Why not raise taxes to slow inflation?

[Cap]

Increasing interest rates immediately reduces the supply of money and the velocity of money. Raising taxes does neither, unless the government uses it pay down debt, which as we all know, they won’t.

I know why the RBA does it.

But like trying to reduce housing prices, there are other mechanisms.

It's complex I do get that.

 

[hawkman]

Tax rises are a once a year possibility. Go too hard and it cripples the economy, if it is not hard enough then it is will do nothing and an overheated economy lasts another 12 months which is going to cause much bigger issues

 

[nut]

Money = debt
Too much money supply decreases its value causing inflation.

Surely taking money out of circulation is the aim!!!

Why let the banks have it?

 

[Seeds]

They took the advice of the head of the RBA who said we wouldn't see interest rate rises until 2024 and planned accordingly.

The RBAs messaging was terrible. But new housing loans last 20-30 years. 2024 was only 3 years away when the rba said it. Its not an excuse to not being able to pay back loans at 6 percent as the rba never said rates would be low for decades. Only 3 years.

 

[Seeds]

Money = debt
Too much money supply decreases its value causing inflation.

Surely taking money out of circulation is the aim!!!

Why let the banks have it?

this has already been answered. Taxes are already going up through bracket creep. High inflation turbo charges the rise in the proportion of income that is handed over to tax. Its already happening.

 

[Seeds]

You can mount the alternate argument for left-leaners when they are in government.

Albo and Chalmers banged on every question time in 2021 about retaining the COVID-level of JobSeeker, then when they're in government, they can't find a brass razoo for an uplift off the pre-COVID base despite 7% inflation.

Debt being "unimportant" for governments is something that gets trotted out a lot, but is clearly complete and utter bullshit.

clearly and complete bull because ......

you know you have to have a reason to make a point right?

government debt is irrelevant because government sets the laws of the land. It doesnt have to pay domestic lenders back if it doesnt want to. It doesnt have to borrow money if it doesnt want to. It can just print money And invest it as it likes. Now there is an inflationary risk if it overdoes this but there is no debt risk.

the only debt that matters for the government is external debt. And thats only the case assuming you want to trade (Which we definately want to do).

 

[FIGJAM]

It doesnt have to pay domestic lenders back if it doesnt want to

Sweet as! You've just saved us having to pay back $300 billion in COVID borrowings...

 

[royale with cheese]

Sweet as! You've just saved us having to pay back $300 billion in COVID borrowings...

Lol. can you imagine what it would do to interest rates if the Aus govt defaulted on its debt?

 

[Seeds]

Sweet as! You've just saved us having to pay back $300 billion in COVID borrowings...

Thats only if the government realises this. It hasnt. Cos the people running it dont understand economics. Instead the government tries to pay it back cos it doesnt know that it doesnt have to. But if it fails this attempt its not a big deal.

 

[hawkman]

Thats only if the government realises this. It hasnt. Cos the people running it dont understand economics.

Sure that wouldn't damage the Australian economy if they decided to do that at all

Would probably see an increase in inflation to try and recover lost revenue

 

[Seeds]

Sure that wouldn't damage the Australian economy if they decided to do that at all

Would probably see an increase in inflation to try and recover lost revenue

We still have to pay our external debts though. If we fail to pay external debts then we are screwed.

 

[FIGJAM]

Sure that wouldn't damage the Australian economy if they decided to do that at all

Would probably see an increase in inflation to try and recover lost revenue

Banks hold 50% of the recent COVID debt and super funds 25%.

I'm not sure what the repercussions of them all writing off billions in bad debt, but I'd imagine that it would be a depression inducing crisis.

 

[FIGJAM]

As to the topic at hand, I find it intriguing that Lowe cited the rebounding property market as cause to raise rates, despite house prices not being in the basket of goods used to analyse inflation.

What he doesn't understand is that the rising interest rates are a significant cause for both improving values and rising rentals, as supply is extremely low in both markets. People stick fat with where they are for as long as they can when there is such uncertainty, thus there are less options hitting the market. People who were going to enter the market don't, thus there's a lot less movement. Pre-approvals data for banks show this to be true.

 

[HurleyHepsHird]

The Covid stimulus is regarded as the main driver of inflation. Our national debt increased by 300 million.
The answer at the moment is simply to increase interest rates to combat inflation and push unemployment up… . banks are licking their lips.

Why?

Why punish a third of the population who have mortgages? Why punish Business and cause job losses?

Why not spread the burden and increase taxes on those that can afford it? Those that are benefiting the most from inflation…

See this would be the smart thing to do, particularly when price gouging is a large driver behind current inflation, along with supply side issues.

