Government Revenue and Expenditure

Diascuss about the Government Revenue and Expenditure.

The social phenomenon that is related with aging population is gradually bringing a change in the economic structure of many developed as well as the developing countries. While the main impact of aging population is being felt in the field of employment and workforce, the flow-on effects are also present regarding productivity, output and growth. Due to the changes taking place in government revenue and expenditure, dependency ratio and savings ratio, the growth will be slower and the productivity will also be lower if these factors are not redressed by implementing appropriate economic policies (Tiffen and Gittins, 2004). However it is also true that this type of problems cannot be dealt with only by the conventional microeconomic policies of the government. The microeconomic reform has to work along with social reform policy in order to deal with the long-term concerns.

The demographic changes taking place in Austria can be attributed to two main reasons: the increasing life expectancies and the decreasing birth rates. As a result of these factors, the population age structure bulges that baby boomers but it tapers off in younger generation. As a result of this age structure, there are unfavorable circumstances in the end because the populace becomes top-heavy and there is rising dependency ratio (PCMIAESR, 1999). The large number of elder age group requires support from the smaller younger generation. Such a situation has very significant economic consequences.

The effect of an increasing aging populace is to decrease the normal productivity, even if the degree of such decrees is not noteworthy. In this context, productivity can be described as the output per unit of input. The effect of increasing aging populace is that it results in a reduction in the overall persons in employment (Carey, 1999). While more persons retired from employment and less persons entered, on the face value, it appears that there will be a rise in productivity if the output stays steady. But this is not the matter. Due to a decline in the quantity of employees, there is a change in output. On the basis of the changes taking place in technology that is used for the production process, the value of output may decline but it may not. While it is said that older people introduce experience and augment productivity and consequently production but at some point the mental and physical consequence of aging may compensate the benefits of experience brought in by aging. It is possible that the production may increase the aging but at some point, aging start to have an impact on the majority of workers, there will be a decline in production. Consequently, there is an inevitable decrease seen in aggregate productivity. It will also become directed by the changes taking place in education and technology. Even if Australia ranks low in the world on educational attainment of the citizens, a study increase has been seen in days of tertiary education participation and there has also been an increase witness in secondary education retention rate. The increase taking place in skills will result in an increase in the productivity of the labor. The significant developments taking place in technology will also result in increasing productivity of capital and it may become more competent for the workers to do their duties. However at this point it needs to mention that it's effects on labor productivity will result in a minimal increase.

But while the average productivity is a gauge of output per worker, there is no authoritative measure available regarding the suitability of the person for a particular job. The productivity is macroeconomic measures and therefore it is appropriate for a great analysis of the labor market. However it is not appropriate to measure the microeconomic suitability of the workers regarding a particular job. Generally the older workers will be able to show superior performance as compared to the younger workers (Keating, 2012). Therefore the overall effect of aging population on productivity is not very clear. Though, it is probable that the effect of aging population will be a gradual, even if not a major decrease in productivity.

The aging population acts as a depression for the economic growth of the country. The withdrawal of workers from the workforce, with no growth in capital, is likely to cause a decline in production. Moreover, it would also result in a decrease in consumption because generally the elder populace tends to purchase less luxurious goods (Power, 2013). Consequently the manufacturers of these goods will react to the unexpected increase in inventory and decrease production. This will result in a decline in the Gross Domestic Product (GDP) which is the primary measure of output (Clare, 2012).

Conclusion: After considering the causes and effects of aging population of Australia, it can be said that in Australia the aging population represents a major challenge to growth and economic policy decisions. Even if the effects of aging population on productivity can be negligible, however the aging population is set to cause a dramatic decline in economic growth in the country. To deal with this situation, it is required that the government should use macroeconomic as well as microeconomic policies. The constraints that have been caused on taxation revenue and the significant increase taking place in expected expenditure is likely to result in recurring budget deficits. The government is required to deal with it otherwise it will take the form of an economic problem in itself. There is a need for microeconomic reforms that can assess the economy in adapting to the varying population configuration and this requirement is also required with particular stress on social security reform. These changes are likely to have a major impact on the future economic performance of Australia. Hence it is a matter of high priority that the effects of aging population should be understood and addressed effectively.

References

Carey, D, 1999, Coping with Population Ageing in Australia Economics Department Working Papers No 217

Clare, R, 2012, Equity and superannuation – the real issues, The Association of Superannuation  Funds of Australia Limited

Keating, P, 2012, Address to ASFA National Conference and Super Expo, Sydney

Power, T, 2013, Double contributions tax for high-income earners, Super Guide

Productivity Commission and Melbourne Institute of Applied Economic and Social Research (PCMIAESR) 1999, Policy Implications of the Ageing of Australia’s Population, Conference Proceedings, AusInfo, Canberra., p264

Tiffen, R and Gittins R, 2004, How Australia Compares, Cambridge University Press, p89