Inflation - Why target interest rate and not raise GST?

Can someone tell me why government not curb inflation by raising GST which seems a more direct way of reducing spending. Also why target borrowers when people who most likely spend money are people with savings. Thanks.

Comments

  • +4

    Not an economist.

    Different taxes target different demographics. raising one instead another can have more unwanted effect. Thanks.

    • +1

      I was thinking about that but I think people with less money spend a higher proportion of their income on things without GST like fresh veggies and other food. So I think maybe higher income people would be more affected - but I am not sure

      • +5

        I think you’re right. I just don’t know economics enough to say who will be affected, and by more or less.

        I just thought of something about GST. Raising GST can mean higher cost of living in calculating CPI, so what OP proposes might not work in combating inflation?

        Mortgage interest is not in CPI calculation, so raising mortgage interest rate doesn't bump CPI up directly.

        • +15

          GST is a regressive tax, as it affects lower income earners more than higher income earners as a proportion. Its because lower income earners have a higher propensity to consume (Spend on consumption) than higher income earners, who have a higher propensity to save (Savings). This pretty much means that it will affect lower income earners more and is probably not the right way to handle this, as it will only affect demand-pull inflation.

          • -7

            @Mintees:

            Its because lower income earners have a higher propensity to consume (Spend on consumption) than higher income earners

            That’s a rather poor generalisation. You can have someone living with their parents with virtually no expenses, and can still save up on low income.

            GST is a consumption tax. It is neither progressive or regressive depending on your income. In fact lower income people get income tax concessions to help offset.

            It is the expenses associated with covering essentials that hit lower income people who are also managing on their own harder, not the GST.

            • +2

              @avoidfullprice: This is all theory of course, however on average, it is proven that GST is a regressive tax. Just because there are certain situations where it may affect higher income earners more does not mean that it’s will have any significant effect on average. Higher income earners will have a higher MPS and APS whilst lower income earners will have higher MPC and APC on average, ceteris paribus. Remember you also have to take into account autonomous consumption.

            • +8

              @avoidfullprice: No, GST is a regressive tax. At a macro level, those on lower incomes will spend a greater proportion of their income. As your income increases, the additional amount you spend decreases (your marginal propensity to consume reduces). This means GST payments will constitute a smaller % of your overall income, the definition of a regressive tax.

            • +2

              @avoidfullprice: Yes, consumption taxes are evil. And GST doesn't apply to things rich people spend on like private schools, university education, and private hospital treatment.

              • +1

                @RefusdClassification: If anything, we should see lower GST and higher Luxury Tax (Homes, Cars, Products, etc etc).

                It would be difficult to next to impossible to impose. For instance; separating out the AUD $200 (or lower) backpacks without any GST, against luxury bags (like LV, Gucci, etc etc) which have a (40% ?) Luxury GST Tax added.

      • +5

        Higher income people save more of their income, invest, go on overseas holidays etc. People with less money spend more of their income on things like fuel, which they need to in order to get to their must be in person jobs from the outer suburbs where they can afford to live.

        Higher income people might spend more $$$ on GST items, but much much less %.

        • I guess the argument for GST was that higher income people couldn't completely avoid it like they could with income tax. Any spending they do in Australia will force them to pay some tax. But not necessarily affecting them more than poorer people as they can spend more overseas than a poorer person can. Makes sense now.

          • +1

            @Quantumcat: The other point is that businesses that charge GST, don't pay GST (it's offset against charged GST), so lots of people who run businesses find ways to make their business pay as many of their personal expenses as they can without being done for fraud. Bonus, it's also then paid for with before tax dollars.

      • -4

        How out of touch. Who can afford fresh food on minimum wage. $9kg tomatoes. Are you an inner west latte sipper on a decent wicket pretending to know working class? A tree tory?

      • +2

        Yes but so many very essential things still include GST including:

        • Electricity and gas (unless you really like that raw chicken in the curry)
        • Clothes to be respectable in public.
        • Many packaged foods that are suitable to taking with you when you go to work such as biscuits and packed salads? In case the poor people try to supplement their meagre income by going out to a job.
        • Fuel - which if they are using vehicle for work is hopefully GST is deducted on their tax/BASS - but still for driving to and from work and home each day.

