It’s budget night. You’re nestled into the couch armed with a coldy, a crisp chardonnay or something stronger depending on your passion/frustration for things political. Josh Frydenberg steps up to the dispatch box and unleashes an avalanche of lingo that leaves you scratching your head. My advice? Blast that budget blathering with my plain English, budget jargon buster!
What’s fiscal policy?
The fiscal bit means money, and literally throwing it at the economy to generate activity and hence growth. Fiscal policy does this by increasing/decreasing tax and/or government spending on infrastructure, funky submarines etc. Fiscal policy results in fiscal stimulus.
If the government spends a lot, it stimulates growth but growth can awaken the inflation genie and once that’s out of its bottle there’s trouble. The challenge is finding a balance in exercising these influences. Paul Keating used to refer to it as controlling the levers.
One of the biggest challenges facing policymakers is how involved the government should get in the economy. It’s generally accepted that a degree of government involvement is necessary as the alternative is every man for himself, which would be chaos. Across the west the level of government involvement ranges from the socialist approach of the Nordic countries to the more individualist approach of the US. We’re somewhere in the middle.
What’s monetary policy?
This is basically what the RBA is up to when it’s playing with interest rates. Increasing rates slows the economy because lending becomes more expensive, while reducing rates makes borrowing cheaper and stimulates the economy. Generally, the aim is to have fiscal and monetary policy work in concert with each other to keep inflation low and the economy humming along nicely.
What’s a surplus, what’s a deficit?
Just like you, the government needs a budget that outlines projected earnings (taxes) and expenses (education, health, parliamentary wages and super, really cool submarines). If, after counting, Josh finds he’ll spend the same amount of beans as he collects then it’s a ’balanced‘ budget. If he has to spend more than he collects it’s a ’deficit‘, and if he has money left over it’s a ’surplus’.
What’s a technical recession?
Half of voting age Australia has never experienced a recession but with the “R” word being bandied about and the real danger of one lurking here’s the skinny. No one really knows which boffin coined it but it’s a technical recession when you have two quarters in a row of negative economic growth. An economy’s growth is measured by its Gross Domestic Product (GDP) which is the market value of all the final goods and services a country makes in a year.
Inflation is the increase in the general price of goods and services. As it rises, every dollar in your wallet/purse/man bag/imagination buys you less. For example, if the annual rate of inflation is 2%, then in a year’s time a $1 widget will cost $1.02, on average.
Hopefully that clears a few things up for you!