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Difference between fiscal balance and CAD?? (1 Viewer)
- Thread starter Bobbo1
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sydneyitee
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- 2011
fiscal balance is the government's budget balance
i.e. revenue - expenditure
CAD is just how much money is leaving Australia in the balance of payments and is measured as a percentage of GDP
currently 2.1?%
i.e. revenue - expenditure
CAD is just how much money is leaving Australia in the balance of payments and is measured as a percentage of GDP
currently 2.1?%
CAD and Budget are completely different things. Are u thinking that the CAD and budget are the same or something?
Like, theyre related (twin deficits theory), and the budget can affect and contribute to CAD, but they are different accounts.
A budget surplus is basically when government revenue (taxes) exceeds government expenditure (spending).
A negative CAD is just when the components of the current account add up to a negative figure. Eg we import more than we export. our net income account is in deficit.
Like, theyre related (twin deficits theory), and the budget can affect and contribute to CAD, but they are different accounts.
A budget surplus is basically when government revenue (taxes) exceeds government expenditure (spending).
A negative CAD is just when the components of the current account add up to a negative figure. Eg we import more than we export. our net income account is in deficit.
krnofdrg
Mq Law Student :)
I think he could mean how we can finance a budget 
?? -> If we finance budget from overseas worsens our CAD.
?? -> If we finance budget from overseas worsens our CAD.Idk where you read that from. Economically speaking, a surplus will improve CAD due to the twin deficits theory.
A surplus will help pay off debt and it raises national savings improving Net Income account, the major deficit component of our BoP
Although, realistically, the CAD can worsen, but its unlikely. And if i remember correctly, the govt is wants to achieve a surplus so that our CAD improves/external stability improves.
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Impact on external stability
Surplus budgets throughout the 2000s had a favourable impact upon external stability. The policy of fiscal consolidation (running balanced or surplus budgets) enabled the government to avoid the crowding out effect and eliminate net government debt in 2006, as well as directly increasing national savings through the establishment of the Future Fund and various other funds in which to save budget surpluses.
However, continuing budget deficits until 2012-13 are likely to have a negative impact on external stability. The ‘twin deficits hypothesis’ suggests that the sale of government bonds to finance the deficit may crowd out private domestic investment and worsen the net primary income account producing a ‘twin deficit’ on the current account. Commonwealth Government Securities on issue are expected to increase from $192 billion in 2010-11 to $225 billion in 2011-12. Further, because Australia has open capital markets, government bonds can be purchased by overseas investors, which can lead to an increase in the government’s foreign debt. In fact, the RBA estimates that over 80 per cent of Commonwealth Government Securities on issue are in overseas ownership. Therefore, the financing of Australia’s budget deficits until 2012-13 is likely to lead to an increase in foreign liabilities as foreign investors purchase Commonwealth government bonds. This will increase the net primary income deficit, as those liabilities must be serviced with interest repayments. In this way, successive budget deficits are likely to result in a higher level of foreign liabilities, contributing to the structural component of the current account deficit (CAD) through the net primary income account.
Can someone explain this to me please??
Surplus budgets throughout the 2000s had a favourable impact upon external stability. The policy of fiscal consolidation (running balanced or surplus budgets) enabled the government to avoid the crowding out effect and eliminate net government debt in 2006, as well as directly increasing national savings through the establishment of the Future Fund and various other funds in which to save budget surpluses.
However, continuing budget deficits until 2012-13 are likely to have a negative impact on external stability. The ‘twin deficits hypothesis’ suggests that the sale of government bonds to finance the deficit may crowd out private domestic investment and worsen the net primary income account producing a ‘twin deficit’ on the current account. Commonwealth Government Securities on issue are expected to increase from $192 billion in 2010-11 to $225 billion in 2011-12. Further, because Australia has open capital markets, government bonds can be purchased by overseas investors, which can lead to an increase in the government’s foreign debt. In fact, the RBA estimates that over 80 per cent of Commonwealth Government Securities on issue are in overseas ownership. Therefore, the financing of Australia’s budget deficits until 2012-13 is likely to lead to an increase in foreign liabilities as foreign investors purchase Commonwealth government bonds. This will increase the net primary income deficit, as those liabilities must be serviced with interest repayments. In this way, successive budget deficits are likely to result in a higher level of foreign liabilities, contributing to the structural component of the current account deficit (CAD) through the net primary income account.
Can someone explain this to me please??