Reinhart and Rogoff Continue To Cast A Shadow

Reinhart and Rogoff Continue To Cast A Shadow. Five years ago, Carmen Reinhart and Kenneth Rogoff wrote best seller, This Time Is Different: Eight Centuries of Financial Folly, which showed that highly indebted governments are associated with prolonged slow economic growth. Since then, governments have been reluctant to use fiscal policy to stimulate their economies which has put the onus on monetary policy to narrow still large output gaps. The Government's MYEFO is a timely reminder that Australia, like most other advanced economies, is suffering from deficient demand and remains stuck in a nominal recession. Looking through the prospect of any cyclical recovery in tax receipts, a lift in the corporate tax burden is probably inevitable to assist in the government's medium term strategy of fiscal consolidation, particularly at a time when the growing political influence of retirees will limit the ability to reform healthcare entitlement spending. Portfolio managers should therefore be cautious about stocks and sectors that are exposed to the prospect of growing tax regulatory risk. (VIEW LINK)