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.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.
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.
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 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.
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.
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.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.
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 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.
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.
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?
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 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.
The wage rises and welfare increases have already pushed inflation.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.
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 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.
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.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.
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