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Australian Federal Budget: Impact on Income Distribution

Analyse the likely impact of the current 2018-2019 Australian Federal Budget on:

  • income distribution
  • resource allocation, and 
  • the level of economic activity in the Australian Economy.

Assessment criteria: 

In your answer you will be assessed on how well you: 

  • interpret statistics;
  • demonstrate understanding of relevant economic theory; 
  • correctly apply economic theory; 
  • demonstrate wider reading and research; 
  • put a logical argument together, clearly and succinctly; 
  • apply correct referencing styles. 
  • Demonstrates extensive knowledge and research to develop a logically sequenced answer that highlights a clear understanding of the role of the Federal Budget in the Australian economy. 
  • Uses relevant research and calculations to analyse how the current Budget impacts on the three aspects listed in the question.
  • Integrates economic terms, concepts, theory and graphs in their explanation. 
  • Application of correct referencing style




The Australian Federal Budget 2018-2019 has emphasised on the aspect of tax relief in order to provide encouragement for the working population in Australia. Moreover, the budget has the potential to provide the required support to businesses in order to make investments. The necessary support for the scope of creating jobs has also been highlighted in the budget. In this connection, the present study is focused on evaluating the impact of Australian Federal Budget (2018-2019) on the income distribution, resource allocation and level of economic activity in the Australian economy. 

Probable Impact of the current 2018-2019 Australian Federal Budget on income distribution 

The Australian earning population shows categorisation in high, middle and low-income earners. The tax strategy that has been adopted in the 2018-2019 Federal Budget has the provisions for providing relief for the low and middle-income earners. The personal tax system has been simplified since the taxation bracket rose from 87,000 AUD to 90,000 AUD from 1st July 2018 (SBS, 2018). The change that has been incorporated has the potential to prevent around 200000 from being considered in the 37% tax bracket (Janda, 2018). In this context, an additional relief has also been provided to the earners in the mentioned categories in the form of non-refundable tax offset. The relief amount is estimated to be around 530 AUD, which is supposed to be received n the basis of assessment of a lump sum amount (PWC, 2018). According to Davey et al. (2018), it is expected that the wage earners have the scope to harness the benefits from the deferral of plans in order to increase the Medicare levy. However, it has been argued that individuals having earning less than $40000 in the low income category have been offered no or little benefit. The budget has not taken low-paid part-time workers, students and other such populations while devising tax cuts (, 2018).

 Gini coefficient details of Australia

Figure 1: Gini coefficient details of Australia

(Source:, 2017)

The budget 2018-2019 is not only expected to benefit investors, wage earners and salary earners. Jericho (2018) opined that the unincorporated businesses are also expected to reap benefits since the profits generated are now a subject of individual taxation rates. In this context, it can be stated that the Gini coefficient of Australia for 2015-2016 was 0.323 (, 2017). It is 0.34 for 2017-2018 (OECD, 2018). Moreover, it is likely to see a decline due to the implications of Federal Budget 2018-2019. It might approximately reach around 0.31.  

The older population in Australian is also likely to benefit from wage subsidies of up to $10,000 for the employers employing the individuals of the mentioned population category (PWC, 2018). An opportunity is also provided to mature age workers for updating the skill sets by creating a new Skills and Training Incentive and thereby expand the Entrepreneurship Facilitators program. The Australian population tends to possess riches in terms of assets, however, are poor in terms of available cash. The Federal Budget 2018-2019 provides the opportunity and assistance to unlock equity within the Australian households from the perspective of retirement income. The retirement income for a couple can be boosted up to $17,800 in case of full rate pensioners as well as self-funded retirees (PWC, 2018). The provision is available under the Federal Pension Loan Schemes. However, the facilities can be availed without creating an impact on the eligibility criteria for availing pensions and other related benefits. Despite the fact that there has been an increase in the mentioned scheme, the scope and attractiveness still remain limited. The extension of Pensioner Work Bonus for older population to stay in the workforce is also a beneficial aspect. The pensioners can thereby have an additional annual income of 1300 AUD (CPAAustralia, 2018).

However, Australian government has not harnessed the opportunity for the creation of tax breaks for downsizers. It would have aided the downsizers in preserving the freed-up equity and thereby avoid the loss of pension benefits. The feature of holding vacant land has not been made a subject of deduction related to the associated expenses. In this case, the land needs to be categorised for not being genuinely held under the purpose of earning assessable income such as lands for commercial and residential purposes (Grant Thornton, 2018). Therefore, the taxation benefits tend to hold a significant prospect in addressing the income inequality that exists in Australia. 

Probable impact of the current 2018-2019 Australian Federal Budget on resource allocation 

Sky Bus is the only means of transport available to and from the airport, which is an express bus service. The time taken for the service to complete a trip is around 45 minutes. Federal budget 2018-2019 has allocated $5 billion for the development of a Melbourne airport train line, which is half the budget of the total project. Moreover, $475 million has been allocated for the development of rail connection for Monash Precinct along with $50 million for Geelong. Frankston-to-Baxter rail connection electrification has also been allocated the budget of $225 million. Development of urban roads has also acquired a fund of $140 million (The Guardian, 2018). Hence, the transportation facilities available in Australia are likely to be improved due to the financial support that the Federal Budget 2018-2019 is providing. Despite this fact, arguments are being raised regarding the necessity of more roads in the cities, which increases the reliance on cars while European cities are focusing on excluding cars (, 2018).

