Friday, January 28, 2011

The flood levy

Let’s follow the logic of Tom Elliott as displayed on the 7pm Project (about 5 mins in) to its logical conclusion.

He repeated the claim about mortgages in Crikey today, saying “In a nutshell, while the government can borrow so much more cheaply than the households it's supposed to assist, there is no good reason why the flood costs should be funded at personal home mortgage rate -- which is exactly what, for most people, the proposed levy represents.”.

Therefore any taxpayer who finds themselves paying a mortgage off should ask the Government for a tax rebate because it would be cheaper for the Government to pay the debt than them.

The reality is this is a macroeconomic issue, not mere accounting. The extra money to be spent restoring Queensland infrastructure is an unplanned fiscal stimulus. Part of it is funded by replacement of other spending. But additional spending funded by borrowing is stimulatory.

Further, we know that food supply issues will result in a short term increase in inflation. Creating the overhang of a levy is a good counter-balance to the inflationary pressure.

The levy is wise decision making from competent economic managers who happened to manage to get the fiscal stimulus response to the GFC just about right.

And while we are at it, can we end the confusion between the levy and charity (see comments, also in the 7pm Project clip). Charity is to help people rebuild lives, the levy is to help the Government rebuild state infrastructure.

Novae Meridianae Demetae Dexter delenda est

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