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Thank GST for Fourth Rate Rise
Date: 04 May 2000
Interest rates have now increased four times and by a total of 125 basis points in just six months.
The promised tax cuts are evaporating by the day.
Australian families will now be paying $110 a month more on their mortgages than they were six months ago.
Like a broken record, Peter Costello will say today's rise has nothing to do with the GST. As usual, he will say it is all due to international factors and fuel prices.
Of course international factors play a role, but the RBA clearly sees the inflation risk as the key factor behind its decision today.
The GST is the biggest domestic threat to inflation. It is placing pressure on wages and is responsible for a significant portion of the looming fiscal stimulus - all John Howard's and Peter Costello's own work.
Australians already know that prices are rising ahead of the GST and they don't trust the Government's GST inflation forecast. It is the GST that is raising both inflation and wage expectations in Australia.
As economists are now suggesting, it is Peter Costello's $10 billion fiscal deterioration and expected fiscal loosening - the bulk of which is to buy the GST - which is affecting market expectations and placing pressure on inflation and interest rates.
If you don't have a strong enough Budget position, then you wear the pain on interest rates, and vice versa. ... Now the Budget's pretty much been spent on tax reform and partly as a result, we shouldn't be surprised if we're getting interest rate increases. [Chris Richardson, 7:30 Report; 2 May, 2000]
The Government has elevated the pursuit of votes above what might be considered prudent fiscal policy. [Saul Eslake, AFR 1 May, 2000, p 4]
When rates rose earlier this year Peter Costello welcomed it:
"We've had interest rates moving up. But it's not an altogether bad thing."
But Australian families won't be cheering now that Peter Costello has added $110 to their monthly interest bill.
The government has to accept responsibility for today's rate hike. It can't claim the credit when rates fall and blame someone else when they rise.
Eroding the tax cuts
Based on the figures in the Government's GST package, the claimed benefits of the GST have already been wiped out for many Australians because of the interest rate rises (see attached cameos ). GST losers now include:
· Single mortgage holders earning less than $45,000;
· Most single income families with two dependent children and a mortgage who earn less than $30,000;
· Dual income mortgage holders with no dependent children earning less than $80,000; and
· Dual income mortgage holders with two dependent children earning $40,000 to $65,000 or less than $30,000.
So much for John Howard's promise that no Australian would be worse off as a result of his GST.
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