The Albanese government

[InsvestoBoy]

It's also worth pointing out that fiscal transfer to lower tax brackets at a time when the RBA is (misguidedly IMHO) attempting to kill demand using the blunt tool of interest rates smacks of a lack of understanding and coordination between fiscal and monetary authorities.

 

[sptrawler]

I just think the whole tax system needs re adjusting, it is way too dependent on personal income tax IMO, it needs to be broader and somehow more balanced.
As it is the more that technology takes over jobs, the smaller the number of tax payers becomes, dropping the tax is great for optics.
But unless the loss of tax is offset by an increase in tax receipts somewhere else, it is a downward spiral and is unsustainable.

 

[sptrawler]

It's also worth pointing out that fiscal transfer to lower tax brackets at a time when the RBA is (misguidedly IMHO) attempting to kill demand using the blunt tool of interest rates smacks of a lack of understanding and coordination between fiscal and monetary authorities.

Unfortunately the RBA and the Government are at crossed purposes, the RBA's job is to keep inflation in check and low, the only tool they have is interest rates.

The Governments job is to increase tax receipts to pay down debt and fund submarines, electrical grid transitions etc, so they do that by either directly increasing tax, or by inflation which indirectly increases tax receipts through bracket creep and GST takings as prices go up.

There is the conundrum and the reason, the tax system really requires a complete overhaul.

 

[InsvestoBoy]

I just think the whole tax system needs re adjusting, it is way too dependent on personal income tax IMO, it needs to be broader and somehow more balanced.

We have an organisation of experts, the Productivity Commission, who are paid to impartially analyse the situation and make recommendations on what should be done.

Overhauling the tax system especially in regards to personal income tax and intergenerational inequity of payments has been a constant theme from them for a long time. I think it's safe to assume that's because those issues are obvious to anyone who analyses the situation impartially.

Here's Danielle Wood from nearly 2 years ago now making the case in the AFR

Make stage 3 tax cuts a down payment on real reform

Bundling up the personal income tax cuts with changes to capital gains tax discount and super tax concessions is the way to pay for bigger government.

www.afr.com

But of course, unless the recommendations are politically expedient they fall to the cutting room floor, ignored by the media who should be doing the extremely simple job of repeatedly asking decision makers consistently why they don't follow the recommendations of their own commissioners.

 

[sptrawler]

Well this looks a lot better, than the original idea, if it proves correct.
The down side is, it would be inflationary, but any tax cut would be IMO, so at least this would be much fairer and reward for those at the bottom of the tree is the same as those at the top.
It also IMO is better than subsidies, that just amplify bill shock to the poor when they are removed.

Labor MPs meet after cabinet approves changes to stage 3 tax cuts

Labor MPs will gather in Canberra today to discuss the cost of living after Cabinet signed off yesterday on changes to the stage 3 tax cuts.

www.abc.net.au

On Monday, 2GB reported the government would consider keeping the top tax threshold at $180,000 instead of letting it rise to $200,000 in July as is legislated, and would instead raise the tax-free threshold that applies to all taxpayers.

 

[InsvestoBoy]

Unfortunately the RBA and the Government are at crossed purposes, the RBA's job is to keep inflation in check and low, the only tool they have is interest rates.

Without getting into a massive rant about superfluous Central Banks and their ineptitude, bland facts we should all be able to agree on, from the RBA website:

About the RBA

Overview of Functions and Operations; History of the RBA; Governance and Accountability of the RBA; Structure of the RBA; Reserve Bank Act 1959; Freedom of Information; Archives; International Financial Sanctions and Cash Reporting

www.rba.gov.au

The Reserve Bank of Australia (RBA) is Australia's central bank and derives its functions and powers from the Reserve Bank Act 1959. Its duty is to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.

Despite housing most of the worlds economic PhDs, nobody from any Central Bank has ever made a convincing scientific case that interest rate targeting is an evidence based mechanism for anything let alone keeping inflation in check (which isn't even their legislated job!).

It's all hokum theory wrapped up in academic jargon to bore anyone who tries to look too closely to death.

Anyone who's read the work behind Phillips Curve, NAIRU (or the natural rate of unemployment that proceeded it) on which all modern Central Bank monetary policy is based knows this. Even Central Bankers, if cornered in an alleyway, would be forced to admit it.

