A Tax By Another Name

TAFKAS does not understand and cannot reconcile.

Apparently Australia is in an unusually low inflation environment as evidenced by ABS numbers.  But for some reason, there is a massive cost of living problem that is driving all sorts of discussions about disposable wage erosion.  And the so called recent income tax cuts were ostensibly to return bracket creep.

So which is it?  Low inflation or bracket creep and cost of living pressures.  One suspects that it can’t be both and someone is trying to mislead.

Hmmm.  Who could it be?  Hedonic adjustments anyone?

Overlay what probably is the real inflation story with the recent RBA interest cuts and talk of further.  Is Australia living in a real negative interest rate environment?  One suspects so.  And who are the biggest losers of negative interest rates?  Savers.  And the biggest winners?  Borrowers, you know like the profligate governments we Australians have.  So who has the biggest incentive to pretend there is no inflation.

Hmmm.  Who could it be?

But with negative interest rates, why keep money in the bank when it costs you.  Forget about interest income.  You pay for the privilege of lending money to the banks.  And when there is a huge pile of superannuation money available to bilk, why not.

Which is why this latest consultation paper to emerge from Treasury is all the more interesting – Currency (Restrictions on the Use of Cash) Bill 2019.

Whenever government uses the word “Restrictions” is it seldom a good thing.  But what pray is the government trying to active through this legislation?  From the explanatory memorandum:

  • This Bill introduces offences for entities that make or accept cash payments of $10,000 or more.
  • This ensures that entities cannot make large payments in cash so as to avoid creating records of the payment and facilitating their participation in the black economy and undertaking related illicit activities.

Illicit activities eh.  The government is proposing to make ILLEGAL the payment or receipt of $10,000 or more in cash.  Inclusive of GST of course.

So basically, the left hand of government is nudging interests rates into negative territory while the right hand is sucking more money into the  bank system so as to better tax it.  And who is squeezed in the middle – the tax paying, money saving citizen.

Like all predatory or parasitic institutions, its first instinct (of Government) is that of self-preservation. All its enterprises are directed first towards preserving its own life, and, second, towards increasing its own power and enlarging the scope of its own activity. For the sake of this it will, and regularly does, commit any crime which circumstances make expedient.

The Liberal National Party – more like a liberal application of nationalist policy.

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41 Responses to A Tax By Another Name

  1. stackja

    ABS records price of imports low. Does ABS count price of energy high?

  2. Bruce of Newcastle

    And when there is a huge pile of superannuation money available to bilk, why not.

    I was amused by this headline in the Oz this morning:

    Don’t hold back on super (paywalled)

    There’s no reason to delay raising the guarantee to 12 per cent.

    The dead giveaway was the name of the author. Shadow minister for stealing money off voters oops Treasurer and ex-Swannie staffer, Mr Jim Chalmers.

  3. Shy Ted

    I foresee unforeseen consequences. I also foresee more back markets.

  4. Dr Fred Lenin

    That huge honeypot of super money must make the socialist pollies drool,thinking of the number of “infastruckchoor “ rip iffs it would create as their “legacy” before the retire to New York “to spend more time with their families.” Its only a matter of time .

  5. RobK

    TAFKAS does not understand and cannot reconcile.
    I’m assuming you meant:
    “TAFKAS does not understand and cannot reconcile:”😜
    I agree with the thrust of the post. The tightening of regulation and technological tracking (simply because we can) will not guarantee increased productivity. It will most likely have the opposite effect.

  6. Flyingduk

    Of course cash is going to cease to exist, it has effectively been replaced already by the digital payment system. They need to herd us all 100% in the digital system for ease of confiscation when the next GFC hits. Buy guns, gold n bitcoin.

  7. Flyingduk

    Active shooter just being reported in California…. 5 will get you 10 the venue is going to be a ‘gun free zone’.

  8. Bruce J

    So legal tender will not be legal if more than $10,000?? Qh well, just make 10 payments instead of 1 for your $100,000 Tesla.

  9. Dr Fred Lenin

    Is a carbon tax a tax on air ? If so the mongrels are finally taxing the air we breathe , air really belongs to the government then does it ? ,We elect career polliemaggots to supervise our air ?

  10. Dr Fred Lenin

    Will bribes from “lobbyists ,(bribers ) to political gangs ,sorry ,oarties ,and individual polliemaggots come under this restriction ?

