From The Australian 'Cut & Paste' section on Wednesday:
Outgoing RBA chief Ian Macfarlane in The Australian Financial Review, gives The Australian credit for the budget tax cuts:
BASICALLY before the February inquiry, and I sat down with [Treasury Secretary] Ken [Henry] beforehand, I said, you know, this is crazy. All these people who desire huge tax cuts. I mean you've got people in the Liberal Party, people in the Labor Party, you've got the press, led by The Australian, they want these huge tax cuts.
I mean what? Why is The Australian boasting about lobbying for tax cuts using this excerpt? Obviously Macfarlane is saying, "What's wrong with these crazy people asking for huge tax cuts? Can't they see we're trying to curb inflation?!"
In an effort to unravel this mystery, I hunted down the actual AFR article. Right enough,
Mr. Macfarlane noted that public demand for tax cuts was running at a high level at the time and he felt he had to 'pour cold water on that'...
[update]
The mystery was solved today, when I came across more articles in The Australian about this recent blamefest of who said what about the tax cuts. The Australian dedicated half an editorial to the now (somewhat) infamous cut & paste, saying:
ON Wednesday, this newspaper's Cut & Paste column quoted former Reserve Bank chief Ian Macfarlane, who, in speaking to the Australian Financial Review, complained about those campaigning for huge tax cuts – specifically: ". . . the press, led by The Australian, they want these huge tax cuts". Above his words was a cheeky introduction claiming credit for the tax relief offered in this year's budget. Not everyone saw the humour.
Cheeky introduction, hey? A bit too subtle in my opinion -
if it genuinely
was meant to be cheeky - who knows. I'm sceptical, firstly, because the Cut & Paste section isn't usually known for its levity. I didn't see the humour, and apparently neither did "Treasurer Peter Costello [who] called it a 'chutzpah of the first order'."
Secondly, Mr. Macfarlane has reportedly been getting huffy at people misinterpreting that very quote (where he calls everyone crazy). He said,
"Unfortunately my answer was completely misinterpreted. It was interpreted as saying, 'You should go out there and have...really big tax cuts'."
So, either I (and Peter Costello) don't have a sense of humour, or The Australian doesn't for trying to pull a "cheeky" blurb out of the blue.
Anyhow, this blamefest raises a more important issue - were the tax cuts responsible for last month's interest rate hike, and if so, who was to blame for the tax cuts? Macfarlane, Costello and Howard have all said different things at different times, complained that they've been misinterpreted and/or denied that they said or meant this or that. Thus, I've reconstructed the conversation below to try wrap my head around what's been going on so far.
FebruaryMacfarlane: You people are crazy. Everyone wanting huge tax cuts n'all...craazy.
MayCostello: My beloved Australians, here are your tax cuts. Vote for us!
Australians: Costello is our hero!
AugustMacfarlane: Too...much inflationary pressures...must...raise interest rates!
Australians: It's your fault Costello! Thanks to your tax cuts raising everyone's disposable income and spending, the RBA has raised interest rates.
September [interest rates still high]Australians: Stupid Macfarlane...You said we could have big tax cuts.
Macfarlane: I never said that! How dare Costello tell you that
I urged him to cut taxes?!
Costello: Bitch, I never told 'em anything like that! It was Howard.
Macfarlane: Oops, sorry. I thought it was you.
Howard: Yeah, I said it, but I'm prime minister and I rule.
Australians: So who said what now?
Macfarlane: Okay, so what I said was we could afford tax cuts, but a very modest one. And the tax cut Costello gave you was a modest one, which I support. I'm tired of people misinterpreting what I say.
Costello: What he said. Now leemelone.
Howard: [actual quote from Feb] Well I thought what the governor of the Reserve Bank said is exactly the same as what Mr. Costello has said, and that is that if there is a capacity for some tax relief...it's a question of what the balance and mix is.
And so it goes.
Anyway, going back to the issue, who was to blame for the tax cuts? Who cares. Were the tax cuts (partly) responsible for the interest rate hike? I'm inclined to think so. My basic economic knowledge tells me that tax cuts raise disposable income which raises consumption, which adds to inflationary pressures, which justifies interest rate hikes.
The Australian argues that "rates are climbing largely because the economy is straining for reform, not because of it." (thus defending their wisdom in lobbying for tax cuts) If they mean structural reforms relating directly to the reduction of capacity constraints, fair enough. But the editorial seems to be talking about a tax reform, and for lack of elaboration on these tax reforms in the article and my own lack of knowledge on them, I shall end this post here, and pick it up again when I know enough to talk about it.
Toodles!
Labels: News
