The Last Thing We Need Is An Increase In Taxes

Julie Novak from the Institute of Public Affairs has an excellent piece in The Drum on how we should not, under any circumstances, raise now raise taxes.

She makes the point that:
The notable works of economist Alberto Alesina, who has examined the interaction between alternative fiscal consolidation strategies and economic growth in numerous countries,suggests that expenditure reductions can help achieve the desired budget recovery outcomes, with the least adverse economic effects.

Alesina indicates that expenditure-based fiscal adjustments are associated with smaller economic downturns, if at all, than tax-based adjustments, and these policies, especially when combined with deregulation, have in some circumstances supported economic growth.

Translated into simple words for politicians: cutting spending will help the economy. Increasing taxes will hurt it.

Julie Novak goes onto note that:
In addition, a more general empirical literature exists which mostly indicates that, putting aside issues of tax structure, higher rates of total taxation imposed upon individuals and businesses are associated with slowing rates of economic growth over time.

recent study (PDF), by Davide Furceri and Georgios Karras, for 26 OECD economies, including Australia, found that an increase in total taxes equivalent to 1 per cent of GDP will reduce long-run real GDP per capita by up to 1 per cent.

A number of other studies, for single economies such as the United States and Canada, also allude, in the main, to the growth-hampering effects of increasing taxes.

These and other studies support the longstanding understanding of economists that the imposition of higher taxes would distort economic activities, by hampering productive behaviours such as working, saving, investing, or exercising innovative or entrepreneurial conduct.

Translation: If we increase taxes, our economic growth will go down and so will our living standards.

Click here to read the whole thing  but make no mistake - the evidence is clear:  Australia just can't afford a tax hike.

 

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