NAIRU - Wikipedia

en.wikipedia.org

Every time anyone has tried to empirically study this magical thinking has resulted in glorious and completely unironic statements like this from the RBA:

Estimating the NAIRU and the Unemployment Gap | Bulletin – June 2017

Spare capacity in the labour market is an important input into forecasts of inflation and wage growth. This article describes how the Bank estimates one measure of spare capacity in the labour market – the gap between the unemployment rate and the non-accelerating inflation rate of unemployment...

www.rba.gov.au

To estimate a NAIRU that varies over time requires a more complex model. Inflation and wage growth are affected by the unemployment gap (among other things). The gap cannot be observed directly, but the relationship between the unemployment gap and inflation means we are able to infer changes in the gap by observing inflation outcomes, controlling for other things. More concretely, if inflation is lower than expected, a possible explanation is that the unemployment gap was larger than we thought. In response, we might lower our estimate of the NAIRU.

The alleged "logic" is this:

• our legislated job is to maintain full employment and currency stability
• someone once wrote down on a piece of paper that there's a relationship between employment and wage inflation
• a photocopy of a fax of a printout of that piece of paper where the word "wage" became ineligible is now our Bible
• we believe without empirical evidence that the level of inflation in the private economy can be influenced by the level of interest we charge on government money (even though our interest rate policy has always been reactionary to inflation/deflation "surprises")
• because we believe these things, changes in the level of interest must influence the level of employment transitively through inflation
• if inflation was higher or lower than we expected, it's not because we are dumb, it's because the level of unemployment was too low or high

absurd on the face of it.

Anyway, unintended rant over, my point was that the RBA and government are not at cross purposes. Rejigging the Stage 3 tax cuts and hiking interest rates are both reactions to perceived high inflation. One entity is trying to fix the problem because they think they can kill demand with higher rates. The other entity thinks they can help with the problem by fiscal transfer even though it will likely stoke further demand. Someone should probably be focusing instead on increasing supply of in demand economic goods and services.

 

[mullokintyre]

The notional tax rates are one thing, but that doesn't take into account the tax avoidance schemes that higher income earners can use to reduce their tax payable, not to mention that anyone receiving a superannuation pension pays no tax on it no matter how much they get.

It also does not into account the other government subsidies like family benefits, low Income Superannuation tax offset, stamp duty offsets, pensioner discounts on electricty, car registration, rates, insurance etc.
It also does not include medicare levies, property taxes, GST,.
Mick

 

[Sean K]

I bet this gets played a bit during the next election campaign, along with the $275 power bill saving promise.

Are Labor trying to be a one term party?

 

[SirRumpole]

However, I do strongly feel that handing increased stage 3 tax cuts to lower tax brackets is going to throw fuel on the inflation fire locally, not help address it.

I'm not a high income earner, but I also don't pay rent or mortgage.

I have a feeling that most lower/middle income earners are spending the majority of their earnings on necessities, rent, mortgage, utilities, fuel, insurance and groceries and will not go out madly spending on new cars, entertainment and restaurants if they get a modest tax cut.

The inflation we have now is cost inflation bought about largely by the after effects of covid and the Ukraine war, not because cashed up consumers are increasing demand for goods and services and inflation will gradually drop as these effects wear off.

Helping people along who need it in the meantime won't markedly add to inflation in my view, and may moderate demand for wage increases which will help the business bottom line.

 

[InsvestoBoy]

I have a feeling that most lower/middle income earners are spending the majority of their earnings on necessities, rent, mortgage, utilities, fuel, insurance and groceries and will not go out madly spending on new cars, entertainment and restaurants if they get a modest tax cut.

I'm not implying what they will spend it on.

I'm simply stating economic facts.

Fact: those in lower tax brackets spend most of their income (on the necessities you mentioned)
Fact: tax cuts are a fiscal transfer

All other things being equal, tax cuts to lower tax brackets is a fiscal transfer to the sector of the economy most likely to add to aggregate demand for the goods and services that sector spends on, necessities.

Fact: without a commensurate increase in supply, an increase in demand from fiscal transfer will cause further increases in price.

The inflation we have now is cost inflation bought about largely by the after effects of covid and the Ukraine war, not because cashed up consumers are increasing demand for goods and services and inflation will gradually drop as these effects wear off.

I'm not talking about the inflation we have now, I'm talking about the potential for further inflation caused by fiscal transfer to lower tax bracket consumers who spend most of their income on necessities.

Helping people along who need it in the meantime won't markedly add to inflation in my view, and may moderate demand for wage increases which will help the business bottom line.

Maybe. I'm not against diverting the Stage 3 tax cuts (to my personal detriment), just suggesting there are better ways for the money to be spent than direct fiscal transfer.

