The Scott Morrison-led Liberal government would be presenting the Federal Budget with the aim of boosting the economic recovery, as the country continues to shake off the pandemic blues.
The budget is something that impacts everyone, but because of complex terminology used, many people do not understand it. We at Kalkine Media have curated a set of definitions for key Budgetary terms.
- Federal Budget: The Federal Budget is a projection of the government's finances – revenues and expenditures – at the national level. For the uninitiated, in a Federal Budget, the Federal Government proposes the avenues it is spending money on, and the sources of generating that money. It is mostly based on assumptions of the policymakers and gives a broad direction to the economy.
- Gross Domestic Product (GDP): It is the value of all the goods and services in monetary terms produced within a particular geographical boundary. In case of the Federal Budget, one of most keenly watched out things would be the Morrison government’s projection of the Australian GDP – the monetary value of goods and services produced within the borders of Australia. When this monetary value grows in size, the economy of the country expands, and when this monetary value declines, the economy of the country declines. The GDP can be accounted in two ways – quarterly and annual. In case the GDP of any geographical unit contracts for two consecutive quarters in a row – like it happened in 2020 – it is officially termed as a recessionary phase. If the rate of growth slows down in an economy, it is called economic slowdown.
- Taxes: The tax is a compulsory financial charge or levy imposed by the government so as to generate funds for the spending across the country. Taxes can be of two different kinds – direct and indirect.
- Direct Tax: The direct tax is levied on income, profits, and wealth of the person. In case of direct taxes, both the incidence and the impact of taxes are borne by the same entity – which can either be a company, an individual or a group of individuals. The examples of direct tax include: Income tax, corporation tax, property tax, inheritance tax and gift tax.
- Indirect Tax: It is the kind of tax that is levied upon goods and services before they reach the customer. In case of indirect taxes, the impact and incidence of the taxation doesn’t befall the same person. In most cases, the impact of indirect taxes is borne by the end consumers as the taxation cost is absorbed in final selling prices. The taxes in this case, however, are paid by either the producer or the seller of good/service. Custom duty, import duty, excise duty, value added tax, goods and services tax are a few examples of indirect tax.
- Fiscal Policy: It comprises the revenue collection and expenditure at the level of government, which can be seen influencing a country's economy. In simpler terms, it is a projection of taxation and spending by the government, which aims at influencing the economy. Fiscal policies are broadly categorised in two ways – expansionary and contractionary. Used in times of slowdown, the expansionary fiscal policy reduces the taxes and increases the government spending in a bid to boost the economy. On the other hand, the contractionary fiscal policy aims at increasing taxes and reducing government policy in a bid to curb high inflation.
- Fiscal Deficit: It is the shortfall between what a government earns and what it spends – the difference between the total revenue and total expenditure. It is calculated both in absolute terms, as well as the percentage of GDP. The fiscal deficit usually jumps when government pursues the expansionary fiscal policy in times of slowdown or recession.