QUESTION 89 (5 marks)
Both columns are estimates at normal economic activity with current policy settings. Calculate the change in the underlying deficit. Recommend a policy response and explain one equity or growth trade-off.
Practice marking scheme
Answer
The structural deficit widens from $50 billion to $68 billion, a $18 billion deterioration.
Working
Subtract revenue from recurring expenditure: 650 − 600 = 50 and 680 − 612 = 68. Because the estimates remove cyclical weakness, recovery alone need not close the gap. A phased revenue-base reform or review of low-value recurrent expenditure can improve sustainability. Poorly targeted cuts may harm vulnerable households or useful services; tax increases can reduce current demand or incentives.
Marking criteria
- Calculates both deficits and the deterioration. [2 marks]
- Identifies the structural nature of the estimates. [1 mark]
- Justifies a response and explains a meaningful trade-off. [2 marks]
Practice question aligned to the current QCAA syllabus; review the worked solution and marking criteria.
View the QCAA syllabusCompare your working with the guide above.