Econ Class 12

Difference between Discretionary and Non-Discretionary Fiscal Policy

Unemployment benefits are automatic stabilisers. When people lose their job, they go to centerlink, and apply for unemployment benefits, are and automatically given unemployment

• Government automatically loses revenue (you pay less or no tax)

Unemployment benefits give people money, so that a stable amount of economic activity is maintained.

Automatic stabilisers smoothen fluctuations in the BTC, as when downturn occurs, more people get unemployment benefits, and will still create economic activity.

Discretionary: required government intervention.

• They deliberately change their expenditure and revenue. This requires legislation.

What government intervention is:

• Changing tax revenue
  • Direct tax: The individual/entity charged has to pay the tax directly
    • Cannot be shifted to other individuals
    • Examples include personal income tax and corporate income tax
  • Indirect tax: e.g. GST, individuals are charged with a tax, but give it to a third party, which is given to the government.
    • E.g. GST, levied on a supermarket but the consumer pays it.
• Changing government expenditure
  • Spend on goods and services
    • Infrastructure is probably the best investment!!
  • Spend on transfer payments (????)

Budget Outcomes

Three types:

• Neutral, G = T
• Deficit, G>T
• Surplus, G$<$T

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