HSC Economics

Study Notes
by William Olive
Includes notes for all modules…

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Hi Year 12 student,
I am William Olive and completed the HSC in 2018. I wish you all the best and remind you to
work hard, but smart and take time to look after yourself during this time. The relief when you
finish the HSC will be palpable. There is light at the end of the tunnel and ensure you finish
with the confidence you did your best.
I hope these notes help you in your studies in the HSC Economics course. These notes
apply to the syllabus taught from 2011 to 2018.
All the best,
William Olive

Follow me on Twitter: @WilliamOlive2_

#FightOn, #FinsUp and #GoBlue
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12EC1
Mr. Tusa

Federal Budget Essay

Students are to research the following ​FOUR​ areas that have had changes in the 2018-2019
Budget and analyse how these changes will impact upon the Australian economy:
● the economy
● income tax
● business
● families

The Federal Budget was handed down by Treasurer Scott Morrison on May 8 and is a
document which ​outlines the economic and fiscal outlook for Australia including expenditure and
revenue estimates for the current financial year, the budget year and the forward estimates. The
Government, entering an election year in 2019, has created an ‘election budget’ which avoids
acrimonious political fights and sets the Government up to enter the election campaign. The
Budget has been focused on these points: A stronger economy. More jobs. Guaranteeing
essential services, and the Government living within its means. Changes made in these areas
will have a series of impacts on the Australian economy.

In ​The Economy​, there have been a range of changes which will have a profound effect on the
economy in the short, medium and long term. These changes centre around Debt and Deficit,
job development and wage growth, and Infrastructure spending.

In the next financial year the ​budget will be in deficit by $14.5 billion and will return to a small
surplus of $2.2 billion in 2019-20 showing an improved budgetary position where foreign and
domestic debt can begin to be paid down thus reducing the debt the Commonwealth
Government owes. This surplus is supported by expected revenue growth of $27 billion into the
next financial year. Budget surplus occurs when government receipts are greater than
government spending in the economy. Net debt will peak at $350 billion in 2017-18 but is
projected to decrease to $319 billion over the forward estimates and to $108 billion in ten years
time. A surplus is necessary as it is the only aspect of the budget which can begin to pay down
Commonwealth debt. If debt is allowed to continuously increase, then Australia is at risk of
losing our AAA credit rating. This would devalue the $AUD and increase interest repayments on
debt. The Government seeks to decrease debt so it can fund government projects domestically
which will help reduce foreign liabilities - particularly the current account deficit (CAD).

A major benefit to the budget is strong employment figures over the last year. In 2017, jobs
growth hit a 12-year high with 415,000 jobs created, 75% of which were full time jobs. This
helps reduce reliance on welfare, which allows the government to spend less, and keep
employment close to full employment. The Government estimates that the unemployment rate
will fall from 5.5 to 5.25% by 2019-20. This will ensure there is increased payment of income tax
as there are more workers receiving wages from employment and will assist the return to
surplus. The Budget predicted that wage growth will rise from 2.1% in Q1 2018 to 3.25% in
2019-20, which economists and the Opposition believe is an optimistic forecast and have
criticised, as wage growth hasn’t exceeded 2.3% in the last three years. The Government’s
projection for a surplus next year is underpinned on these wage growth expectations leading to
increased income tax revenue.
 William Olive
12EC1
Mr. Tusa

The Government has also made a significant capital outlay into Infrastructure projects in this
budget. $75 billion has been invested over 10 years into infrastructure through a range of
projects such as; the ​$1 billion Urban Congestion Fund, $3.5 billion to establish the Roads of
Strategic Importance, ​$5.3 billion extra funding for Western Sydney Airport and $500 million for
the Monash Freeway upgrade in Melbourne. This is aimed at increasing productivity and living
standards by allowing commuters to spend less time travelling and more time working,
decreasing capacity constraints which limit economic growth due to the inability to provide
goods and services, and providing investment opportunities through future privatisation and
public-private partnerships for capital growth.

On ​Income Tax​, the Government has made a suite of changes in this budget to provide taxation
relief for families and middle income earners to ease cost of living pressures by allowing
workers to keep more of what they earn.

On Budget night, Morrison announced a seven-year income tax plan which intends to lower
taxation rates for lower and middle income earners, changing the current income tax system.
This plan will be implemented within seven years in three stages, subject to its passage through
the parliament. The first stage will involve altering the low-​income tax offset (LITO) to deliver tax
relief. Up to $530 will be handed back to individuals each year as a lump sun when they
complete their tax return, affecting over 10 million people in 2018-19. Stage 2 involves​ changing
the taxation brackets to limit the impact of ‘bracket creep’ which is when people have increased
tax liability because they move up into the next tax bracket due to wage growth and inflation. In
2018-19 the threshold of the 32.5% bracket will move up from $87,000 to $90,000, ensuring 3
million people do not experience bracket creep. When Stage 1 ends in 2021-22, the 19%
bracket will increase from $37,000 to $41,000 ensuring more earners are in the lower bracket.
For 2022-23, the 32.5% bracket moves up again to $120,000. In Stage 3, the 32.5% bracket will
be moved up to $200,000 and the 37% bracket abolished. The benefits of these changes taper
out at about $125,000 worth of income. As a result, 94% of Australians will face a tax bracket of
32.5% or lower at this point of the plan.

