Government in the Economy

Last updated Sep 12, 2023 Edit Source

• Stable economic growth that can be sustained over the long term
• Economic growth refers to the growth in the production capacity of an economy
• Target: 3-4% GDP growth

• Where prices are stable and not fluctuating
• Requires low inflation rates
• Target: 2-3% inflation

• Refers to when everyone who is willing and able to work can find employment
• Cyclical unemployment is 0
• Target: 4-5% unemployment

• Promotion of the welfare of all Australians
• Achieved through measures to improve vertical equity
• Target: NONE

• Impact: Where the tax is levied or collected
• Incidence: Where the burden of the tax falls

• Collected from the taxpayer’s income
• Impact and incidence fall on the same person

• Impact and incidence falls on different people
• E.g. excise tax or GST

• Increasing proportion of tax as income increases
• Burden mainly falls on those who earn higher levels of income

• Decreasing proportion of income taxed as income increases
• Greater burden on lower income earners
• E.g. GST: Low income earner will be taxed a higher proportion of their income

• Constant proportion of income
• E.g. Aus company tax: 30% for big companies and 27.5% for small

• Charged on the volume of sales regardless of price

• Levied as a percentage of price
• E.g. Real estate or personal property

• Income
• Goods and services
• Property and wealth

Personal Income Tax

• Levied on all wage and salary income
• Direct
• Progressive burden

Company Tax

• Proportional tax
• Impact on individual company
• Incidence: Falls on consumers

Fringe Benefits Tax

• Levied on the value of non-cash benefits given to employees in addition to their salary or wage
• E.g. company cars, schools fees for children

GST

• Broad tax levied at 10% of the price of most goods and services
• Impact on seller
• Incidence on consumer
• Revenue collected by fed gov and distributed to state gov

Excise duty

• Imposed at a flat rate on domestically produced goods such as alcohol, cigarettes, oil products
• Revenue raising
• Levied on price inelastic goods
• Reduce externalities

Customs duty

• Indirect tax levied on imported goods
• Means of protecting Australian producers from overseas competition

Capital Gains Tax

• Progressive tax which is levied on capital gains (profits) from the sale of assets held for a period longer than 12 months
• Adjusted for inflation
• Applies to shares, investment properties

Resource Rent Tax

• Progressive and equitable

Carbon Tax

• On carbon content of fuels
• Higher prices discourage consumption of carbon

Emissions Trading Scheme

• Companies buy permits