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Posted: 2023-06-28 07:42:57

How would you put the budget together? 

Every year in May, the federal government releases its annual budget, which has a dual purpose.

The budget is an economic document, showing how much the government plans to spend and tax over the next 12 months, and how it relates to growth and employment.

But it's also a political document because the government's decisions about who to tax and where to spend will impact Australian culture over time.

Would you enjoy making those decisions?

The Parliamentary Budget Office has released a "Build Your Own Budget" interactive that lets you do so.

Budget decisions, parameters, and forecasts

However, the interactive is quite sophisticated.

It's in an Excel format, so it shows how Treasury officials actually put the budget together.

It looks like a fantastic resource for economics teachers and students and that weird political junkie in your friendship group.

But it's not something everyone will enjoy using.

However, for those who are interested, aside from making your spending and taxing decisions, it also lets you make assumptions about net overseas migration, the unemployment rate, wages growth, inflation, productivity growth, and participation, to see what impact they'll have on your forecasts.

This short 4-min video shows you exactly how to use it.

Are you ready?

Click through to this link to get to the Build Your Own Budget page.

Once you're on that page, download the interactive Excel spreadsheet with the moveable graphs and see what type of budget you'd like to create.

It's an educational tool

The PBO says the purpose of the interactive is primarily educational.

It says it's intended to enrich your understanding of the Australian government's budget — including the overarching accounting framework, the various components and their relative importance, how they are interlinked, and how they broadly respond to changes in key economic and policy assumptions.

And the modelling in the Build Your Own Budget tool is underpinned by the '"three Ps" framework for long-run GDP.

What are the "three Ps"?

Economists have competing theories about where economic growth comes from but one school of thought, which has been embraced by Australia's Treasury officials, says growth originates from three sources:

  • Population
  • Participation
  • Productivity

Together, they're called the "three Ps".

According to the idea, the larger your population, and the more people who participate in your labour force, the more workers you have. And the more productive they are, the more they can produce over time.

Combine them, and those three factors determine your economy's long-run potential growth rate.

If you play around with the trend rate of growth of any of them, you can lift the potential growth rate of the economy itself.

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