The Government has chosen to implement these income tax cuts for a number of reasons, with
an aim to stimulate economic growth, increase productivity and ease cost of living pressures.
These tax cuts will ensure that individuals have more disposable income, as they are paying
less tax to the Government. This should increase consumption of goods and services and boost
both aggregate supply and aggregate demand. This supply-side stance acts as an
expansionary fiscal stimulus of which the government believes will increase economic growth.
Tax cuts also act as an incentive for people to work and to contribute to the economy by
increasing productivity. As a result of having less taken from government in taxes, workers will
want to work more shifts and as a result be more valuable to the economy and to business.
Another outcome of these tax cuts will be to increase incomes and this provide relief to rising
cost of living pressures faced by lower to middle income families, which these tax cuts are
based around. Other effects of these tax cuts will be increased GST revenue from increased
consumption and increased investment in the economy.
 William Olive
12EC1
Mr. Tusa

Regarding ​Business​, the Government has announced and reaffirmed a range of policies seen to
assist business to hire more people in the economy and drive further economic growth by
moving closer to full employment.

The Government has announced the extension of the $20,000 instant asset write-off for small
businesses with a turnover of less than $10 million. The write-off was going to expire at the end
of this financial year but will be extended into the 2018-19 financial year. This has been
welcomed by small businesses as it allows them to make expensive investments in new capital
equipment by using it as a deduction on their tax bill. This will allow businesses to grow and hire
more people, thus reducing unemployment and leading to further economic growth. This will
have a cost to the budget of $350 million over the forward estimates but the benefits to the
economy are seen to outweigh the loss in revenue. Small business will be able to​ invest in other
businesses through these large purchases and can contribute further to the economy by paying
more corporate tax due to their growth and re-invest the savings into other aspects of the
business. Over the first four years of the plan, 300,000 businesses have used this instant asset
write-off.

In this budget the Government reaffirmed its commitment to decreasing tax rates for businesses
with over $50 million turnover. Previously the Government intended to cut tax rates from 30% to
25% by 2026-27. The intention of this is that businesses will have more money to invest into its
businesses leading to higher wages, bonuses and expansion. Expansion will lead to higher
demand for labour which will make recruitment more competitive, increasing wages, and will
lower unemployment through the need for additional labour in the economy. This is also
intended to spur economic growth, but this is disputed by economists. It is also believed these
lower rates will encourage people to start businesses and to grow existing SMEs in the
economy through the incentive of higher returns.

The Budget also has a number of policies which impact ​Families​, ​Guaranteeing Essential
Services​ from healthcare funding to the elderly in order to make lives more comfortable.

The Government has announced increased healthcare funding, aimed improving the health of
Australian families and their contribution to the economy. Funding for Medicare has increased
by $4.8 billion over the forward estimates and funding for the Pharmaceutical Benefits Scheme
(PBS) has increased by $2.4 billion over four years. The Government also announced $30
billion of additional funding for public hospitals which is a 30% increase over estimates. Having
funding in place will make hospitals and medical services more efficient to ensure the good
health of Australians in the short and long term. Ill health will also impact upon workforce
participation, meaning the government will spend more in welfare payments, thus affecting the
financial health of the nation. As living standards would be reduced without adequate health
funding so would productivity and the ability of the economy to produce good and services. This
has a direct impact on GDP growth, having an effect on all in the economy. This is why the
 William Olive
12EC1
Mr. Tusa

Government is investing in healthcare, to ensure the continued economic contribution of

Australians through their labour.

The Government has also made a concerted effort towards the older generation in this budget
to help secure their economic futures through their continued contribution to the economy. This
Budget has increased the Pension Work Bonus to allow pensioners to earn more through work
each fortnight without reducing their pension. This allows pensioners to earn an extra $7,800
per annum and to invest and spend more in the economy, boosting consumption of goods and
services and assisting businesses with increased demand. Working pensioners will also pay a
larger amount of income tax to the Government and this will help ease pressures on younger
members of the family to fund older Australians. An additional 14,000 high level home care
places will be available to the elderly by 2021-22 which will help take the pressure off their
families through lowering costs for their care. Whilst this will cost the budget $1.6 billion over the
forward estimates and increase the deficit it is seen as a necessary measure to cater for the
increased demand due to the average age of Australia's increasing. It will also allow for family
carers of dependants to re-enter the workforce and contribute to the economy through their
labour and payment of income tax.

The 2018-19 Federal Budget had a primary focus on income tax and the fiscal outlook of the
Australian economy. The Government announced a range of initiatives to support business and
families in this budget which the Government believes will deliver: A stronger economy. More
jobs. Guaranteeing essential services, and the Government living within its means. The
economic impacts of these policies are widespread and are intended to increase economic
growth, consumption and productivity in the Australian economy.

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