Super alarm: Don’t hike taxes, do cut spending

There is an ideological battle over the best way to shrink the Budget deficit.

Summary: Revenues did fall during the GFC but the ensuing deficit was more driven by the spending splurge that followed. Since the GFC, revenues have grown slightly below trend but spending was never reined in. Tax receipts are back to average rates but bureaucrats would like to lift the tax take back to a high rate. I argue we should instead bring spending down first given higher taxation would be harmful to growth.

Key take-out: Be prepared for the push for “reform” i.e. lifting taxes on super – the momentum is very strong.

Key beneficiaries: General investors. Category: Economics and investment strategy.

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