Federal budget jargon buster part 1

It’s budget night. You’re nestled into the couch armed with a coldy, a crisp chardonnay or something stronger depending on your passion for the political. Smokin’ Joe steps up to the dispatch box and unleashes an avalanche of lingo that leaves you scratching your noggin’. My advice? Blast that budget blathering with this plain English, budget jargon buster!

First, here’s an apolitical explanation outlining the backdrop to this year’s budget. Currently, our economic fundamentals are still strong but the economy has been slowing as the investment phase of the mining boom winds down. This means less tax is paid to the government to spend on welfare, roads, submarines and bookshelves for Senator Bandis. Meanwhile, the persistently-high Australian dollar and the recent dip in prices for our dirt continues to cut profits and, hence, business/corporate taxes. So while it’s not exactly an emergency, it’s certainly time for a good, hard count of the beans.

Now to the demystifying!

What’s a deficit, what’s a surplus?

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, Joe 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 fiscal policy?

The budget is an important cog in the wheels of what’s called fiscal policy – a suite of taxation and spending levers that a government uses to influence the economy. For example, a large government infrastructure project will inject lots of money into the economy and stimulate growth, while higher taxes will apply the brakes to an accelerating economy.

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.

Next week, all you need to know about government debt but were afraid to ask.