It's a simple supply/demand equation. Inflation is caused by excess amount of money supply. This is why the Reserve Bank increases interest rates to reduce the money supply. If there is a sudden increase in money supply achieved through a huge reduction in income tax or 0% income tax, this will lead to an increase in demand but supply remains constant or stable and therefore leading to an increase in prices and therefore increase in inflation. There are economic equations which describes the same thing but I'm trying to simplify the action of money supply. So in essence and increase in demand --> shortage of supply and leading to inflationary increasing in prices.. A decrease in demand (caused through income rate increases. Tax increases also have the same effect) --> reduction in demand --> reduction in pricing to meet demand (deflationary pressure)