Cut tax to stimulate economy: ANZ chief
After Prime Minister Julia Gillard this week said weaker tax receipts had blown a $12 billion hole in this year's budget, Mr Smith argued on Tuesday that any budget "austerity" should be cushioned with other measures to increase activity.
Mr Smith said he was not telling Treasurer Wayne Swan how to do his job, but he argued against tax rises and suggested lower taxes would boost sagging levels 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 [Mr 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 would not specify what types of spending cuts were needed. He argued that any budget pain should be cushioned by some 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."
He made the comments after ANZ said its half-year profits had risen 10 per cent compared with a year earlier, to $3.18 billion.
Despite the increase, which was helped by a fall in bad debts, Mr Smith said the outlook for Australia's economy was subdued because of the impact of the high dollar and consumer caution.
He would not say if the Reserve Bank should reduce interest rates to revive the economy but said the central bank would be wary of cutting rates to fresh record lows when there were signs of life in the property market.
Frequently Asked Questions about this Article…
ANZ chief executive Mike Smith urged the government to avoid raising taxes and instead consider lowering taxes to boost economic activity. He said tax increases generally restrain growth, while tax cuts can encourage businesses and people to invest, helping revive a sagging economy.
ANZ reported a 10% rise in half-year profits compared with a year earlier, reaching $3.18 billion. The increase was helped by a fall in bad debts, according to the bank's results mentioned by Mr Smith.
Prime Minister Julia Gillard said weaker tax receipts created a $12 billion hole in the budget. Mike Smith referenced this context while arguing against tax rises, suggesting that cutting taxes and trimming spending—balanced with stimulus—would be a better approach to revive growth.
No. Mike Smith declined to specify which spending cuts were needed. He emphasised that any austerity should be cushioned by measures to stimulate activity rather than relying solely on spending cuts.
Mr Smith would not say whether the Reserve Bank should cut interest rates. He noted the central bank would likely be cautious about lowering rates to fresh record lows, especially when there were signs of life in the property market.
ANZ's chief described the economic outlook as subdued due to a high Australian dollar and consumer caution. For everyday investors, that suggests companies sensitive to the currency and domestic spending could face headwinds until activity picks up.
Mike Smith recommended a mix: austerity measures should be accompanied by some stimulus. He warned that austerity alone is hard to manage and stimulus alone can run away, so a balanced approach is best to support recovery.
For everyday investors, ANZ's comments signal that tax and budget decisions can materially affect economic activity and investment sentiment. Policies that lower taxes or include measured stimulus could encourage business investment, while tax increases may restrain growth—factors investors should monitor when assessing market outlooks.
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