More GST slashing

It has been gathering momentum in Australia, it happened in the UK and now Bob Hall is proposing it for the US:

Bob thinks we are falling into a liquidity trap, and wants a big Keynesian stimulus program but thinks that government spending is too slow and not necessarily spent on worthwhile projects. Instead, he wants the Federal government to subsidize a temporary sales tax holiday. This has the advantage of immediacy while maintaining consumer sovereignty.

You know, compared to handouts and income tax breaks, temporary cuts to the GST is looking good.

9 thoughts on “More GST slashing”

  1. What would the administratives costs for this be like given most businesses use software to do their BAS etc.
    Additionally, surely the best that this could do is lower prices by a couple of % at best, would consumers really notice this (particularly given the existing daily and weekly fluctuations in prices for just about everything)  and consider going out and spending more?

    I can’t imagine the States would be too keen either, unless the Cth was willing to step into the void and give them more money (or are we expecting the retail pick-up to counter the cut in rate of GST?)

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  2. Aren’t cuts to the GST prohibitively difficult in Australia, due to the policy of quoting all-inclusive pricing? Off the top of my head: (1) Re-printing all the price lists/labels. (2) Making sure that the cut is ‘passed on’ to consumers. (3) Will consumers really notice?

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  3. Really? Price lists need reprinting. That’s the issue. No it isn’t. There is no compulsion to change prices so they will do it at their weekly or monthly revision.

    I also heard that there are some firms that have these things called “sales” offering up to 5% off and customers apparently buy more! Go figure.

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  4. Politically, a GST cut (depriving the states of their revenue) that isn’t passed on in full to customers would be impossible. Don’t you remember all the concerns when the GST was introduced about retailers raising prices above the 10% hike? The pollies don’t trust economists on this one.

    Perhaps a mandatory nationwide sale – “everything, everywhere is now 2% off (except for cooked chickens or what-have-you)” – might work. But that’s a reversal on the all-inclusive pricing policy (which sales basically dodge.)

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  5. Gee, how does this compare to your “gut opinion” advice 12 months ago, to raise the GST to 15% to kill off the inflation genie…?

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  6. Money markets are like any other market and if the market has in built positive feedback within the supply, demand, price stability mechanism it will be unpredictable. If the market is unpredictable then whatever you do to try to influence it is unpredictable. One week it might work another it won’t. Changing the GST may or may not alleviate liquidity.  Fix the underlying structural problems of money markets by fixing the way we create new money and we will get back control.  To repeat again one way to achieve this. Do not allow any bank including the Reserve Bank to lend money it does not have. Create new money by creating a restricted zero interest currency that can only be spent in an investment market place where the products and services sold in the market place are new productive assets. Remove the restriction on the new money once it has created a productive asset.  Markets are useless at allocating resources efficiently unless they are predictable. We stumble along with unpredictable capital markets simply because those of us who make things are able to increase productivity in spite of and not because of the money and debt markets. Those markets are meant to allocate money and debt efficiently but don’t. Imagine the productivity improvements we would get if capital allocation markets of money and debt operated so that they put investment money to its most economically efficient use.  Imagine how much we could achieve if we build properly functioning markets that embed policy goals that are achieved for the least cost.  For example a properly functioning investment market in ways of reducing greenhouse gas emissions will have no trouble achieving zero net emissions within ten years.

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