        The biggest point here is Philip Lowe doesn't set the GST, he can only set the cash rate. And if he was to raise the GST, then goods would've gotten much more expensive, which is measured as inflation, and mean that the interest rates would have to raise again even more!!

        Cash rate I don't think is just supposed to effect consumer spending. Its also targeted at business investment through interest rates on business loans. A business may choose not to take a loan out for an expansion right at the moment, or to delay purchasing new plant/equipment as the oppourtunity cost is too high. Just in Australia with this oversized housing debt market, the business loans are insignificant in comparison. Makes it even harder to control inflation with the interest rates.

      • People with not much money pay a higher proportion of their income in GST. GST is a regressive tax.

    • +11
      1. Chalk and cheese
        Raising interest rates is temporary way of taking money out of peoples pockets.
        They can be reduced or increased any time as necessary
        Raising taxes is PERMANENT! You dont want to go that way.

      2. OP is confusing monetary policy with fiscal policy. Raising taxes is done to raise income/revenue for the government.
        They raise more so they can spend more. So actually has the opposite of the desired effect. Govt should be looking at ways to cut spending to help the cause. This is what Lowe meant when he said "We must all work together" He was talking to the government!

      3. Raising interest rates reduces credit expansion including home loans so has a multiplier effect on economy

      4. Raising GST targets those more on low incomes. Raising interest rates targets those on higher incomes

      But having said all this the RBA should also reduce money supply in the economy.
      Less money going around means less to spend

      Unfortuntely as I read the replies here I see most OBs do not understand economics, finance, monetary policy and fiscal policy and how they work to control the "speed" economy

      • I thought the RBA had already started some level of QT. I am not verse enough in the specifics but i do remember reading about it back in May.

    • +11

      The short answer to the long question is this:

      Inflation is the problem of rising prices
      Since GST is applied to the cost of goods and services, raising the GST would simply add to inflation!

      Apart from the fact that a resolution to change GST must be debated and passed by all states as well as both houses of Federal Parliament so can take many months to pass and then take place usually from the start of the next financial year.
      Then on top of that is the debate of the allocation of GST to each state,

      Hence its
      a) the wrong instrument to use
      b) takes far too long to change
      c) is in effect a permanent change
      d) adds to the problem as it pushes prices up even more
      e) results in more government spending which puts more money in economy so adds more to the inflation problem

      • e) results in more government spending which puts more money in economy so adds more to the inflation problem

        Government spending isn't really constrained by how much money is collected in revenue in that year, would it have any impact in the short term (which is all that matters here)?

  • +8

    I don't know anything about economics or anything but all the infrastructure of banks is built around the interest rate fluctuating but it would be very difficult for businesses to be constantly changing their prices, and MYOB/QuikBooks software wouldn't be able to deal with it either.

    Also higher interest rates makes it more attractive to save money rather than spend it as you get more interest on your money, so changing interest rates does target savers as well.

      • +7

        You've obviously never run a business

    • +1

      MYOB/QuikBooks software wouldn't be able to deal with it either.

      Na, this is a bad talking point. They'd deal with it just fine. Most, if not all accounting software, originates in the USA where they have a much more sophisticated tax system than we do. It would be just fine.

  • +2

    GST doesn't cover all spending and would have less of an impact.

    Also a different institution is in charge of it (government vs RBA).

    Also a lot more rules would be needed to 1 permit the change 2. make adjustments.

    Also, harder to measure how to affects the economy [we know right now how much there is out there on home loans etc, we don't know how much people intend on spending on GST liable items]. Interest rates are a well studied (both at national and international levels) response to inflation.

    So, basically tons of reasons.

    • -4

      But your reasoning doesnt make any sense.
      And seriously central banks still have no idea on the effects of raising or lowering interest rates.
      Thats why they make an adjustment and adopt a wait and see.
      They dont even know how big the adjustment should be.
      Its always an experiement my friend

      I can tell you this for a fact
      Interest rates are considered "neutral" in effect when they are set at the same level as the inflation rate
      Rates below the inflation rate as we have now stimulate spending and borrowing
      Rate above do the opposite.

