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Tax cuts stoking rate rises, RBA hints
THE Reserve Bank has linked the Government's budget tax cuts to its thinking on interest rates, saying the tax relief will boost spending.
Economists say this shows the tax cuts were a factor in the Reserve's decision to lift interest rates. The bank's quarterly economic report yesterday said inflation was being pushed higher by several forces, including petrol prices and a tight job market. But it added that the tax cuts would increase spending, thus raising demand in the economy. "The tax cuts that came into effect in July, coupled with growing employment, will boost household incomes and should add to spending in the second half of the year," the Reserve Bank said.
When the bank lifted interest rates on Wednesday it said "strong domestic demand" had contributed to the decision.
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Rating rates will reveal home truths for Howard
JOHN Howard's decision to stay on removes a damaging element of uncertainty for business as the economy moves into a tough year. It should dissipate the air of distraction about the Government, and a loss of policy focus, which was becoming apparent as the leadership issue dragged on.
It means Australia won't be entering a difficult 2007 with changes in three key positions of economic policy stewardship new Prime Minister, Treasurer and Reserve Bank governor which was a possibility while Howard was still deciding whether to draw stumps. With the declaration by Peter Costello that he will also stay in his job, only the RBA will have a new boss.
And it sets up the coming election as a battle between well-known quantities, with Howard a proven winner and Beazley a familiar Opposition Leader who has begun to carve out distinctive policy positions.