 

[SirRumpole]

All other things being equal, tax cuts to lower tax brackets is a fiscal transfer to the sector of the economy most likely to add to aggregate demand for the goods and services that sector spends on, necessities.

I doubt that it will increase demand for necessities.

People who are struggling already won't be buying more fuel or using more electricity because a small tax cut won't be giving them sufficient relief. I think any excess is more likely to go into savings because the problems aren't over yet and people will still be worried about further interest rate or rent increases and want a buffer against those.

 

[Sean K]

Analysis I haven't seen yet is whether this is overall tax neutral, or is the government making money out of it to spend on things that aren't necessarily cost of living relief? Anyone seen something on that?

 

[SirRumpole]

Analysis I haven't seen yet is whether this is overall tax neutral, or is the government making money out of it to spend on things that aren't necessarily cost of living relief? Anyone seen something on that?

From what I heard it's tax neutral, the tax cuts will cost the same as before but more will go to lower/middle income earners.

 

[PZ99]

This link has a table of who gets what under the revised cuts...

https://www.news.com.au/finance/money/tax/winners-and-losers-from-albaneses-stage-3-tax-cuts-overhaul/news-story/a3422e1458adf70c7b0371614eaa1c60

 

[Belli]

Now I have a dilemma. Do I allocate the money to my general expenditure and purchase more useless things I don't really need or place it in the share market?

Decisions, decisions.

 

[Belli]

I'm not a high income earner, but I also don't pay rent or mortgage.

I have a feeling that most lower/middle income earners are spending the majority of their earnings on necessities, rent, mortgage, utilities, fuel, insurance and groceries and will not go out madly spending on new cars, entertainment and restaurants if they get a modest tax cut.

The inflation we have now is cost inflation bought about largely by the after effects of covid and the Ukraine war, not because cashed up consumers are increasing demand for goods and services and inflation will gradually drop as these effects wear off.

Helping people along who need it in the meantime won't markedly add to inflation in my view, and may moderate demand for wage increases which will help the business bottom line.

I've wondered on occasion that with the attitude of some, whether this 1946 amendment to the Constitution would ever occur today.

"Section 51 (xxiiiA) the provision of maternity allowances, widows' pensions, child endowment, unemployment, pharmaceutical, sickness and hospital benefits, medical and dental services (but not so as to authorize any form of civil conscription), benefits to students and family allowances."

It could be argued our predecessors had a more generous approach than certain groups of today.

 

[InsvestoBoy]

I doubt that it will increase demand for necessities.

People who are struggling already won't be buying more fuel or using more electricity because a small tax cut won't be giving them sufficient relief.

It's $32 billion a year. You are thinking about individuals, think about the aggregate fiscal transfer and the impact on aggregate demand.

I think any excess is more likely to go into savings because the problems aren't over yet and people will still be worried about further interest rate or rent increases and want a buffer against those.

We'll see, but it would be a departure from decades of history across market economies globally. Lower tax brackets don't save.

 

[sptrawler]

Helping people along who need it in the meantime won't markedly add to inflation in my view, and may moderate demand for wage increases which will help the business bottom line.

The wage rises and welfare increases have already pushed inflation.
As you say, if this tax cut goes to the lower/middle sector it should relive pressure on wage demands, but as Investo says it will drive inflation again as the lower/middle sector don't save, they generally consume.

So it is just another unfunded $32billion tax cut, hopefully this inflation cycle stops soon, it is not doing our international competitiveness much good.

 

[SirRumpole]

The wage rises and welfare increases have already pushed inflation.
As you say, if this tax cut goes to the lower/middle sector it should relive pressure on wage demands, but as Investo says it will drive inflation again as the lower/middle sector don't save, they generally consume.

So it is just another unfunded $32billion tax cut, hopefully this inflation cycle stops soon, it is not doing our international competitiveness much good.

In "normal" times the low and middle taxpayers don't save, but this time with prices rising I think a lot if them will if they can, but mostly their tax cuts will be eaten up by increasing costs so they won't be rushing out to buy things they can't afford and therefore won't be adding to demand.

 

[sptrawler]

In "normal" times the low and middle taxpayers don't save, but this time with prices rising I think a lot if them will if they can, but mostly their tax cuts will be eaten up by increasing costs so they won't be rushing out to buy things they can't afford and therefore won't be adding to demand.

The big benefit I see in the top bracket not getting it is, the money wont be used to pump the price of properties, that is where the main social inequality is IMO.
The constant pouring of investment money into residential property, isn't healthy for society and it isn't helpful for the productive side of the economy, because it reduces the amount of money available to be invested in business growth.