Labour Budget 2011

1. Introduction

Australia’s 2011 Budget presented by the Labour Government under Prime Minister Julia Gillard and Treasurer Wayne Swan has promised a return to surplus in 2012/2013 by implementing a tighter fiscal policy. As highlighted in the editorial: The challenge is sustained growth – as well as jobs (The Australian, 2009), the Labour government faces challenges with the rising dollar and skills shortages which puts upward pressure on higher inflation and interest rates.

Will this Labour Government budget provide sustained growth while reducing inflation? With media emphasis focusing on all the reductions in budget spending, some perceive the Labour government to be having a contractionary fiscal policy in fact the budget looks to be spending an additional $2.5 billion in key initiatives (Hewson, 2011). Some of the key initiatives we will be looking at in this essay are the Labour Government’s fiscal policies around facilitating growth through infrastructure and education spending while trying to return the Commonwealth governments budget to surplus through the redistribution of wealth trying to encourage more workforce participation and how this will have a ripple effect on RBA’s response to inflation.

2. Budget Surplus and Economic Growth

The Labour government Fiscal Policy is designed to stabilise real GDP by stabilising Aggregate Demand, this is done through discretionary fiscal policy (McTaggart, Finlay, & Parkin, 2010). The labour government intends to do this by focusing on policies that promote regional growth by investing in infrastructure to capitalise on the next mining boom. Additional policies focus heavily on reducing spending and redistribution of wealth (McTaggart, Finlay, & Parkin, 2010).

Using the neoclassical view of economies of population growth (McTaggart, Finlay, & Parkin, 2010), we can see Australia is experiencing a decrease in birth and death rates, contributing to a labour shortage which is putting upward pressure on wage...