Election 2007 Day 27: tax cut today, rate hike tomorrow

The gap between the demands of political spin and good public policy were dramatically illustrated by two events yesterday.

First, the Reserve Bank of Australia released its Quarterly Economic Statement. It revealed that not only is inflation forecast to sit above 3% in 2008, but it could go even higher unless consumer, business and public spending slows.

Then, barely an hour later, the Coalition launched its campaign for the 2007 federal election. Prime Minister John Howard announced policies including:

Low-tax saving accounts for first home buyers and their family members.

Tax deductibility for all education related expenses, capped at $400 per year for a primary school student and $800 per year for a high school student.

More respite care for carers.

A 30% child-care rebate to go directly to childcare-providers, designed to reduce costs by up to %30.

Vouchers to provide financial literacy training to the community.

The total cost of these promises? More than $9.4 billion, reportedly bringing the Coalition’s promises for the year to the neighbourhood of $60 billion.

To put this into context, total revenue for 2007-08 is expected to be $247 billion, according to the federal government’s 2007-08 budget papers.

Political imperatives may make it necessary to put dollars in the pockets of voters, either through spending or tax cuts, but this time next year we may all be paying back everything we get during the campaign – and then some – in higher interest rates.

Tomorrow Labor will launch its election campaign. At the moment Labor’s promises apparently total about $48 billion, but all that could change if Kevin Rudd decides to seriously loosen the purse strings tomorrow.

But from a policy perspective, this would be the perfect opportunity for him to illustrate the economic conservatism he has spent so much time talking about. By this time tomorrow, we will know if his claims to conservatism are anything more then empty spin.