  11. Tim Neilson

    Flyingduk
    #3118058, posted on July 29, 2019 at 12:44 pm

    I believe you get to keep your 10.

  12. JC

    TAFKAS , can we please stop this talk.

    But with negative interest rates, why keep money in the bank when it costs you. Forget about interest income. You pay for the privilege of lending money to the banks. And when there is a huge pile of superannuation money available to bilk, why not.

    Monetary policy should not be run to favor any group. The RBA has an inflation target and at the moment it’s running below. If monetary policy was run to favor savers then why not have deposit rates at 20%? Why not?

    There’s a frequent reference to savers losing out because of low interest rates. Let’s stop this nonsense.

  13. Tim Neilson

    Monetary policy should not be run to favor any group.

    Is it not being run to favour borrowers at present?

  14. JC

    Is it not being run to favour borrowers at present?

    Absolutely not. The intention is to get the inflation rate back within the target range over the medium term.

  15. John A

    JC #3118183, posted on July 29, 2019 at 3:34 pm

    Is it not being run to favour borrowers at present?

    Absolutely not. The intention is to get the inflation rate back within the target range over the medium term.

    Oh, so inflation good now. Or We are at war with Eastasia.

  16. @JC

    Monetary policy should not be run to favor any group.

    For the love of god, stop drinking the Kool-Aid.

    Why does the government have an inflation target of 2-3% and not nil? Because its a tax. Inflation is a tax. If the tax is too high, eg 17%, the people revolt. Keep the tax low enough to generate the revenue, but not too high to start a tax revolt.

    And are you suggesting that, if “Monetary policy should not be run to favor any group”, that everyone is a winner or net winner? Come on.

    Setting the price of money flows into every nook and cranny, but are there any other areas you think the government should set prices?

  17. Peter Greagg

    Let’s face it, the RBA, Treasury, and almost all so-called economists have absolutely no idea how the economy actually works in general, and specifically the nature and costs and benefits of ‘measured’ inflation.

  18. JC

    For the love of god, stop drinking the Kool-Aid.

    I’m not and just listen

    Why does the government have an inflation target of 2-3% and not nil?

    For the very good reason the target is set high enough so we avoid zero inflation, zero interest rates AND difficult, unconventional policies to implement if zero or below is reached.. QE! QE is a monetary policy failure? In the Friedman world, low interest rates are a sign of monetary policy failure with previous settings being too tight.

    In theory zero inflation would be a good thing, but it would also mean zero stickiness in labor and goods markets. That is an impossible goal to achieve.

    Because its a tax. Inflation is a tax.

    No it’s not. Inflation is not a tax for the simple reason that currency these days is NOT a store of wealth. It’s a medium of exchange and unit of account. If you want to store value buy assets.

    If the tax is too high, eg 17%, the people revolt. Keep the tax low enough to generate the revenue, but not too high to start a tax revolt.

    This is pure nonsense.

    And are you suggesting that, if “Monetary policy should not be run to favor any group”, that everyone is a winner or net winner? Come on.

    Nope, I most certainly do not suggest that. Monetary policy should have two goals – those two goals within the RBA’s remit. These are the preset inflation target and full employment. If one group of people are benefited by a monetary policy stance at a particular time then so be it.
    In fact it’s you and others, who should also know better, suggesting the RBA should help out one group of people – the poor savers. Decent monetary policy should never be run like that.

    Setting the price of money flows into every nook and cranny, but are there any other areas you think the government should set prices?

    The RBA sets the very short term rate and offers guidance and guidance in all respects is much more important than a 25 basis point wiggle.

    If you were correct that monetary was set too loose at the present time, the 10 Year bond yield would be much higher than it is now and the slope much steeper. These aren’t!

    You’re not the only one, but you’re implying the RBA ought to set monetary policy with saver in mind rather than the entire economy. Should they target the optimum o/n cash rate on what is best for pensioners? A pensioner’s target for monetary policy then?

  19. JC

    Australian 10 year
    GTAUD10Y:GOV
    Australia Bond 10 Year Yield
    Coupon 3.25 118.67 1.21%

    It’s almost at the cash rate showing just how flat the curve is.

  20. Frank Walker from National Tiles

    JC that last thing you wrote is subpar.

