Flat White

Our budget has caught a bad case of coronavirus

29 July 2021

5:04 PM

29 July 2021

5:04 PM

There has been much written and spoken about the Morrison Government’s legislated “tax cuts” and Labor’s decision to not oppose them. Let me break the news to readers. There has not been a tax cut. Not even close. What there has been is a tax deferral. 

Governments raise taxes to meet their spending needs and desires. Spending has not been reduced, so how can taxes have fallen?   

What has been done is sleight of hand. Rather than increasing today’s taxes to meet today’s spending, the government has deferred the need to tax by borrowing. And at some point in the future, that borrowing will need to be repaid, and repaid through taxes. 

You could also believe in modern monetary theory magic which suggests that governments don’t need to tax to meet spending obligations but can create money. But creating money only creates inflation, which is itself a tax, silent albeit. 


Why is inflation a tax? Very simple. All taxes are a state confiscation of purchasing power. I earn $1 but can only consume the after-tax amount. Guess what? Inflation is the same thing.  It is a state confiscation of purchasing power.  For my $1 of income, I used to be able to buy 1 kilo of meat. Tomorrow, after tax and after inflation, I will only be able to purchase half a kilo of meat. Tax is a tax. Inflation is a tax. 

Government spending is increasing at a rapid rate. Tax revenues are not. All that is happening is that tax collection is being deferred.  That is under no circumstances a tax cut. 

But don’t be surprised.  Australia is governed by the most fiscally irresponsible government since Whitlam.  Tilt your head and squint your eyes and Josh Frydenberg is the spitting image of Jim Cairns. 

The following table is from the most recent Commonwealth Budget Papers. These were the most wildly optimistic, pre-NSW lockdown budget forecasts of this Liberal government: 

Under this Liberal Government, they are projecting a $1.2 trillion, yes trillion dollars of debt within 3 years. And how is this debt to be repaid? Through future taxes or inflation. 

Don’t believe the spin. There have been no tax cuts. 

And just remember what was Whitlam’s economic legacy. Double-digit unemployment and 20% interest rates. 

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