Talking with a friend today. The topic of interest rates came up, as they do in any recent conversation within the Australian context.
My friend asked a poignant and sensible question, “why doesn’t the Government adjust the rate of the Goods & Services Tax (GST)?” It is a broad-based consumption tax. If consumption is getting out of hand and creating an inflationary spike, then why not add a disincentive to consumers by raising the price of consumption?
With interest rates variations it’s the mortgage belt who carry all the pain. They represent about 25% of households. Yet rising interest rates enrich those with existing savings, enabling greater consumption. Wouldn’t it be better to share the load equitably across any and all of those who spend?
The downside to this strategy is that the GST is regressive. It hits everybody with the same cost. For those with lesser incomes, the proportion of income the tax takes is greater. It’s not an equitable solution, because now low income earners are bearing a greater proportion of the pain.
From a political point of view, it’s easier to blame the independent Reserve Bank for pain and suffering. Why place the crosshairs on your own government by changing fiscal policy? “Monetary policy delivered by the independent Reserve Bank, that’s who to blame!”, is the relieving Government cry!
Whether it’s the GST, or a more equitable adjustment to the broader taxation platform, the Australian Government needs to do something. Since its election, the Albanese Labor Government seems content to sit on the sidelines, apart from some modest targeted tinkering. It withdrew funding for some capital works projects, that at least in WA have now been funded by the State Government, so that attempt at withdrawing money and inflationary pressure from the system didn’t work. Some modest efforts to encourage growth in housing supply have been delivered.
Small target strategy, however, seems to remain the prevailing preference in Canberra.
I would like to see the Government take some real, tangible action. Let’s look at negative gearing. Let’s look at tax breaks that make no sense. Let’s recalibrate towards equality and away from the neo-liberalist agenda.
I elect a government to do things: not to watch the RBA use its only blunt instrument.
Get to work, Labor.