QCAA Economics Economic management

The CPI data shows there are no inflation pressures from consumer prices or wages, indicating the economy has not experienced demand pressures for three years.
The export data demonstrates that Australia has some external stability pressures, because the export value of coal has fallen by ＄70 billion.
These two datasets, in the absence of further information, indicate that economic activity is weakening. They also provide evidence of negative forces acting within Australia’s economy that require stimulatory policies.
Proposals to achieve a federal budget surplus as expected cannot be justified at this time, because it would mean contracting the economy, which could result in inflation and wages falling further. The fall in wages would be expected to cause households to defer spending and save, causing a flow-on effect on business investment. This would result in several negative forces acting on aggregate demand and reducing economic growth. Consequently, the productive capacity of the economy should be increased.

The economy appears to be in an expansionary phase of the economic cycle. This is evidenced by the low labour underutilisation rate of 4% and falling, indicating a high demand for labour and the potential for inflation. It is further supported by the rising rate of health costs (12%) and housing prices (10%), which both indicate inflationary pressures, as their costs are difficult to avoid or minimise.
However, there are three forces that are offsetting the rising domestic demand pressures. Petrol and gas prices are not inflationary, as they have only risen 1% annually, which may reflect falling international prices for oil or the dollar's appreciation. With the appreciation of the economy's dollar to parity with its major trading partner, export demand should be falling. This is because export prices would be rising, making them less competitive in international markets. Further, demand for imports would be rising, as their prices fall due to the dollar's appreciation, meaning greater withdrawals from the economy and contractionary forces.
Consequently, assuming the data is representative of the whole economy, the central bank could hold off on further cash rate rises while it monitors opposing forces within the economy.

A temporary increase in taxation on higher income earners via the temporary budget repair levy is contractionary, as it raises government revenue. Other initiatives that reduce government expenditure include raising the pension age and reducing federal funding on hospitals and education. The pausing of indexation of various transfer payments and government programs have a neutral budget impact. There were smaller expansionary measures to assist low-income, single-parent households and to increase the older worker participation rate, however, when combining initiatives, it becomes apparent that the main budget priority is contractionary — to reduce spending to either reduce a budget deficit or stabilise a high rate of economic growth. This assumes the net change in other budget items are nil.