Australia's central bank has been pursuing a policy ofinterest rate rises in recent months, and increased baserates by a quarter of a percentage point to 6.25% in November in a bid to keep a lid on inflation.
Their plan would scrap most deductions or offer 12.5% non-refundable tax credits for big items like mortgage interest and charitable deductions while lowering rates, expanding brackets and expanding the baseof tax revenue.
After all, central banks can still raise interestrates, no matter how big the monetary base is, and they also have ways of withdrawing the exceptional liquidity measures put in place during the crisis.
In order to accommodate short-term interestratesof just 0.25% in steady-state, leaving the monetary base unchanged at present levels, a 40% increase in the CPI would be required.
The danger is to think that rapid increases in the monetary base will keep nominal interestrates permanently lower and that the excess reserves will not eventually be lent out in search of higher returns.