RBI is raising interest rates to take money out of our hands.
The first increase to the current round would add about $65 a month to the cost of paying off the $500,000 mortgage.
The second would add a bit more. If, as the bank forecasts, there are four more such increases this year, that’s another $275 per month, and so on.
In the words of the Reserve Bank Governor Philip Lowe, the point is to “slow down the economy, bring things back to a level playing field”.
In a helpful video, the governor explains that rate hikes take money directly out of mortgagee’s hands, make it harder to borrow, make people “feel less happy”, and affect the price of homes and other properties so that People are convinced “don’t feel like it” and they don’t spend that much.”
Which is fair enough, if the governor decides what is needed.
So why on earth are we supposed to do the opposite?
In the form of RBA, the government will give
Government will invest huge money from mid 2024 in people’s hands. The third phase of income tax cuts will cost $15.7 billion in the first year.
By comparison, about $16.3 billion would be spent on the pharmaceutical benefit plan that year, and more than $10.5 billion that would be spent on higher education.
This is the wrong time, it shouldn’t be a surprise. Stage 3 was made law in 2018.
The treasurer at the time, back in the year Grant Denier won the Gold Logie, was Scott Morrison, who said he was legislating phases 1, 2 and 3 of the tax cuts all at once (and phase 3 six years ahead). . Provide “certainty”.
A Tax Switch Settled Years Ahead of Time
The Treasury was so uncertain about the future that it only predicted the economy two years ahead, and generated less reliable and more mechanical “projections” for the next two years, none of which extended until 2024.
At the time when RBI was cutting interest rates (12 times in a row), inflation was 1.9%. It seemed that the economy could give some boost, although it is a boost that would not be given for six years.
While saying that things have changed, it is also fair to acknowledge that things may change again. We cannot be sure what will be needed in 2024, although we can be more sure than at that time.
supported by labor
Stage 3 tax cuts, previously opposed by Labor but now backed by Labor Treasury spokesman Jim Chalmers, are highly directed at high earners, after “weighing a whole range of ideas”.
Of the $184.2 billion the Parliamentary Budget Office believes Stage 3 will cost in its first seven years, $137.9 billion is directed at 120,000 or more Australians.
The Stage 3 portion, the portion that reduces the applicable rate from 32.5 cents in dollars to 30 cents on income over $45,000, will benefit most taxpayers.
The larger portion, which raises that lower tax rate to $200,000, eliminates an all-out tax rate, yielding the most benefits at $200,000 and up.
For those higher earners, the portion of their income that was taxed at 37 cents would be taxed at 30, as would the other portion of the rest that was taxed at 45 cents.
A politician would get a tax deduction of $9,075 on a basic salary of $211,250. A registered nurse at $72,235 would receive a tax deduction of $681 as calculated by the Institute of Australia.
Read more: Steps 1 and 2 must pass. Phase 3 will return taxes in the 1950s
More broadly, a typical middle-income earner can expect $250 a year, while a normal earner in the top fifth can expect $4,230, according to a separate analysis by the Parliamentary Budget Office.
The fortunes of the middle-income will be worsened by the loss of the $1,000+ medium income tax offset, which was not expanded in this year’s budget, sending the middle-income backward.
According to the Budget Office, the average female earner will lag behind even after the loss of offset, which will be half that of the ordinary (high earner) male.
A Tax Switch That Will Send Some Back
The argument is (or was) that middle- and high-income earners would need larger tax cuts to compensate for bracket creep (that wage increase pushes them into a higher tax bracket), although it is far less than expected.
Were it not for the fact that Labor supports and will implement it, Stage 3 would provide a stark contrast with the view of Labor leader Anthony Albanese, who on Tuesday called on the Fair Work Commission to raise the minimum wage to offset inflation. was unveiled to say for.
Read more: Why the RBA should go easy on interest rate hikes: Inflation is already on a retreat and too hard risks recession
Such increases will first go to the low-wage earners, and will flow more slowly to pay wages. This will give the greatest help to those who need it most when they need it most, rather than to those in future years when things may turn out to be quite different.