    For the very good reason the target is set high enough so we avoid zero inflation, zero interest rates AND difficult, unconventional policies to implement if zero or below is reached..

    You’re gonna have higher inflation with QE. Upping the cash rate can’t possibly see us move to QE.

    No it’s not. Inflation is not a tax for the simple reason that currency these days is NOT a store of wealth. It’s a medium of exchange and unit of account. If you want to store value buy assets

    Yes but it is still the unit of account and there is fiscal drag in the context of a (highly progressive) personal income tax system and a broad-based but highly rated corporate income tax system. The Treasury doesn’t profit directly from asset price inflation, but it will eventually.

    These are the preset inflation target and full employment.

    Yes but I assume you don’t believe in pump priming…or QE.

    If anything the target is too high, conflates the short run and long run and the band is too narrow.

  21. Frank Walker from National Tiles

    Let’s not forget the yield curves are constructed in part from foreign carry trade opportunities and since direct intermediation vis a vis CDOs, that money formation is not predictable like before the 1980s.

  22. Bruce of Newcastle

    Why does the government have an inflation target of 2-3% and not nil? Because its a tax. Inflation is a tax.

    Other reason is deflation is bad news.
    People hold off on spending because their money can buy more in the future.
    Unfortunately small businesses can’t survive when everyone closes their wallets for a month or two.
    We saw that in the apex of the GFC. People all individually decided to wait and see.
    Sales collapsed. Then businesses collapsed because they had no cash flow to pay loan repayments and rent. When the public opened their wallets again it was too late – the businesses were gone.

    Monetary policy needs to reflect human herd psychology too. A low but non-zero inflation target helps avoid overshooting into deflation.

  23. JC

    You’re gonna have higher inflation with QE.

    The Europeans, the Americans, the Japanese? All these currency regimes performed QE in dollops for the last decade and their inflation rates remain below target.

    Yes but it is still the unit of account and there is fiscal drag in the context of a (highly progressive) personal income tax system and a broad-based but highly rated corporate income tax system. The Treasury doesn’t profit directly from asset price inflation, but it will eventually.

    It’s not the job of the monetary authorities to clean up the messes of governments in the taxation area.

    If anything the target is too high, conflates the short run and long run and the band is too narrow.

    If the target is set too high, what should happen as the inflation rate approaches zero giving consideration to the stickiness of labor rates and goods markets. We saw what happens in the GFC. It destroys asset values and imperils the banking system.

  24. Frank Walker from National Tiles

    Other reason is deflation is bad news.

    There is no proof at all that persistent deflation is worse than persistent inflation.

  25. Frank Walker from National Tiles

    If the target is set too high, what should happen as the inflation rate approaches zero giving consideration to the stickiness of labor rates and goods markets.

    Bingo. That’s the real reason: we have inflation to make price-controlled markets mimic a free market.

  26. JC

    Bingo. That’s the real reason: we have inflation to make price-controlled markets mimic a free market.

    Yep and totally agree with you 100%.

  27. Bruce of Newcastle

    There is no proof at all that persistent deflation is worse than persistent inflation.

    Try telling that to a SME who has to pay the rent each week and loan repayments monthly.

    Deflation kills the small and favours the large, who can cope with such things. You have spikes of deflation and soon you’ll have a lot of big corporations and no up-and-coming ones. And no risk taking small entrepreneurs. Exactly opposite of what you, Dot, want. All because of human psychology.

  28. JC

    There is no proof at all that persistent deflation is worse than persistent inflation.

    Depends what type of deflation it is. We encourage deflation in the tech sector and see it as good deflation, which it is. However, pervasive deflation (deflation across all sectors of the economy) combined with problems in the credit markets are toxic. You don’t want that.

    In my view we insulate ourselves from deflation in the tech space because that sector is mostly driven by a very high ratio of equity vs debt.

  29. Squirrel

    I take some small comfort from the fact that the Big Four have not passed on all of the most recent rate cuts to all savers – so as a zero cash rate rapidly approaches, there is the prospect that the RBA will be increasingly ignored (as it should) by those who still have some grasp of reality.