      But today even our highly educated economists and central bankers fail to understand this basic principle
      See in the US they have made a call that FED interest rates which are now at 2.5% are considered "neutral"
      Whereas in fact the inflation rate is 8.8%.
      Back in 2018 when inflation in the US was 2.3%, yes 2.5% interest rates were declared as neutral, but not today!
      Yet they quote what the FED said back in 2018…OMG!

      • +1

        I love how you start off saying my reasoning doesn't make any sense (any specific examples, or was this just a vague bit of confusion on your part?) and then it's:

        "And seriously central banks still have no idea on the effects of raising or lowering interest rates" in the first stanza (verse? limerick?)

        then in the next verse: "Rates below the inflation rate as we have now stimulate spending and borrowing / Rate above do the opposite."

        Congratulations on arguing against yourself while trapped in a poem.

  • +5

    Broad brush:
    The government controls taxation
    The RBA controls interest rates

    The are not the same people operating the same levers/mechanisms.
    Interest rates are meant to be able to continually fluctuating and relate to local and global influences
    Taxation rates are something that should be slow moving and require forecast timelines before they are enacted.

    • Interest rates are meant… Taxation rates are something that should …

      Why

    • +3

      Chalk and cheese……
      Taxation is about raising government revenue.
      Interest rates are about controlling the speed of the economy
      Interest rates do not affect government revenue. They are in fact a cost to the govt.

      Yes interest rates can be changed at a meeting of the RBA board
      Where as changes to taxes must be passed by the upper and lower house after thier effects have studied and debated.
      Unless the govt controls both houses

  • +10

    GST affects the lowest income the most. We are amidst very tenuous financial times and are in a technical recession - raising taxes isn't the best method to combat that.

    • -4

      Except the things these people spend money on most is likely to be GST exempt.

      There is merit in suggesting a GST is a regressive tax, but not in Australia where food and lodging (rent) is GST free.

      • +3

        Except the things these people spend money on most is likely to be GST exempt.
        There is merit in suggesting a GST is a regressive tax, but not in Australia where food and lodging (rent) is GST free.

        I understand what you are saying, but GST-free food-goods are usually fresh produce - much of this is outside the affordability for low-income people, wouldn't you agree?

        • +14

          Yeah, the "oh the poor are fine, food isn't affected" mob are usually either ill-informed or deliberately being obtuse/lying to make their argument.

          Anyone who thinks differently: Next time you do a big shop at the supermarket have a look at the total of the bill and then how much GST you were charged. It's not "only on a few items/hardly anything".

          • +1

            @CrowReally: All fantastic points, CrowReally

          • +1

            @CrowReally:

            spend a higher proportion of their income on things without GST like fresh veggies and other food.

            You might want to have a quiet word with your comrade quantumcat who said the above

            • +1

              @Awoke: Oh, of course, well, if you've named someone as a comrade of mine then I'm clearly in a position where I'd need to review their comments and refute them. That's my role here, after all?

              (For the record, quantumcat's remarks are accurate. The poor do spend a higher proportion of their income on GST-free items, which naturally follows from them spending a higher proportion of their income on GST in general. The fact is the poor proportionally spend the highest amounts of their income, so any taxes attached to spending affect them the most.).

              • -2

                @CrowReally: How quickly you shift from them being ill informed to they are technically correct. Comrades got each other’s back ey

                • +9

                  @Awoke: Again with the comrades. I sense a man who uses talkback radio as the whetstone to sharpen his worldview.

                  You can imagine how embarrassing it is for me to not hold up to to your intellectual standards. You're the guy who last time we spoke said: "Sure, vote green, and you’ll end up like bidens america where an ex president can get raided to investigate crimes. If they can do that to him, imagine what these lefties can do to us pleb", right?

                  You got the pleb bit right, at least.

                  • -1

                    @CrowReally: Im ok with being a pleb. But at least I don’t flip and flop and flip again depends on the wind. But I digress.

