Tax cuts are NOT inflationary and super wins!

This is the idea that the tax cuts announced in the current Australian Federal government budget will somehow be inflationary.
This demonstrates a mis-understanding of what inflation is.

Inflation is a monetary thing NOT price thing.

Even the dictionary has it right.

Inflation: A persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money, caused by an increase in available currency and credit beyond the proportion of available goods and services.

The sooner more people in Australia (and elsewhere) realise what inflation is the sooner we realise what is happening and why prices seem to always increase.

How can a tax cut be inflationary if the amount of money doesn't change (increase). The government isn't creating new money to give back, it is just giving back a small portion of the total tax. The amount of money hasn't changed.

The only way the tax cut can be inflationary is if there is new credit (loans) involved.

For example:
Mr 1.2 times-average wage (considered rich by some people, including the leader of the opposition) takes is $100 per month and uses his credit card to buy that $7000 plasma TV. Eventually he will pay the full $7000 back, but at the purchase the amount of money in circulation has increased through his use of credit. As he pays back the $7000 and watches new TV with better features sell for less than half his purchase price, that money disappears from circulation.

Mrs 2.5 times-average wage (got to be a stinkin' rich capitalist sow) puts her extra money $86.58 per week into a high interest term deposit (starting with $1000) earning 6% for her child's future university fund.
In 15 years, junior has a little over $110,000.00.
If she invested that money in a share fund returning 12%, junior walks away with a shade under $195,000.00 in 15 years.

Now the real deal, super.
On $125,000.00 she is getting super payment of $384.62 per fortnight, 8% of the salary is paid as well as super. Normally this would mean she is on a $135,000.00 package.
If she puts the tax cut money into her super fund returning 12% (without the stupid surcharge) with pre-tax dollars ($100?) and works for another 30 years, she is way better off.
Starting with $10,000 in the fund, she walks away with a cool $4.8 million!!!

Does she need a pension when she is 60-65?? She could (will) live for another 30 years and have $161,000 per year to live, assuming she took the whole amount out and put it under the bed.

It gets better...

At 65, she takes out $1 million and buys the dream everything, then she rolls the amount over and continues to get 12%, 12% of $4.8 million is $580,000 per year. Even if she lives it up and spends $200,000 per year, the nest-egg continues to grow and grow (the power of compounding) at aged 95 (who knows how far medical tech will advance in 30 years)
She will have $66 million dollars!!!

I added in inflation, it makes little difference in real term over the longer term. The numbers are smaller but given that apart from capital city housing, everything material tends to get cheaper over time (even food) someone earning $200,000 in 30 years will be better off than someone earning $100,000 now.

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