    This piece from our taxpayer funded broadcaster is a pretty good explanation of the differences between what the CPI says, and what people on lower and moderate incomes experience – hopefully the message will get through to some of the highly-paid econocrat masterminds who seem to be wondering why the proles are getting restless –

    https://www.abc.net.au/news/2019-07-29/inflation-may-be-low-but-our-cost-of-living-is-rising/11350530

  30. Peter Greagg

    Please! Dot, JC, BoN and lurkers, where we are with inflation (and the rest of the world) is outside known history with the previous relationships between wages, prices, price inflation and the gdp deflator breaking down.

    This is such an obvious situation that I can’t understand why you and most other people keep hoping that these relationships will reestablish themselves. Yet since the GFC, interest rates have gone lower and lower but wages, price inflation and the gap deflator refuse to obey the King Canutes of Central Banking.

    I would have thought once 2% was breached for monetary policy, Central Banks would have realised going lower with the overnight rate wasn’t going to do anything good in the short term, and almost certainly bad in the future.

    To me, the evidence at the moment is that the extremely low interest rates aren’t helping and almost certainly won’t help in the future.

    I would prefer to see rates go back to more normal (pre GFC) levels to avoid doing any more damage to the economy.

    Just my 2 cents worth.

  31. JC

    Peter G

    The market is telling us that inflation expectations are well below the target by the fact that the 10 year bond rate is now 1.2% and the yield curve very flat. Houston we have a problem.

    25% basis points is neither here or there. However, combined with recent guidance from the RBA, where it even discussed the potential for QE if the rate continued in the wrong direction…. we have some assurance from the central bank they will do what they need to get the inflation rate back to target.

  32. Peter Greagg

    JC so you don’t think the monetary policy paradigm has changed since the GFC?
    Why do you think that?

  33. Bruce of Newcastle

    I take some small comfort from the fact that the Big Four have not passed on all of the most recent rate cuts to all savers – so as a zero cash rate rapidly approaches

    My mum’s “investment account” rate was reduced to 0.11% per annum after the last RB move.
    Not much room to go lower if they want to keep the capital on their balance sheet.
    You can fit a lot of cash under a mattress.

  34. JC

    JC so you don’t think the monetary policy paradigm has changed since the GFC?
    Why do you think that?

    Peter, my couple of cents worth is that if you look at both bond rates and inflation rates since the 70s, it’s been a one way generational shift down in both the rate and yields. The 70s introduced a generational shift away from high inflation rates to the point now where we’re toying with near zero inflation rates and commensurately low bond yields. This was a generational shift.
    My hunch is that we may be beginning to see, over the next decade, a move to tolerate a higher inflation rate because of the GFC and what we’ve seen after. This would be a 30 to 40 year cycle.

    Already, in the US we’re seeing an administration and an increasingly looking compliant Federal Reserve moving in the direction of easier monetary policy during a period of headline full employment. Frankly, we haven’t seen this behavior since the 70s. Also, western economies are highly indebted and I wouldn’t be surprised that’s one factor that will change the paradigm shift. Inflate away the value of the debt.

    I’d love to be much younger as you could make mountains of money with this shift over the long term.

  35. JC

    Not much room to go lower if they want to keep the capital on their balance sheet.
    You can fit a lot of cash under a mattress.

    The RBA certainly does, through QE. 🙂 QE allows the CB to grow notionally through zero.

  36. Peter Greagg

    JC thanks for your thoughts.
    As I implied earlier, in the current paradigm of monetary policy, central banks should give up pushing on a piece of wet string, and move rates back (carefully) to more normal rates as it should be obvious by now that inflation won’t be ignited by these ultra low rates any time soon.

    Failure to do so is storing up trouble in the future.

  37. JC

    Whoops..

    should read..
    CB to go notionally through zero.

  38. mh

    Total Australian Credit as of ten minutes ago: $7, 273, 432, 880, 675.00 AUD

    Whatever the problem is, I remain unconvinced that continuing to increase the money supply is going to fix it.

  39. Frank Walker from National Tiles

    No Bruce, whilst you’re not wrong, you’ve also missed the mark.

    You have outlined why deflation can be a bad thing. All true.

    Yes, persistent deflation is bad. So is persistent inflation.

    We also have to make sure we know what is genuine inflation or deflation (or disinflation or reinflation), but also if we’re really seeing growth or contraction too.

    Hence an inflation target which has no short term flexibility can be a very bad thing.

  40. Frank Walker from National Tiles

    Peter

    I’ve seen working papers that note the Fisher equation breaks down during phases of rapid monetary expansion.

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