Government's Plan To Boost Economy

08th July 2019

Despite what you may have heard, the economy's not doing so good right now, and the end result of that is that consumers are choosing to keep their wallets shut.

Unemployment across the board is a relatively low 5.1%, and the participation rate is high, meaning that most of the people who can work, are working.
Interest rates are also at record lows. 

So with more people employed, and the cash rate low, we should be spending more. Right?

So why aren't we?

Because we are experiencing what is called a “per-capita recession”. 

The rate of growth is going backwards for a couple of reasons - the lack of increased rates of pay, and also due to our debt to income ratio.

This means that household consumption, which includes purchases from a cup of coffee to a new car has slumped.

It’s a vicious cycle - when people are concerned about money, they spend less.  When they spend less, businesses close, making consumers even more concerned about money, and ultimately spend even less.

The opposite occurs when business is prospering, as we confidently spend more and business flourishes in a self-fulfilling prophecy.

Communities can actually talk themselves into a recession, and economists are concerned that we are heading that way.  A recent survey of 20 respected economists found we have a 29% chance of heading into a recession.

A solution would be to boost spending.  You may recall the Federal Government’s $900 cash stimulus of the late 2000’s, which was this theory in practice. 
This time, the Government is offering tax cuts via a three-stage plan.

The first stage is an immediate cash back of up to $1,080 when people file their tax return.

Secondly, the Government proposes raising the top limit of the 19% tax bracket to $45,000, and raising the 32.5% tax bracket to $120,000.

And lastly, the Government wants to scrap the middle tax bracket altogether, so people earning $45,000 will pay the same rate of tax as people earning $200,000.

Stages 1 and 2 have support from the Opposition. However the ALP do not support Stage 3 of the plan.

But the Government will bring the three stage plan before the House of Representatives on Tuesday. And given the Coalition Government has the numbers in the House of Representatives, it is likely to pass.

But the Senate remains the sticking point. The Government needs just one extra vote in the Senate to pass the whole bill, meaning all eyes are on re-elected Tasmanian Independent, Jacqui Lambie. She's refused to say how she'll vote, saying she needs more information before making a decision.

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