Tax cut revamp unlikely to prove inflationary

Some commentators have raised concerns that the Australian government's changes to forthcoming Stage 3 income tax cuts could add fuel to the inflation fire. However, we remain sceptical, given that the revamped tax package is broadly revenue neutral relative to its previous iteration. And while the new tax package will redistribute benefits to those at the lower end of the income distribution, who have a higher marginal propensity to spend, we estimate that the boost to aggregate demand will be marginal.

Note: We’ll be be discussing Australia's Q4 CPI data and their implications for policymakers and financial markets at a Drop-In on 31st January. Register here for the 20-minute online briefing.