1. Most Discussed
  2. Gainers & Losers

brw daily ... no quick fix for flat economies.

  1. rembrandt

    5,816 Posts.

    Hmmm... from BRW Daily...

    No quick fix for flat economies
    By Chris Richardson, a director of Access Economics

    The scenario sounds familiar: the economy struggles, the media demand that something be done, the leader fires a few fall guys and then announces that the solution is to tax less and spend more.

    Will President George W. Bush's tax cut help the United States much? I have my doubts.

    First, history says that government actions usually come too late, arriving after recovery is well advanced. That may be true this time, too. Although Bush says the tax cut could lift national spending by as much as 1% in 2003, the US Congress and the opposition Democrats may undermine that timing. US institutional processes are designed for safety, not speed.

    Second, although the move to stop double taxing of dividends is overdue, most benefits flow to higher-income earners, and because the rich spend proportionally less of a tax cut than the poor, much of the cut may be pocketed rather than spent.

    Third, a bigger budget boost to the economy actually came in 2002 (see chart), when there were also tax cuts as well a big lift in spending on security and defence.

    Fourth, the US federal budget is now firmly in deficit and, assuming the proposed tax cut is not trimmed too much by Congress, it looks set to stay in deficit. That is not sustainable - just ask the Argentinians or the Japanese. At some stage, taxes will need to rise again, or spending will have to be cut. If the punters fear that the deficit gap will be closed later by government action, then that is more reason to be cautious in spending the tax cuts.

    I am sceptical about quick-fix solutions to complex problems. Perhaps most importantly, I doubt that the US economy needs a boost from a tax cut. Admittedly, consumer spending is flagging, and businesses have little incentive to spend because most have excess capacity. However, Iraq's Saddam Hussein aside, I still see the US recovering strength through 2003 (with or without tax cuts) supported by record low interest rates and a more stable stockmarket. Tax cuts are not always the best option.


    This is only my view ... read the red stuff.

Before making any financial decisions based on what you read, always consult an advisor or expert.

The HotCopper website is operated by Report Card Pty Ltd. Any information posted on the website has been prepared without taking into account your objectives, financial situation or needs and as such, you should before acting on the information or advice, consider the appropriateness of the information or advice in relation to your objectives, financial situation or needs. Please be aware that any information posted on this site should not be considered to be financial product advice.

From time to time comments aimed at manipulating other investors may appear on these forums. Posters may post overly optimistic or pessimistic comments on particular stocks, in an attempt to influence other investors. It is not possible for management to moderate all posts so some misleading and inaccurate posts may still appear on these forums. If you do have serious concerns with a post or posts you should report a Terms of Use Violation (TOU) on the link above. Unless specifically stated persons posting on this site are NOT investment advisors and do NOT hold the necessary licence, or have any formal training, to give investment advice.


Thank you for visiting HotCopper

We have detected that you are running ad blocking software.

HotCopper relies on revenue generated from advertisers. Kindly disable your ad blocking software to return to the HotCopper website.

I understand, I have disabled my ad blocker. Let me in!

Need help? Click here for support.