The budget has also rendered focus on the infrastructure for public technology. The investment that has been made in this context is $2.4billion (GTLaw, 2018). The benefits can be harnessed by the community from a larger point of view. The areas of investment include satellite imagery, improving the level of accuracy of GPS and also supercomputers. In addition to this, the Bureau of Meteorology has been allocated financial support improvements and researches regarding artificial intelligence (GTLaw, 2018). The Australian population is thereby likely to benefit from the mentioned as it provides facilitating implications. In this context, it can also be stated that medical research projects have also acquired funding and hence improvement in the scenario of medical benefits and facilities is likely to happen. For instance, genome research has been allocated $500 million for over 10 years time span. The Pharmaceutical Benefits Scheme that focuses on the treatment of breast cancer, spinal muscular atrophy and relapsing-remitting multiple sclerosis has been allocated an extra $1.4billion (, 2018). The scenario can be well assessed by Pareto Efficiency, which renders focus on bringing about improvement without inflicting any harm while helping at least one. The initial allocations in the mentioned sectors have been subjected to improvement in order to enhance the value and thereby aim to achieve Pareto equilibrium. The feature of wealth transfer tends to be the focus of Pareto-efficient allocation, which the budget has undertaken to bring about the necessary improvements. Therefore, due to efficient resource allocation, the supply will show a significant increase and thereby shift towards right which can be seen in the graph presented below.

Short-run AS curve

Figure 1: Short-run AS curve

(Source: As influenced by Mankiw, 2014)

In addition to the mentioned aspect of having a Pareto efficient resource allocation, it is highly likely that the Long run Average Supply curve will demonstrate a shift towards right. It is due to the fact that there will be a significant increase in long-run supply as evident from the graph below.

Long-run AS curve

Figure 2: Long-run AS curve

(Source: As influenced by Mankiw, 2014)

Probable impact of the current 2018-2019 Australian Federal Budget on the level of economic activity in the Australian Economy 

The Great Barrier Reef is in need of protection due to the various adverse environmental implications. It is due to this reason that $536 million has been allocated for the purpose of its protection from the potential as well as existing adversities (CPAAustralia, 2018). The natural flora and fauna have also acquired the scope of harnessing benefits from Federal Budget 2018-2019. The protection of the biggest tourist attraction is likely to be highly beneficial for the tourism industry. It can thereby make a better contribution to the Australian economy

The nominal GDP forecast of Australian government was reported to be revised to 4.3% in the context of economic strengthening in terms of trade activities. On the other hand, the real GDP forecast was reported to 2.75% (, 2018). The potential reason identified for the mentioned growth is related to the growth that is expected in non-mining business. 

Macroeconomic equilibrium

Figure 3: Macroeconomic equilibrium

(Source: As influenced by Mankiw, 2014)

Every nation intends to bring about a significant increase in their GDP along with the reduction in the level of unemployment without bringing any rise in price. However, according to Phillips Curve, there is a trade-off between unemployment and inflation (Mankiw, 2014). Yet, Federal Budget 2018-2019 will not create an adverse impact on the Australian population. It is due to the fact that the real GDP will show a larger rate of increase in comparison with the increase in the price level. It can thereby be stated that the purchasing power of the Australian population is likely to increase significantly. 

The effort that has been undertaken in order to combat the black economy persisting in Australia has also received significant attention in Federal Budget 2018-2019. An amount of $2.4 is likely to be raised due to the cuts implied on the illegitimate use of tax incentives for the research and development purpose (, 2018).  

Earlier fees were charged for exiting a fund, which has been slashed under the present budget. Cap charges of $6000 and stop funds for life insurance policies have been lifted. In addition to this, the Australian economy is likely to generate a savings of around $300 million due to the increase in Centrelink fraud detection. The net debt projection is expected to see a lowering of 18.6% of GDP, which can be considered to be better in comparison to the cash balance projections (, 2018). The deficit estimation underlying cash balance for the financial year 2018-2019 is estimated to be around $14.5 AUD. The projection for surplus for 2020-2021 is estimated to be $11 billion AUD, which is 0.5% of the GDP. The attempt of strengthening the economy of the nation saw the revision of receipt estimation by a minimum of $A6.3 billion per year. In this context, the planned personal income-tax relief is expected to play a significant role. It is because the Australian Government would otherwise breach the rule of allowing a rise of tax-to-GDP ratio above 23.9% by 2020 - 2021 (, 2018). 


It can be concluded that the Federal Budget 2018-2019 Australia poses to be highly beneficial for the low and middle-income earners due to the different tax relaxation provisions. The aged and elderly population of Australia along with the pensioners also have the scope to harness benefits from the provisions of the annual budget. The healthcare sector has been given immense attention and the provided funding is likely to be a facilitating aspect for Australians. The infrastructure, as well as technological infrastructure, has also received significant funding. Therefore, it is likely that the real GDP of the nation is expected to receive a significant boost while the Gini coefficient is expected to decline. It can be stated due to the fact that resource allocation can be designated to be Pareto efficient.

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