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Cheaper childcare is good for productivity, workforce participation, and economic growth, as well as children. This is good for households with children as they will not have as much pressure to spend money on childcare, therefore leaving them with more disposable income and more opportunities to re-enter the workforce. In the long-term, the children supported by better childcare will be more equipped to participate in the workforce, boosting the economy and their households.

Increased spending in aged care will result in higher incomes and more jobs for those working in the sector, as well as decreased costs for households who rely on them. It will also allow for better care for the elderly, due to more quality control. Home care packages would give more jobs for carers, and would allow the elderly to stay home without assistance from their families who could focus on their own work.

Increased spending on climate change will result in increased jobs in the renewable energy sector. Acting on climate change prevention will also prevent unnecessary environmental damage on properties (households). If money is spent to make our society more energy/resource efficient, there would be more resources available to support supply. In the long-term, the reduction in negative externalities would benefit the environment and therefore sustain a higher quality of life.

Labor’s increased spending in the budget has increased the budget deficit by $7 billion dollars, which results in increased government debt. This deficit may result in increased taxes for households to pay in order to cover the deficit, which would decrease disposable income. The deficit would also decrease consumer sentiment, as households may feel less hopeful about the economy.

The standard of living would decrease, as discretionary spending would drop from the decreased disposable income that emanates from increased taxes and interest rates, as well as the increased price of fuel that many households rely on.

Penalising non-renewable energy production and incentivising renewable energy production would result in large energy costs passed down to the consumer via the companies that provide energy through non-renewable means such as coal, until the transition to universal renewable energy is successful.

The deficit caused by expansionary fiscal policy may also increase inflation, as if the government does not increase taxes and consumers do not feel that they will rise, consumers will spend more money on goods and services that will drive up demand and increase prices.

If the government decides to pay for the deficit through borrowing money from either private entities or other governments, they will need to compete with other potential borrowers by providing the best economic incentive to the lender. Therefore, they must pay increased interest, driving up the interest rate. This would disincentivise household spending, as consumers will feel more inclined to save their money instead of spending it.

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Positives:

Increasing progressive tax helps to redistribute wealth in the economy benefiting low incomes earners and decreasing the wage gap

Using taxes to subsidise aged care and health care allows access to these services for low-income earners and thus instead of caring for elderly and young, they can enter the workforce to increase their income

Increasing taxes to help climate change would diminish the future negative externalities of pollution and climate change reducing its negative effect on the economy. Thus, there would be a decrease in misallocation of resources which would allow for more economic growth in the future which would be beneficial for all including low-income earners as a growing economy causes a decrease in unemployment.

Increasing taxes so that the government is in a budget surplus may also result in further government spending available to be spent on reducing inequities (subsidising low income earners)

Negatives:

However, increasing regressive taxes would cause for further inequity in the economy as a larger percentage of their income would be taken up by taxes in the short term. This would limit the consumption which in turn would decrease retail sales and resultingly decrease the cycle of income in the economy causing a further economic contraction and decreasing unemployment in the long term which further causes inequity in the economy.

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TIME

Time can limit economic policies differently depending on if its Fiscal or Monetary policy. Fiscal policy often takes a few months to implement change, and significant fiscal changes occur with the federal budget. Monetary policy has a time lag of 6 to 18 months. An example of this is the time taken for consumer changes in borrowing and saving habits after interest rates change. Because of this the reserve bank tries to predict the future of the economic cycle, and implement changes pre-emptively to reduce time lags. An example of time lags in the real world are formal decisions being made by governments, as they take time to be approved by the various levels, and by the time the decision is made the original problem may have changed.

INTERNATIONAL

The whole world impacts economics greatly, as the actions of different countries and their economies create practical limits. Global financial markets are important as they influence trade agreements, economic growth and financial stability. This relationship can be seen in Australian market interest rates, as Australian banks borrow internationally to fund loan portfolios. Currently the dependence upon the global economy is seen by the fuel prices, as the war in Ukraine is removing supply of oil, forcing businesses to charge more to remain profitable.

