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    PPT - Role Of Government

    Government Policy Objectives

    Sustainable Economic Growth

    • **stable economic growth **that can be sustained over the long term (maintained for future generations)
    • Economic growth refers to the growth in the production capacity of an economy over time (usually measured in terms of GDP)
    • Estimated target range is 3-4% GDP growth rate per annum

    Price Stability

    • Price Stability

      • Where prices are stable and not fluctuating

        • Requires low inflation rates

      • Target range is 2-3% rate of inflation p.a.

    Full Employment

    • Refers to z
    • This means that cyclical unemployment is zero
      • A person is considered unemployed when they are willing and able to work and in paid work for at least an hour a week
    • estimated target is 4.5%

    Equitable Income Distribution

    • Promotion of the welfare of all Australians
    • Achieved through measures to improve vertical equity (not a term that needs to be known) like the progressive tax system
    • There is no target

    Taxation and Revenue

    • The two tasks of the government are to collect revenue and spend money
    • main taxes
    • know the size and composition, basically the main revenue/expenditure

    Taxation

    • Impact: where the tax is levied or collected (who it is put on)
    • Incidence: where the burden of the tax falls (who pays it)
    • Leads to;
      • Direct tax: collected from the taxpayer's income (individual or corporate)
        • impact and incidence fall on same party
      • Indirect tax: impact and incidence falls on different people
        • e.g. excise or GST
        • impact on firms, incidence on consumers (in this case)

    Progressive, Regressive and Proportional Tax

    • Progressive tax: increasing proportion of tax as income increases
      • Burden mainly falls on those who earn higher levels of income
    • Regressive tax: decreasing proportion of income taxed as income increases
      • Greater burden on lower income earners
      • e.g. excise tax: low income earner will be taxed a higher proportion of their income
    • Proportional tax: constant proportion of income
      • e.g. Australian company tax is 30% for big companies and 27.5% for small

    Tax Concepts

    • Specific: charges on the volume of sales regardless of price
    • Ad valorem: (Value added tax) levied as a percentage of price (real estate or personal property)

    Income tax

    Personal Income tax (IMPORTANT)

    • Levied on all wage and salary income
    • direct taxation with a progressive burden
      Company tax (IMPORTANT)
    • proportional tax
    • impact on individual company
    • incidence fall on consumers as cost is passed on
      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, school fees for children

    Taxes on Goods and Services

    GST

    • broad based tax levied at 10% of the price of most goods and services
    • impact on seller
    • incidence on consumer
    • revenue collected by the federal government and distributed to the state governments
      Excise duty (IMPORTANT)
    • 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 (i.e. a tariff)
    • means of protecting Australian producers from overseas competition

    Taxes on property and wealth

    Capital Gains Tax (IMPORTANT) NOT! HAHAHAHa jk

    • progressive tax which is levied on capital gains (profits) from the sale of assets held for longer than 12 months
    • adjusted for inflation
    • applies to shares, etc.
      Also exists Resource Rent tax, Carbon tax, Emissions trading scheme