IT SEEMS we are still spending too much. So the Reserve Bank has had to increase interest rates to curb our rampant consumerist habits. These interest rates will make a difference. We will tighten our belts and reduce our spending even further. The problem is that many of the people who are spending too much are probably not too worried about the recent rate rise.

In fact, many of them have no mortgage and therefore are not concerned at all. Some of them have savings and are encouraged by the recent interest rate rises to spend more. This may be a contributing factor to our next rate rise, which will pinch the lower and middle-income earners even more, giving even more bounty to those who don't need it.

The interest rate rises do their job of keeping inflation down but they do it at the expense of those who can least afford it. If we set aside the impact on interest rates on business and look at it from a purely personal perspective, we see the critical problem with interest rates as an inflationary-controlling measure: they are specifically targeted at the poorer people in our society. Furthermore, the instrument is weakened by the fact it is now having the most impact on those who have little discretionary spending to cut and can therefore do little to help the problem.

Any of the actions that our new government is planning to take to control inflation will have little impact during this interest rate rise cycle. But there is one thing that they can do that may make a difference very soon. They can give the Reserve Bank another instrument to control consumer spending _ the GST.

I propose the government floats the GST and hands control of the GST value to the Reserve Bank. Of course, the GST rate would have to have limits imposed by legislation, such as 8 to 12 per cent. This may cause howls of protest from fundamentalists opposed to the GST for the sake of opposition, however, the fact is that it is a much better inflationary control tool than interest rates for a number of reasons.

It is directly related to our spending and will have more impact on our spending as consumers will be conscious of it at the register. It should not force up rent, as interest rate rises tend to do. It is already targeted towards non-essential items. Fresh food, education and other essentials are not included in the GST. So increases in the GST would affect luxury spending more than essentials.

Those who are struggling to pay their mortgage _ and who can do little about inflation, anyway _ would not be less affected by this than those who can afford to pay the mortgage. It may lead to more stability in house prices. Low-interest rate periods lead to higher house prices and larger mortgages. This leads to a situation when interest rates rise where some people cannot afford to buy homes and others lose theirs. If interest rates did not vary as much, variations in the economic cycle would not cause such distress.

Increases in GST may even have the effect of discouraging retailers from increasing prices or absorbing rises in GST _ which will be minor compared to the overall price of items _ in order to maintain sales. This could effectively reduce ex-GST prices in some cases. I am no economist and I don't know the mechanisms of the impact of the GST on inflation. However, I know recent history. When GST was introduced, it did not have an enormous affect on inflation and changes of 0.5 per cent now and again should not have a great impact. CPI figures would have to be based on ex-GST prices (currently it doesn't matter as GST is fixed). So from a simplistic point of view, changes in GST shouldn't affect inflation.

It is a radical change but it provides a more equitable way to control consumer spending and this is what we all want. The time to do it is now, when the Federal Government has the support of every state and territory government. I'm sure the mortgage-stressed home-owners of this land would agree this should at least be on the table in the prime minister's forum in March.