POLITICS

Politics limit economics by the levels of government, and election promises. Government levels impact economics as different parties may old power of different levels of government, meaning that proposed policies and projects to influence the economic cycle may not be passed by the senate, as a different political party may have the majority. Another political limit maybe be how a government is held by its promises made during an election campaign, such as promising not to raise interest rates.

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Reintroduce carbon tax, congestion tax, subsidies for pollution control, implementing restrictive laws for sensitive areas such as mining/logging in national parks.

Advantages of these policies

Helps preserve the natural environment and reduce pollution and climate change. The economy can’t keep growing if the environment is degraded. Environmental damage also affects people health through higher levels of water and air pollution and restricts the availability of resources.

Disadvantages of these policies.

Environmental regulations generally require polluting facilities to reduce the activities that result in the pollution, which imposes costs on businesses. Therefore, the government might be worried that if there is a rise in global value chains and capital flows, differences in the strictness of environmental policies across countries would change relative production costs and alter businesses’ competitiveness. Resulting in a reduction in economic growth and, pollution-intensive production capacity could shift towards regions with less severe regulation. This would change the distribution of industrial production, with potential consequences for employment, international trade and investment flows.

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Pros
- With more taxes, it is able to change tax brackets to lower tax rates for low-income earners, yet heighten taxation rate for high-income earners, allowing for further spending from low-income earners

Cons
- Less disposable income, can’t invest as much or invest in capital

- Less money to use to pay employees

- Less demand as people has less disposable income -> Less AD, lower rates of spending

One cost of higher taxation rates for businesses is the level of demand. With higher taxes, it means consumers have less total disposable income. This lowers aggregate demand as a factor of consumer spending. This lowers the amount of income available to spend, there is less demand for the products from the business, lowering profit levels, also causing less investment from businesses.

One of the benefits of higher taxation rates for businesses is the possibility of decreasing income inequality, by lowering taxation rates for bottom-end earners, yet heightening high-income earners more. Which it would allow low-income earners to purchase more and therefore businesses could produce more goods and services for the public. Thus, businesses could make more profits from the consumers. This could also create higher AD as more low-income earners are able to come into the market of choice, pushing AD by increasing consumption.

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Low economic growth:

If current budget deficit is maintained, decrease in GDP will be noted

Gov. Need to implement fiscal policy to address: G<T ie. fiscal stance must be contractionary move towards a surplus even though will still be in state of deficit

High levels of inflation:

Implement contractionary monetary policy to discourage spending, incentivise savings through controlling interest rates

Less money injected into economy therefore reducing aggregate demand on whole

Government spending is more effective as consumption decreases as the overall AD function decreases, money goes further for discretionary spending (ie. relating to environmental issues)

Climate change:

Revenue generated from increased taxes can be invested by government into improving sustainable energy choices

Decreased emissions through improving affordability of renewable and sustainable energy choices

Discretionary spending allowed through increased revenue generation

Increased popularity for government in power as they follow up on their promised spending

Revenue generated from increased taxes can be invested by government into improving sustainable energy choices

Decreased emissions through improving affordability of renewable and sustainable energy choices

Discretionary spending allowed through increased revenue generation

Increased popularity for government in power as they follow up on their promised spending

Unequal distribution of income and wealth:

Increase progressive taxation amounts (or alternatively not follow through with upcoming tax cuts to all tax brackets)

Potentially encourage skilled workers to seek employment elsewhere (overseas) therefore leaving less for domestic workforce

Use generated revenue to provide cash injection to increase in childcare/age care workers to incentivise increased employment in such fields

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Government Goods and services

Allocation of Resources

Expenditure and Leakage

Social security

Education

Health

Infrastructure

Protecting the environment

Interest Rates

Tax

direct

Business tax

Carbon Tax

Income tax

Capital Gains

Fringe Benefits

Indirect

GST

Excises

Resource Tax

"Sector Tax"

Royalties

Levys

Import and Export Tax

Subsidies

Consumer and business