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1 Introduction The government implements its macroeconomic policy using two main tools fiscal policy and monetary policy Government macroeconomic management is designed to minimise fluctuations in the business cycle so we can experience good growth low rates inflation and relatively stable unemployment Sloman J and Norris K 2002 Fiscal policy refers to the governments choices regarding the overall level of government purchases or taxes Gans J et al 2000 721 This paper will focus on the governments fiscal policy namely the 2003-04 Commonwealth Budget and its effects on Australias growth unemployment and inflation On May 13th federal treasurer Peter Costello announced the 2003-04 federal budget which included policies which came as a surprise to many economists and market analysts As Saul Eslake chief economist at ANZ stated It contained at least two surprises for market analysts who had been conditioned by pre-Budget chatter and leaks to believe that the Government was facing a fairly tight financial position and that as a result there was little room for major policy initiatives beyond meeting the need for additional defence spending and funding changes in higher education 2003 The budget displayed a departure from the pattern seen under the Howard government in recent years At first glance the most notable change is a reduced budget surplus which has fallen from 39bn AUD in 2002-03 to 22bn AUD in the 2003-04 with even smaller surpluses forecast for the next two years Figure 11 Source 2003-04 Budget Review Figure 11 shows the trend of budget surpluses in recent years Budget surplus peaked in 1999-00 at 135bn dollars and running into slight deficit in 2001-02 when domestic and global economic conditions were at their worst Commonwealth Budget overview 2003 The federal treasury states that the objective of the budget balance is to ensure that the government is not living beyond its means and not to pass the burden of expenditure on
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