Swan – Cash must be slow but taxes will still grow (for the record)

Swan – Cash must be slow but taxes will still grow (for the record)

Testing times ahead where the Federal government has great light to shed when the “new kids on the (Canberra) block” deliver their forthcoming budget and our esteemed Treasurer Wayne Swan declaring that the most important measure was to put downward pressure on inflation. Inflation is surging to a 17-year high and we remember 1991, when the then Prime Minister Paul Keating told Australia that we had the “recession we had to have”.

The headline Consumer Price Index (CPI) rose 1.3 per cent in the March quarter, for an annual rate of 4.2 per cent. Remember where you read it first as I still maintain that the CPI annual rate will hit 5.00 per cent sometime in 2008. Following the release of the CPI figures (as quick as a flash) Wayne Swan declared “spending has simply been far too high, in some cases reckless, under the previous government. It hit new highs over a four-year period, the highest also in 16 years.” That would actually be 17 years Swanny – but who is counting. Again, the major inflation accelerants were the rising costs of fuel, housing (rent) and of course food. So how do we use less fuel, reduce rents and eat less food?

Very simple – actually. So let’s take a peek at our very own “Wayne’s World”.

This week world oil prices hit record levels climbing above $US119 so we can’t change that with petrol prices in Australia hitting new highs this week. Every time you fill your car with petrol/diesel you pay Swanny – 38.143 cents per litre in Excise Tax. You also get hit with another 10 per cent in GST. What a double whammy this is. Consumers pay a staggering (combined) 47 per cent per litre in tax to the Federal government where government taxes continue to “drive your dollar further”. Don’t sell your car thinking that you will catch a taxi as the Independent Pricing and Regulatory Tribunal has this week recommended that fares be increased by 3.8 per cent.

Clue – reduce (even better abolish) Excise Tax. Who knows it may even reduce inflation.

Not sure which world Wayne was in last week when it was revealed that Sydney vacancy rates fell to the lowest recorded level last week at 0.90 per cent. The Bureau of Statistics has revealed that in 2007, fewer homes were built in NSW than in any year since it started recording statistics in the mid 1980(s). NSW remains the worst for rental properties and this situation will only get worse given that just 28,799 homes were built (this surpasses the previous record low set in 1987 (that’s 21 years Wayne) when 28,829 homes were constructed. Again, just the one word has led to this rental dilemma – “taxes”. Collectively both State and Federal governments have taxed investors out of these markets where even record rental returns are still not enough to entice investors back. Hence record low vacancies and not a simple explanation from “Wayne’s World”. Obviously, without sounding cynical, this too will be addressed in next month’s Federal budget.

Clue – entice investors back to property which then reduces rents which in turn lower property prices given that attractive rental properties then become a viable alternative (not the case today). This too could reduce inflation in “Wayne’s World”.

Food for thought which for many today, is all it is. Forget the drought when you have two supermarkets controlling eighty per cent of sales – Canberra we have a problem. Shock horror they also own petrol stations too! Two out of three inflation accelerants is a scary scenario. When Woolworths announced earlier this month that it recorded $11.639 billion in sales for the March quarter as compared to $10.599 billion in the corresponding March 2007 quarter – how could inflation not increase?

Clue – entice competition as the current scenario does not equate to “lower costs and lower prices”.

The Reserve Bank of Australia (RBA) broke tradition this week, when it purchased $1.1 billion in mortgage backed securities in an attempt to ignite the home loan market. Quite ironic given that the RBA has issued 12 interest rate increases since 2002. Whilst agreed we have a global credit crisis, one simply can’t ignore the facts – Australians drive cars, eat and live somewhere, whether owned or leased.

These are otherwise known as the three inflation accelerants. When “Wayne’s World” delivers the Federal budget next month he will have to be in sync, not only “talking the talk” but walking it also. He won’t have the “me too” to rely on also.

He asked for it and we now have it – welcome to “Wayne’s World.” Whilst taxing on the mind one can only remain sceptical that his budget is a clear alternative. We await with baited breath, his corrective formula whilst addressing “three of a kind.”

Let’s hope that with plenty of gas in his tank and food for thought, he lowers the roof on inflation. Cheers ^__^

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