Wednesday, October 17, 2007

Tax Cuts, Interest Rates and Public Facilities

Tax cuts and negative name-calling: it must be election time.

John Howard has once again trotted out tax cuts during an election campaign. He asserts that HE is the most responsible economic manager for Australia, yet he knows that the $34 Billion in tax cuts he is offering will surely lead to higher interest rates and higher inflation. There are enough arguments to NOT have these tax cuts:
  • by themselves, they will be inflationary. The economy will have to produce nearly $50 Billion of EXTRA GDP. It is already groaning under the strain of other pressures such as the US sub-prime mortgage market, rising oil prices, rising food prices, and rising prices of other goods.
  • many voters believe such money would be better spent on public facilities that benefit society: public education (universities, TAFE, public schools); public health and hospitals, and public roads (national highways, and major state roads). Providing funding to states for public facilities goes against what John Howard stands for. He will willingly give public money to private entities, and redistribute wealth to those who have more, but providing adequate funds to states for public benefit is not high on his agenda.
  • there will be less money to spend on climate change and renewable energy sources. Again, this is not one of John Howard's favourite topics, having picked his position as a "climate sceptic".

John Howard is hoping that voters will not think about the implications of such large tax cuts, much of which will go to those with more wealth. Kevin Rudd is probably smart to pause and give a considered response, rather than a "me-too" reaction.

It seems as though whatever economic responsibility John Howard might have had went out the window when he mentioned the word "election". We need responsible economic management, not inflationary tax cuts.