Viw Magazine

Men's Weekly

.

  • Written by Richard Holden, Professor of Economics, UNSW
If you're going to stimulate the economy, it's wise not to wait. Shutterstock

In an enormous week for economic news at the start of the month, parliament passed the government’s three-stage personal income tax plan, and the Reserve Bank cut official interest rates to an unprecedented low of 1%.

It happened against the backdrop of a flagging economy in dire need of stimulus.

As the bank cut rates to a record low, its governor Philip Lowe again warned about the waning power of rates (monetary policy) to lift the economy.

At the Darwin community dinner after the board meeting he said:

Monetary policy does have a significant role to play and our decisions are helping support the Australian economy. But, we should not rely on monetary policy alone. We will achieve better outcomes for society as a whole if the various arms of public policy are all pointing in the same direction.

Lowe and many others – including yours truly – have repeatedly pointed out that spending on physical and social infrastructure can do what lower rates can’t do well – boost the economy while lifting its productivity. So, too would other productivity-enhancing reforms, particularly in the labour market.

And, of course, the government’s tax cuts will also stimulate the economy when they come into effect.

With tax cuts, timing’s the thing…

The obvious problem is that much of stimulus from those tax cuts will happen years from now, rather than today.

What the government should have done was insist on enacting all three stages of their tax plan immediately. Not staggered over several years, not in 2024-25. Now.

That would have, of course, pushed the budget into deficit in the short run, and that would would have run counter to the government’s narrative about being responsible economic managers.

But how responsible is it to prioritise one’s own political brand over the economic health of the nation?


Read more: Ultra-low unemployment is in our grasp. How Philip Lowe became the governor who lifted our ambition


Let’s not forget where the timing of the government’s tax plan came from. 2024-25 is outside the budget’s so-called “forward estimate” period and thus the impact on the deficit or surplus projections is not apparent.

It was the same rationale that underpinned the glacial, decade-long pace at which the government’s “enterprise tax plan” was to move to a 25% company tax rate. And it is the same set of dodgy accounting tricks that Wayne Swan was a master of for everything from health to education spending commitments.

…and the timing could be immediate

Productive infrastructure spending is hard to enact quickly. Spending on social infrastructure like education and training has a long lead time.

And structural reform of the industrial relations system might is probably the hardest and longest of all to put in place.

They are real constraints.

The Reserve Bank faces another, the so-called “zero lower bound” of conventional monetary policy and the complexities and uncertainties of unconventional policies such as quantitative easing.


Read more: Below zero is ‘reverse’. How the Reserve Bank would make quantitative easing work


But a government which won a mandate for its tax policies, and who frankly has the Labor opposition in a tailspin, could have insisted on all three stages of the tax cuts immediately.

The only thing standing between the economy and the aggressive fiscal stimulus it needs is the government’s obsession with balancing the budget regardless of the circumstances.

We’re not in the best of times

Don’t get me wrong, I think debt and deficits most certainly do matter. The government deserves credit for chipping away at the structural budget deficit, and we shouldn’t be running deficits in good economic times.

But we’re not in good economic times. We’re standing on the precipice of the first recession in nearly three decades. We’re looking at highly uncertain global conditions, domestic economic growth that has slowed to a trickle, sluggish wages growth, persistently high underemployment, and even the possibility of Japanese-style deflation.

The irony is that if, with the failure to enact sufficiently bold stimulus, we do tip into a recession, the red ink will flow all through the budget. Unemployment benefits and welfare payments will rise, personal and corporate income receipts will fall, GST revenue will drop. And young people who enter the labour market during a recession will suffer for years to come.

The downsides of not enacting sufficient fiscal stimulus far outweigh whatever benefits there are of a glide to path to budget balance while avoiding a recession.

It’s certainly not the time for hand-wringing

Coming back to Lowe’s admonition that we need the “various arms of public policy…pointing in the same direction”, here’s where we currently stand: The bank has acted, but far too late. For years it told us that 5% unemployment was as good as it could get long-term, to be patient and to wait for higher wage growth and inflation.

It’s been a mere five weeks since Lowe stopped impersonating Charles Dickens’ character Wilkins Micawber, who was fond of saying “something will turn up”.


