(no subject)
I've decided to post more random stuff on here, so it doesn't feel like a complete waste. Actually, this will probably last about 4 days until I lose motivation. So feel free to ignore me.
What a sorry state we are in. Unemployment is low, economic growth is strong, there's a commodities boom -- but those bloody bananas are going to put it all down the train by triggering massive interest rate rises. Looking at the Herald's front page (Thursday 27th July), it's hard not to momentarily think that fruit prices drive our entire economy. Banana republic anyone?
The underlying causes of the recent rise in inflation, however, can be traced to the Howard Government. Introducing tax cuts in the last budget wasn't helpful on this front. More importantly, by making interest rates an over-hyped election issue, political pressure has been placed on the Reserve Bank to not raise rates other than when absolutely necessary. This has put our longer-term inflationary outlook in jeopardy and compromised Reserve Bank independence. The RBA could have lifted rates much earlier, to tackle the house price and consumer debt boom, when monetary action would have been most effective. It didn't. The governor, Ian Macfarlane, retires from the Bank soon, and would be cautious of raising rates too much lest this invite a political reaction and tarnish his otherwise excellent legacy. Australian monetary policy is in a precarious position, and we should all know who to blame.
And, from here:
THANK you for your sensible and useful editorial on inflation (The Australian, 27th July). As you point out, this isn't the end of the world, and we aren't in a dangerous wage-price spiral. However, it must be remembered that the Howard Government has been quite complicit in allowing inflation to drift upwards. The latest budget tax cuts are one example. Another is the politicisation of interest rates and election scare campaigns which have placed unnecessary pressure on the Reserve Bank to raise rates only when absolutely necessary. This has also given them the incentive not to do so when it may be prudent for long-run stability.
Nevertheless, there is a clear need for further taxation reform, as you argue. Indeed, with economic growth soaring in Western Australia and close to zero in NSW; with many working mothers facing high effective rates of marginal taxation; and with dangerously few international competitors among of our large industries, there is definitely a case to be made for reform in many areas.