In our contemporary society we are exposed to two types of markets, Market and Planned economies. Market economies have the freedom to do what ever they wish, whilst the planned economies are controlled by a Central Planning Authority (CPA). In a market economy it is not just the consumers who lay down the laws of trading; the government has the power to influence and this is called government intervention.
A reason for government intervention is, for example, where the market has suffered a failure and requires government help to regain the markets strength, confidence, and most of all ensure maintenance of an efficient economy. Another example is where it is necessary to restrict how much foreign companies can get involved with the domestic market and vice versa. As a market economy Australia is currently experiencing a mining boom which is increasing the value of the Aussie dollar and the wealth of the nation. But in the uncertain times of today it has judged that as it has little influence over the problems in world financial markets it must exercise the only tools it has to ensure stability within the Australian economy.
The two key tools are through the exercising of new fiscal or monetary controls by the Australian Government and the Reserve Bank of Australia respectively. Fiscal policy is where the Government pulls levers within the economy through such measures as taxation and control of Government expenditure. The aim of fiscal policy is to influence the direction of the economy through taxation and expenditure. A neutral stance of fiscal policy is when G = T (Government Spending = Taxation).
An intervention strategy is through taxation and this is the area of control of the Australian Government. Taxation revenue helps fund most government activities such as welfare, infrastructure, health, and education. “A tax is not a voluntary payment or donation, but an enforced contribution, exacted pursuant to legislative authority" . Taxes...