When Sky News asked Australian Labor MP Anne Aly why she opposed the Coalition’s tax cut plan, she cited ‘the fact that our economy is now in a recession, or it looks like it is going into a recession’. She didn’t seem to realise that a recession is exactly the time to cut taxes, because tax cuts stimulate demand. Aly’s call to hoard resources during a recession is the kind of nineteenth century reasoning that ultimately led to the Great Depression.
But how could she even think that Australia was in recession, when the Reserve Bank says that the economy is growing at 1.7 per cent? That’s easy. The economy may be growing at 1.7 per cent, but Australia’s population is growing at 1.6 per cent, leaving only a 0.1 per cent margin of safety between economic growth and population growth. Any lower, and the country could fall into a ‘per capita recession’, during which the economy fails to keep up with a growing population.
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