABC News
Updated 15 Dec 2015, 6:56pm
Health, welfare and aged care are facing combined cuts of more than $3.7 billion as the Federal Government faces down a deficit stretching beyond the end of the decade.
• Deficit: $37.4b in 2015-16, $33.7b in 2016-17, $23b in 2017-18, $14.2b in 2018-19
• Iron ore price: Revised down from US $48 per tonne to US $39 per tonne
• GDP: Downgraded to 2.5 per cent, growing to 2.75 per cent in 2016-17
But counter-terror measures and border protection duties gained millions of dollars in additional funding as part of the Mid-Year Economic and Fiscal Outlook (MYEFO), released today.
• $2b over 4 years by cracking down on welfare compliance
• $650m over 4 years by removing bulk billing incentives for pathology services & reducing the incentive for MRI services
• $595m over 4 years from health workforce programs
• $472m over 3 years from Aged Care funding
• $441m over 4 years by means testing the Child Care subsidy for families earning more than $250,000
The federal budget deficit has increased to $37.4 billion, with a $2.3 billion deterioration in the forecast deficit for 2015-16 since the budget in May.
The Government is also predicting deficits to be a total of $23.8 billion worse over the three years from 2016-17 than first estimated in the budget.
Treasurer Scott Morrison said the journey to budget balance needed to be -safe and careful- with the expected date to return to surplus pushed back another year to 2020-21.
Using the metaphor of the Christmas car trip, he said he expected a lot of Australians to ask -are we there yet?-.
-We need to take a safe and careful route and one does not put at risk our jobs and growth,- he said.
-We are not going to take detours or short cuts. We are not going to put the safety of the passengers at risk. Those passengers are growth and jobs of Australians.-
The Government has committed over $3.5 billion in extra spending since the May budget, including the $1.1 billion innovation package, $909 million to re-settle an extra 12,000 Syrian refugees, $1.1 billion in extra roads funding and $621 million for new pharmaceutical subsidies.
The Government said it had -more than offset- the extra spending with new savings measures.
Targeting more people who incorrectly claim welfare payments will save $2 billion over four years to 2018-19.
A range of changes to bulk billing incentives for pathology services, diagnostic imaging and MRI services will save $650 million over four years.
Health workforce programs will be cut by $595m over four years.
The Government will cut $472 million from aged care services over three years by -better aligning- funding claimed by providers to the level of care actually provided.
The previously announced change to the childcare subsidy, to reduce the payment for families earning more than $250,000 will contribute to savings of $441 million over four years.
90pc of budget measures passed: Cormann
Finance Minister Mathias Cormann said he and Mr Morrison were expecting some changes to be made to planned savings through negotiations with the Senate.
Senator Cormann said the Government had already made -significant progress- in passing budget measures through the Upper House.
He said nearly 90 per cent of all the budget measures had been passed.
-We are putting the plan on the table for all to see and we will continue to work with the Senate to give effect to it,- he said.
MYEFO downgrades the Federal Treasury’s predictions for economic growth from a gross domestic product (GDP) figure of 2.75 per cent in 2015-16, to 2.5 per cent.
The Government said it had adopted more -realistic- growth outcomes, and that combined with weaker global growth, declining terms of trade and falling commodity prices had contributed to revenue write downs of $34 billion.
The May budget forecasts were based on an iron ore price of $US48 per tonne, but that has been downgraded to $US39 per tonne.
Unemployment is expected to rise slightly from the November result of 5.8 per cent, peaking at 6 per cent in 2015-16 and remaining steady.
The Government had previously aimed to return the budget to balance in 2019-20, but has revised that target to one year later.
The Department of Immigration and Border Protection was one of the winners out of MYEFO, gaining more than $1 billion in additional funding over four years.
The total additional funding of $1.09 billion includes $499.7 million to manage the legacy caseload of asylum seekers.
An additional $342.2 million has been allocated over two years for refugee resettlement arrangements for asylum seekers in offshore centres, as well as $213.3 million over four years for the management of the onshore centres.
Counter-terror measures have also been allocated additional funding, with the Department of Public Prosecutions and the Attorney-General’s Department to get an extra $20 million for counter-terrorism prosecutions.
A total of $52.5 million is being cut from arts funding, while Green Army projects are to be capped at 500 a year, saving $317.5 million from the program.
The Government has also increased the funding allocated for the establishment of the National Wind Farm Commissioner and the Independent Scientific Committee on Wind Turbines, up $600,000 over four years to a total of $2.5 million.
‘On a road to nowhere’
Opposition Leader Bill Shorten adopted Mr Morrison’s car-trip analogy in his MYEFO response, stating the budget was -on a road to nowhere with no prospect of improving-.
-Today, we hear that the deficit’s up, that indeed wage growth is stalling just above inflation, that we are seeing confidence down, we are seeing capital expenditure down,- he said.
-So this Government is taking us in a path of cuts now which is not what Australia needs at the moment.-
Shadow Treasurer Chris Bowen described the figures as a -great big failure-, citing the increased deficit.
-This update shows that Malcolm Turnbull and Scott Morrison presided over a budget deficit blowing out at the rate of $120 million a day since the last budget,- he said.
-The deficit’s blown out by $26 billion over the last seven months … if they have no plan to return to balance, what is the point of the Turnbull Government?-
Mr Bowen said the Opposition was concerned over cuts to health expenditure, as well as the crackdown on welfare compliance.
-The Government had alternatives today — they have could have adopted Labor’s plan for multi-national tax, higher income superannuation, tobacco,- he said.
-They would have received bipartisan support, yet they have chosen yet again to simply preside over blowouts in the budget deficit while attacking those who can least afford it the most.-
Read the 2015-16 MYEFO documents from here
Link to the ABC News article
Answer the following questions:
In your response, you should discuss the following questions in an essay format.
Question 1: What is fiscal policy? Comment on the role of fiscal policy in a modern economy. Illustrate and explain how fiscal policy may be used to remove a deflationary gap.
Question 2: The long-term trajectory of returning to surplus is being pushed back by another year, until 2020-21. What is the current stance of fiscal policy in Australia? Apply your understanding of fiscal policy to the real life economic example and explain how the government will return the budget from a deficit to a surplus by 2020-21. How does Australia’s budget deficit compare with the budget balances of OECD economies? Use secondary sources including graphs and tables to explain.
Question 3: According to the MYEFO statement, what factors have contributed to the deterioration of the budget deficit? Comment on the spending changes outlined by the government to offset increasing spending and to reduce the deficit. What are the likely consequences of government spending cuts?
Question 4: Read the latest economic outlook (ex. 2016-17 MYEFO), comment on the most recent state of macroeconomic indicators such as inflation, unemployment and government spending cuts for 2017. What factors might have lessened or worsened the severity of deficit for 2017 since the release of 2015-16 MYEFO statement?
Question 5: Discuss the strengths and weaknesses of using fiscal policy to stabilise the economy.
ECON11026 –Assignment-3 Marking Sheet
Marking Criteria Weight
Structure and organisation of the paper 1
Clarity of expression 1
Evidence of wide reading and research (in-text and end-text referencing) 1
Application of theory to practice 7 x 5 Q 1 Q 2 Q 3 Q 4 Q 5
Define key terms, explain key issue and problem in the case 2
Identify and explain assumptions 1
Provide appropriately adapted graphical illustration/s, tables with explanation 1.5
Provide critical analysis of the question drawing theory from relevant chapter topics 2.5
Provide conclusions of the case, highlighting overarching economic issues 2
Final mark for Assessment – 3 /40