                    I actually agree with you on this one. Anyone that uses the ‘but no gst of fresh food’ is ill informed and absolutely out of touch with the realities of those struggling but pretend they get it. I think I called them latte sipping tree tories

                    • +1

                      @Awoke: If you want to drill down into it (sure, I suppose we should really analyse one of several comments quantumcat made, I mean, not any others by them and certainly not anyone else's - that's not my role on this forum, after all), there's 2 different concepts at play

                      1A. Who spends the most % of their income on GST items?
                      1B. Who spends the most $ of their income on GST items?
                      2. Does making some fresh food items GST-free make it fair?

                      Answers are

                      1A. The poor, often with nothing left over.
                      1B. The rich, but they don't care because they aren't the answer in 1A (they keep the rest and invest/save).
                      2. A bit, but not really, GST is still taxing the poorest the hardest. [Hardest in quality of life result, not $ yield]

                      Telling the poor they haven't got a problem because of Point #2 is what I was addressing. Quantumcat discussed point 1A, then 1B, then 2.

                      • -1

                        @CrowReally: Ah yes, the ‘its just a factual statement, i intended nothing by it’ trick. I wonder who else does that? Someone you don’t like methinks.

                        • +1

                          @Awoke: The fact that the question "Who spends the most on GST?" has opposite answers [relook at 1A, 1B] depending on your perspective alone shows how nuanced the issue is.

                          If you want to write that off as facile and disingenuous, go for it champ. File it away with the rest of the easy answers your brain offers you ("Oh, look, some lefties who want to save the forests and hug Bob Brown")

                          • -1

                            @CrowReally: Hey. I agree with you that people pushing that position directly or indirectly are ill informed. I actually think you said it perfectly. Stand tall. Don’t back down. Don’t let them win.

                            • @Awoke: No worries. Don't forget to @me next time quantumcat says something that I need to discuss.

                              • @CrowReally: Will do. Shall i add thithlord sbob and urgh to that

                                • +1

                                  @Awoke: Probably just easier if you send me a picture of the pad you keep by the computer to keep track of which political standings we all have. Then I'll know which 'left' aspect of society I'm going in to bat for.

                                  • @CrowReally: You know who you are

                                    • +2

                                      @Awoke: This might be a good time to have a bit of a think about how you view people on the forums here.

                                      You're apparently delighted to include me in that sinister cabal of the left, and yet you are agreeing with me the touchy-feely social progression issue of the poor and how GST exploits them.

                                      Does that mean you're on the left in with all of us comrades as well? Or is it about evaluating an argument on its merits, regardless of who says it?

                                      I'm not expecting a typed out answer. This just feels like a circuit breaker moment to consider why you're using those sorts of labels.

                                      • @CrowReally: You have an odd view of the world. The gst is designed to keep us under control and poor while the latte sipping tree tories pretend to be our friend but are actually part of the wealthy cabal.

                                        • +1

                                          @Awoke: Do you know what a Tory is?

                                          • +1

                                            @Quantumcat: Oh hello there. Nice to see you again. Sorry to break it to you, but crowman called you ill informed.

                                            Yeah, i do. And a tree tory is an inner west latte sipper whose a tory that hugs trees. Blue in green clothing. Someone that pretends to care about working class but really loves themselves and their ethically invested share portfolio and renovated terrace.

                                            I see you also gave up on your other attacks on me elsewhere

                                        • +1

                                          @Awoke: Well, let's read "tory" as the left-wing bleeding heart Labor party, and then "tree" part as the left-wing environmentally-conscious Green party.. and the latte part basically acknowledging both live in the cities.

                                          The GST was developed and implemented by the right-wing conservative Liberal party.

                                          How does that work in your analysis? It's basically the exact opposite, isn't it?

                                          • +1

                                            @CrowReally: You assume my voting pattern and who I support. Another error. I have no fixed allegiance and will support the least worst option depending on the time. I’m not a blind ideologue

                                            • +1

                                              @Awoke: No, I was responding to the words you said. (One of us certainly is making assumptions about who the other supports, and it's not me).

                                              "The gst is designed to keep us under control and poor while the latte sipping tree tories pretend to be our friend but are actually part of the wealthy cabal."