Read more: Buckle up. 2019-20 survey finds the economy weak and heading down, and that's ahead of surprises


Now the treasurer Josh Frydenberg is giving us his version of the same routine. On one hand he says personal income tax cuts are crucial to boosting employment and spending. On the other hand, he says we’d better wait.

The Australian economy can’t afford to wait for aggressive stimulus. The government has shown more concern for its political brand than for our economic health.

It isn’t what a responsible steward would do.

Richard Holden does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

Authors: Richard Holden, Professor of Economics, UNSW

Read more http://theconversation.com/vital-signs-we-need-those-tax-cuts-now-all-of-them-the-surplus-can-wait-120218

VR Training in Australia – Conflict Resolution Training For Employees

In today’s rapidly evolving workplaces, Australian organisations are turning to immersive learning tools like VR to handle specialised n...

Financial Planning For Couples

Why Every Couple Should Talk About Money And A Will (Before It’s Too Late) When you’re in a new, exciting relationship, it’s easy t...

Navigating Relationships While Living with Depression

Living with depression can feel like carrying an invisible weight—one that not only affects how you experience the world but also how yo...

Choosing the Right Vinyl Flooring Suppliers for Your Home or Business

When it comes to selecting flooring options that combine durability, style, and affordability, vinyl flooring stands out as a top choice. ...

Why Food Manufacturing Cleaning Services Are Essential for Safety and Quality

The complexity of food production environments demands specialised cleaning approaches that go beyond regular janitorial work. This is whe...

The Importance of Choosing the Right Industrial Electrician Melbourne for Your Business

When it comes to powering large-scale operations and complex machinery, commercial electrical services are not enough. Industrial environm...

What to Expect During a Property Settlement After Separation

Separation is a challenging and emotional time, and one of the most complex aspects can be the division of property. However, understandin...

Designing the Ideal Healthcare Environment with a Professional Medical Centre Fitout

When it comes to healthcare spaces, functionality, hygiene, and patient comfort take top priority. An intelligently designed medical centr...

Stay Comfortable Year-Round with Ducted Cooling Melbourne

When the temperature starts to rise, having a reliable and efficient cooling system becomes a priority. With unpredictable weather and sud...

Best Practices for Content Ownership and Tagging Across Departments

Image by kaboompics on Freepik The bigger and more complex content ecosystems grow, the more valuable ownership and tagging become. In ent...

Understanding Public Liability Insurance Australia: What You Need to Know

Image by rawpixel.com on Freepik The necessity of public liability insurance in Australia is that it acts as a financial safeguard for busi...

How HID Proximity Cards Improve Workplace Security Without Slowing Down Access

In today’s workplaces, security is non-negotiable, but so is speed. Companies are under pressure to protect their people, property, and ...

Unlock Business Insights Faster with Power BI Tools

In this digital age where data drives the consumer landscape, businesses are shipping huge amounts of data every day. To remain competit...

Why Split System Installation Is a Smart Choice for Home Climate Control

Temperature control is essential for comfort, and when it comes to efficient, versatile cooling and heating, a split system is one of the ...

What You Need to Know About SMSF Setup in Australia

Setting up a self-managed super fund (SMSF) is becoming an increasingly popular choice for Australians who want more control over their re...

The Ultimate Guide to Door Replacement: Everything You Need to Know

Image by freepik Sure, swapping out a door is a fairly easy task, but it requires careful consideration of options for materials, designs...

Common Web Development Issues Perth Businesses Face (and How Agencies Fix Them)

Image by freepik Let's be honest, in the bustling heart of Perth's business scene, a website that's not up to scratch is like trying to he...

Life With Clear Aligners: 10 Small Changes That Make a Big Difference

Image by tonodiaz on Freepik Clear aligners have transformed orthodontics, offering a nearly invisible way to straighten teeth without the...

Choosing the Right Hair Loss Treatment for Your Needs

Millions of people experience hair loss globally, and it can be a major cause of emotional discomfort and self-consciousness. Hair loss ca...

Cardboard Display Boxes: An Effective Solution for Retail Presentation

In the competitive world of retail, how products are presented can be just as important as the products themselves. Cardboard display boxe...