Policy Approach

Automatic Stabilisers

These are features that are “built in” to the budget. When conditions change, the value of the automatic stabilisers will also change, without any need to make further alterations to the budget. These stabilisers are referred to as the cyclical component of the budget, because their value will change based on the stage of the business cycle.

There are two obvious examples of automatic stabilisers; income tax and welfare payments. During strong economic phases, more people will be employed. This means that the government will be able to collect more in income tax, but will not have to pay as much in welfare payments. On the other hand, when the economy is in a weaker stage, welfare payments increase, while the total amount collected in income tax will fall. These changes happen automatically – hence the name “automatic stabiliser".

Discretionary Stabilisers

The federal government is also able to make changes to the federal budget at their own discretion. These are revenues and expenses that the government chooses to implement in a particular year to try and solve a particular economic problem. Discretionary stabilisers are referred to as the structural component of the budget.

It is important to note that any changes made to tax rates will also qualify as discretionary stabilisers. For example, when the federal budget was implemented in July 2010, income tax rates fell. This was a discretionary change. Other examples include the development of the National Broadband Network, and the spending that has been implemented as part of the stimulus packages (including the "Education Revolution" and the increased spending on the First Home Owner's Grant) that were implemented in 2009.

Current Page: The Operation of Stabilisers in the Federal Budget