                                              Reread the above as a direct response to that quote.

                                              • @CrowReally: Tory = liberal party

                                                Tree = Greenies

                                                Heres how they describe themselves

                                                In turn, the hard left of the party accuses Senator Di Natale and more moderate Greens of being sell-outs to the right: "neoliberals on bikes" or "tree Tories".

                                                • +2

                                                  @Awoke: Alright, so we're discussing the right aligned faction of the Green party. You're aware the Green party doesn't hold a majority in Parliament? They aren't passing any of those rules (and especially not the GST - which was the Liberal party).

                                                  • +2

                                                    @CrowReally: I was talking not of the government but the people commenting here trying to relate to the working class by knowing how they spend the money fresh fruit and veggies such as on $7 lettuce And $9 tomatoes.

                                                    • @Awoke: It looks like you're sidetracking yourself. You can't start a comment about what the GST is designed to do and then decide you're not interested in talking about who designed it (and what their motivations were).

                                                      • +2

                                                        @CrowReally: No. You latched on to tree tory and skewed what I was referencing.

                                                        I was talking about the fake bleeding hearts on here pretending to understand what the working class go through while sipping on their lattes in their inner west terraces worth $2.3 million… or tree tories

                                                  • +2

                                                    @CrowReally: I mean, of the (roughly) 4 predominant political factions (Liberals, Nationals, Labor, Greens) - I'd say the Greens had the LEAST to do with getting the GST drafted up and in place, right?

                                                    • @CrowReally: Right. But that’s not what I was referencing. Oh wait, i get it…. you’re a green.

                                                      • +1

                                                        @Awoke: You assume my voting pattern and who I support. Another error. I have no fixed allegiance and will support the least worst option depending on the time. I’m not a blind ideologue.

      • +5

        Except the things these people spend money on most is likely to be GST exempt.

        People have expenses other than rent and fresh, unprepared food. For instance, fuel (usually paid for most by people living in cheaper areas further from the city / public transport)… And unfortunately food that does attract GST is very likely to be purchased by people with lower incomes as heavily processed food is far cheaper in general than most GST free food, especially for time poor people.

        And almost all of the money people on lower incomes earn is spent, on higher incomes money ends up being invested etc, so a much lower proportion is spent on GST. It's extremely regressive in Australia, the more % of your income you have to spend, the more likely you are to spend a higher % on GST, even if the total amount paid is less.

        • -4

          And unfortunately food that does attract GST is very likely to be purchased by people with lower incomes as heavily processed food is far cheaper in general than most GST free food, especially for time poor people.

          Just because you are poor doesn't mean you are time poor. And being time poor is a shit reason for spending more on processed foods.

          I do much of the cooking at home. I can cook with fresh foods that don't attract GST a far more wholesome and cheaper meal than going to Maccas for a family of four. Its not hard, they are just lazy, take the easy way then scream regressive taxation.

  • +7

    There's an economic answer and a pragmatic answer.

    The economic answer is that a GST increase would slow inflation but do it by disproportionately targeting low-income individuals. As GST is a broad-based tax, it applies to consumables like food and transport. Because low-income individuals can't choose to avoid eating or travelling to work, the price increase would consume a disproportionate amount of their disposable income compared to high-income individuals. Instead, it would be better to increase the price of discretionary or income generating purchases like consumer electronics, vehicles, and so on.

    The pragmatic answer is that increasing the GST would require unanimous agreement across the Commonwealth, States, and Territories. It would also immediately prompt a discussion / debate about how those revenue increases should be distributed across the States and Territories. As such it's politically contentious and would be a less-preferred lever to a short-term levy increase controlled by the Commonwealth (like the flooding levy or an increase on the Medicare levy).

  • Using Monetary Policy is a broader instrument than tax.

    By using increasing the cost of money it not only reduces the want for people to spend, but also increases (in theory anyway) the likelihood for people to want to save.

  • +1

    Wouldn't an increase to GST be increasing inflation?