 

[HurleyHepsHird]

Banks hold 50% of the recent COVID debt and super funds 25%.

I'm not sure what the repercussions of them all writing off billions in bad debt, but I'd imagine that it would be a depression inducing crisis.

Why, numerous countries have written off large amounts of COVID debt?

 

[royale with cheese]

We still have to pay our external debts though. If we fail to pay external debts then we are screwed.

There is no difference between external or domestic debts. Australian government bonds are traded on international markets. Defaulting on one kind defaults on them all.

 

[Seeds]

As to the topic at hand, I find it intriguing that Lowe cited the rebounding property market as cause to raise rates, despite house prices not being in the basket of goods used to analyse inflation.

What he doesn't understand is that the rising interest rates are a significant cause for both improving values and rising rentals, as supply is extremely low in both markets. People stick fat with where they are for as long as they can when there is such uncertainty, thus there are less options hitting the market. People who were going to enter the market don't, thus there's a lot less movement. Pre-approvals data for banks show this to be true.

The reason he has lagged on interest rate rises compared to other economies is because he was fearing a property market crash that would cause an external debt crisis cos all our foreign debt is ultimately tied up in our property market.

if house prices arent falling he has less to fear here. At least in the short term.

 

[Seeds]

There is no difference between external or domestic debts. Australian government bonds are traded on international markets. Defaulting on one kind defaults on them all.

Well there is a difference but you are right they are tied up because some of the bonds are sold overseas. We would have to unpack that and it would have significant but temporary consequences. The consequences are solely because of the external element.

once that problem is unpacked there is no need to continue to run a government budget. Just get rid of it and create an independent panel that determines the amount of money to print (by keeping an eye on inflationary pressure) and give this money freely to the government without the need for the government to borrow. The concept of governments borrowing and paying interest on its own created money is absurd when you think about it.

 

[royale with cheese]

Well there is a difference but you are right they are tied up because some of the bonds are sold overseas. We would have to unpack that and it would have significant but temporary consequences. The consequences are solely because of the external element.

once that problem is unpacked there is no need to continue to run a government budget. Just get rid of it and create an independent panel that determines the amount of money to print (by keeping an eye on inflationary pressure) and give this money freely to the government without the need for the government to borrow. The concept of governments borrowing and paying interest on its own created money is absurd when you think about it.

Did you advise Mugabe 20 years ago?

 

[Madas]

Workers who cant afford the interest rate should never have invested. No one forced them to borrow. Nominal rates arent even high by historical standards. They are still quite low. And real rates are negative.

Whilst I agree with what you are saying, I don’t think that is what this is about.
It’s the speculators and investors driving the prices through the roof that have caused this
It was poorly planned policy to give out government incentives to everyone to build
It should have just been aimed at first home buyers and social housing.

 

[nut]

The Morrison government dropping policies from the banking royal commission and relaxing lending rules, did more to push property prices up than anything else.

 

[Madas]

Interesting idea. I personally dgaf about super as by the time its available to me the retirement age will be 70+, or probably even more. Pointless worrying about tbh (im good with money, super wont be needed tbh)

That said, most would benefit from being forced to use it though. Financial literacy is non existent for the general public. I think a system where money is forced into super but available sooner than retirement would be a winner.

Then again that kind of thing is available to everyone via the stock market, ETFs etc and people dont do it...

Assuming you have a mortgage would you prefer to put your money into retirement savings or give it to the banks if you had a choice?
No brainer to me

 

[Kram]

Why do you want sensible people like myself, who've lived by our means and paid off our homes, to be punished for being prudent?

Yep same as someone cashing up to finally buy a place in the city

Maybe people should think before they over extend and leverage themselves and realise that money wasn’t always going to be lent out for almost nothing.

 

[Seeds]

Im sure the op is horrified that the government has announced overnight its doing exactly the opposite of what he wants. They are giving large wage rises to numerous workers which will add to costs and put upwards pressure on inflation.

this is why we have the rba responding to inflation because the government only adds fuel to the fire.

 

[Seeds]

Whilst I agree with what you are saying, I don’t think that is what this is about.
It’s the speculators and investors driving the prices through the roof that have caused this
It was poorly planned policy to give out government incentives to everyone to build
It should have just been aimed at first home buyers and social housing.

Its about taming consumer prive inflation and the rba having only the one instrument to do so.

Speculators and investors as a result of dumb arse property policy drove the house price rises. but the interest rate rises arent about taming rising house prices, its about consumer price inflation. The rba has shown they dont care about rising housing prices when setting interest rates.

housing policies aimed at social housing are good, housing policies aimed at first home owners are bad. In fact they have been one of the largest drivers of the housing price boom and fed the pockets of the speculators.