Following up from my Age piece yesterday, Nick Gruen — who was also there — notes that I wasn’t asked to consider the proposed income tax cuts at all. So let me offer my view here: the big issue is whether these are fueling inflation. But even if they are, delaying them a year or so will do little to stem that. Household expenditure relates to permanent income increases and a delay would not change that much (unless of course, people decide that the tax cuts are never coming). The same is true of Nick’s proposal to put it all into super: little change in permanent income there.
My proposals — a hike in the GST (I was thinking to say 15%) and the introduction of green taxes — would be new and unexpected. They also hit consumption more directly and so, if that is the cause of inflation, then they are likely to be more effective. I must admit that I don’t think hiking the GST is politically viable at the moment unless, of course, the inflation concerns are really bad. Green taxes are another matter. I like to put those ideas out there. I did that a few weeks back on bank switching costs and look what happened then.
And on the issue of whether inflation is real, I’m no seer on macroeconomics but the micro part of me doesn’t think the government has any incentive to blow that out of proportion. They have a good run up until the next election and the only problem that might arise is if the economy goes off the rails. They have every incentive to keep it running there; in contrast, to the previous doomed Coalition government.