  • +2

    The RBA can shift official cash rates by fiat.
    The government cannot do that with GST.
    However, the question touches on an interesting issue. Previously governments dealt with inflation using a variety of measures. Now it is almost entirely managed by monetary policy. I am not sure that is the best approach.

  • +4

    Also why target borrowers when people who most likely spend money are people with savings.

    This isn't true, people with savings are, shocker, more likely to save that's how they got to be people with savings. Borrowers, by definition, have spent more than they saved, and can continue to borrow more to spend more with lower interest rates. Add to that higher interest rates provide less incentive to borrow to spend, and more incentive to save.

    • -1

      Borrowing for a house is better than saving if it's almost certainly going to be worth a lot more 10 years from now.

      • +1

        I borrowed for a home 13 years ago, it's worth the same today (much less adjusted for inflation). Regardless of which is 'better' (and sure, if I'd bought in Sydney I would have done well), borrowing to spend is still borrowing to spend. If I'd put money in the bank it would have been worth more, or better yet, in other investments it would worth 2x as much just in index funds.

        Raising interest rates both encourages people to save money, as well as contribute extra to their mortgage rather than use it for discretionary spending. It impacts both. Lowering interest rates lowers mandatory repayments as well as gives savers less reason to hold money in their bank account.

        • -1

          Well you have also saved on rent, or earned rental income if you've been renting it out. If that rent saving or earning was more than the interest you pay on the loan, then you're ahead. But you're right, in your case if you needed to sell now, you would have been better off renting this whole time and investing the rest of the money into Apple shares. 500k in Apple 10 years ago would be 4.4 million today.

          • +1

            @AustriaBargain: I could have rented, put the savings and repayments into just a plain index fund and be around twice as far ahead. No need to 'what if' on a well performing share that would be 9x ahead (or more realistically 3-4x ahead given reduced borrowing capacity on shares). And just because of how tax works for redraws, I'm now in a position I really have to sell to move, incurring stamp duty etc.

            If you buy your forever home first up and never move, it will probably work out ok since you'll never be saddled with selling and buying costs, and the market value is kind of irrelevant. But even on a 10-15 year time frame before reselling, buying can put you behind unless you do above average on price growth.

            That's one of the real problems with buying homes, most people only buy 1-2 and it represents a huge concentration risk. Unlike something like a market index where over 15 years you can be pretty certain everyone will do average and well enough, an individual property is subject to outsized specific influences.

  • Why not also from a gov perspective offer bonds that are only payable in two years.

    In essence they want to reduce demand.

    Two ways signal to consumers rates will rise and costs will increase. Which should lead to more savings and conservation.

    Cut lending rates to business.

  • +1

    The RBA uses interest rates as either a gas pedal or a brake on the economy when needed. See explanatory video https://www.youtube.com/watch?v=nKTwz9mdsFw

    If the interest rate is low, it encourages people to borrow more money, and save less money. It is cheaper to borrow, but less rewarding to keep money in the bank. So what do people do? They consume more, they go out for dinner, buy cars and flights etc. The increase in demand of goods also leads to a general increase of prices — leading to inflation as the Australian dollar weakens.

    If they raise the interest rate, borrowing becomes expensive, so consumers and businesses hold off on making investments, which cools off demand and brings prices down. It becomes more rewarding to stash your money away in a bank account as they pay you higher interest, and the decreased demand forces retailers to reduce prices.

    This is of course just an oversimplified theory but it is a strategy used by most govs to control inflation, either in the past or currently.

  • The RBA can just shift the official cash rate and then institutions etc can follow suit but also tweak according to their strategy.

    Imagine small businesses changing the GST % on their systems every month for a few months and the mistakes and backlash and the fines. Then also the accounting, reporting and reconciliation. Or tradies trying to manually calculate it on the quotes and invoices.


    Not to mention the public backlash from the stealthy increase in taxes. Trying to introduce the GST cost John Hewson dearly; heaven save the leader in power trying to increase it.


    From an economics perspective, interest rates are a monetary policy tool and taxes are a fiscal policy tool. E.g. See Keynes for the best tool in deep recessions/depression, etc., the opposite situation to the one we face now.

