Australia's new sales tax aims at budget balance, lower income tax

The Australian government has introduced a wide range of new sales taxes in hopes of generating enough revenue to balance the federal budget, and, within a year or two, to lower income taxes.

It also plans to tighten government controls over the money supply, thus bringing deflationary forces to bear on the economy.

Nevertheless, Federal Treasurer John Howard is predicting an increase in inflatioin this year from the present rate of 8.8 percent to 10.8 percent.

The increase is thought to be largely short term, the result of the higher prices consumers must pay to cover both the price of an item and the new sales tax on it. In the long run moves towards balancing the budget are thought to be deflationary.

The government has extended sales taxes to a whole range of goods not previously covered by federal taxes, including newspapers, magazines, and books, along with furniture, clothes, and household appliances.

The new tax rate is only 2.5 percent. Existing sales taxes have been raised by a similar amount.

Increased taxes were generally expected in the budget but the government has come under more political fire than it might have expected.

Traditionally the first budget after a federal electioin in Australia is a tough one, the second is moderate, and the third immediately before the next election is generous.

The imposition of the new and increased sales taxes in this post-election budget fits in with the 'first budget' pattern.

The federal government has promised to reduce income taxes and this new tax will allow it to do that very generously, either next year or the year after, or both.