ANZ chief warns on tax rises
After Prime Minister Julia Gillard this week said weaker tax receipts had blown a $12 billion hole in the budget, Mr Smith said on Tuesday that any budget "austerity" should be cushioned with other measures to lift activity.
Mr Smith argued against tax rises and suggested lower taxes would boost sagging rates of economic growth.
"You've always got to have a mix of looking at the income and the cost side, but tax increases generally do not create economic growth, they have a restraining or indeed a contracting effect on the economy," Mr Smith said.
"If I was him [Treasurer Wayne Swan] I'd be looking to reduce taxes. Certainly costs are an issue and costs have to be looked at. The best way to get the economy going is to stimulate economic activity, and the best way to do that for business is to reduce tax, because people then will invest."
Mr Smith said any budget pain should be cushioned by some form of stimulus.
"With austerity, it's best to have some sort of stimulus as well. I think austerity on its own is incredibly difficult to deal with, stimulus on its own can run away, and often you need a balance."
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Mike Smith urged the government to resist raising taxes, arguing tax increases generally do not create economic growth and can have a restraining or contracting effect on the economy. For everyday investors, that view matters because policies that boost or restrain economic activity can influence investment conditions and market confidence.
Smith suggested the government should look at both the income and cost sides of the budget. He recommended cutting spending and reducing taxes to stimulate economic activity, saying lower taxes for business and people encourage investment and can help lift sagging growth.
Prime Minister Julia Gillard had said weaker tax receipts had blown a $12 billion hole in the budget, and in response Mike Smith warned against raising taxes to fill that gap. Instead he said any budget tightening should be balanced with measures to stimulate activity.
Smith said austerity on its own is hard to deal with and can harm the economy, while stimulus on its own can 'run away.' His point is that budget pain should be eased with some form of stimulus so there’s a balance that supports economic activity while addressing fiscal pressures.
According to Smith, reducing taxes makes it more attractive for businesses and people to invest. He argued the best way to get the economy going is to stimulate activity, and tax cuts are one mechanism that encourages investment.
No. Smith said you always have to look at a mix of income and costs. He argued against relying on tax increases as a growth strategy, but also acknowledged costs need to be examined as part of a balanced approach to the budget.
Smith said that if he were Treasurer Wayne Swan he would be looking to reduce taxes and address costs. He emphasized stimulating economic activity as the best way to improve growth and suggested tax reductions would help achieve that.
Smith recommended a balanced approach: use some austerity to manage costs but pair it with stimulus measures to lift activity. He warned austerity alone is very difficult and stimulus alone can get out of hand, so a mix is preferable.
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