    • +1

      Yeah, the number of finance systems that have a hardcoded 10% in them…. Will create a heap of extra demand for people already in demand to adjust the systems…

  • An increase in the GST rate requires the approval of all States and Territories (which is a long process) and would impact businesses having to change systems, etc. Interest rate change is a lot easier to implement by RBA.

    • Takes a click of a button to change GST rate

  • +1

    Many people are skating around the answer but the answer is: to reduce inflation the aim is to take money out of the economy (eg reduce spending and hence demand)

    That can be done by increasing interest rates (monetary policy) or by taxation or by reducing government expenditure (fiscal policy). Modern Monetary Theory says governments should use taxation (preferably income tax) rather than interest rates to control inflation, while government expenditure can also be reduced (so long as you dont get the austerity complications). GST is probably the wrong tax to target, income tax is a far broader and more equitable solution

    The reason its not done is political; easier to blame the people who dont need to be elected every few years.

    However, tax is actually a better option than interest rates, because only 1/3 or so of people have loans (or at least mortgages); wealthier people tend not to have debts/are not affected by interest rates as much (will still keep spending), raising interest rates gives savers more income ie raising interest rates only hits some of the population and raising taxes hits everyone.

    Hence why the stage 3 tax cuts coming up are completely oppositional to interest rate increases. Fiscal policy working in direct opposition to monetary policy - if we still have inflation then, anyone with a mortgage will probably pay less tax on the one hand and be hit with greater interest rates on the other. Meanwhile, wealthier people/savers will be laughing.

    • Yes, and it would be better to increase government revenue rather than bank profits.

    • Wealthier people still have debts, much larger ones even.

  • Inflation - Why target interest rate and not raise GST?

    Government doesn't change interest rates, that is determined by the Reserve Bank

    https://www.rba.gov.au/monetary-policy/about.html

  • -1

    Better question in my mind is why not target Superannuation rather than interest rates?

  • I am too no economist, however adjustments to cash rate control the flow of credit circulating around the economy. Increasing GST does no such thing. It's also easier to lower cash rates again than a tax.

  • -1

    As a software engineer having seen many implementations of tax calculations, not many businesses would be ready for a change to GST tax rates.

    Tax rates not being stored against every taxable line item in a database likely means there’s a global rate that’s hard coded, so eg if you changed the tax rate, old reports would be updated with the new tax rate which isn’t ideal.

    • Centuries ago, the exchange rate for the USA dollar was always hard coded to USD $1.20 = AUD $1 or similar …

      Wasn't hard to fix. Adaptation did the trick.

    • That's merely implementing that rate increase. It's the why that matters

    • You mean the software everyone uses that originates from the USA where they have different state, federal tax rates, sales taxes? It'll be fine they've literally already done the work

      • Nah, most startups build their own software and perform their own calculations for pricing and don’t use accounting software integrated with their online ordering systems. Especially ones that are just Australian based, and have only had to deal with one tax rule.

        For example, you’d find a whole lot of invoice generating code that has totalPrice and GST is totalPrice / 11 being the GST component, rather than storing the tax rate against the order and doing totalPrice / taxRate

        • Yeah the USA isn't the land of tech startups or anything is it 😂 This is not a valid argument against a different GST rate

          • @Scantu: i dunno about you but I’m not trying to argue anything. Plenty of Australian startups do this too. Given this is ozbargain and I’m Australian… derp.

            • @Benno007: "As a software engineer having seen many implementations of tax calculations, not many businesses would be ready for a change to GST tax rates."

              … you, several comments ago. I'm saying this isn't true at all. Derp.

              • @Scantu: And yet you’re referring to USA startups?

                Im not arguing I’m just stating my experience after 20 years programming. And as a software engineer at a company that processes hundreds of millions of dollars in Australia a year, I beg to differ. And having worked at a number of others that had the exact same setup for GST.

                • @Benno007:

                  And yet you’re referring to USA startups

                  Hmm yes you're right software does perform differently depending on which continent it runs in doesn't it

  • +1

    Interest rates - up and down.
    GST - only up.
    Sorry friend - I’d fight you on the streets……

Login or Join to leave a comment