Federal Budget’s tax cuts which come into effect on July 1 offer no real concession for mortgage holders coping with six official rate rises.
Borrowers feeling the pinch from rate rises this financial year will not be able to offset any real amount off their increased mortgage repayments with the tax cuts – and will still have to seek out additional ways to restructure their household budget.
To put this into context, a borrower on $80,000 a year will receive an extra $300 in the hand over the course of next year, so this is of little comfort when you consider that monthly mortgage repayments on an average $300,000 loan have increased by that same amount every month.
The only real reform announced for the mortgage sector was a change to the First Home Saver Account, which will now offer first home buyers more flexibility in the way they utilise the account if they decide to purchase a property before the four year period is up.
With every penny counting in the very competitive first home buyer market, any funds saved during the four year period will now eventually go into their mortgage, rather than their superannuation, if they purchase before that four year period is up – which may offer in the long term, more incentive for a greater number of people to use the accounts.
The tax cuts in the 2010 Federal Budget originate from the tax reform package which formed part of the 2007 Budget, where from July 1, 2010, the 30% tax threshold increases from $35,001 to $37,001; the low income tax offset increases from $1,350 to $1,500, meaning the effective tax free threshold for people earning $30,000 or less increases to $16,000; and the 38% tax rate is reduced to 37%.
As these tax cuts will only deliver a small incremental increase to household income, many current consumer spending patterns will have to undergo rigorous scrutiny, if mortgage holders are going to successfully balance any sized budget.
The reality is, borrowers are in the midst of a rising rate cycle – and there’s no white knight in sight to save the day. Borrowers therefore need to be clever and disciplined in the way they utilise any financial windfall that comes their way and decide how it can best boost their budget.
Here are five simple ways in which to boost a household budget:
- CUT CREDIT: Pay down or pay off any high interest debts such as credit cards
- REVISE PLANS: To renovate or upgrade your home
- LOAN AUDIT: investigate the merits of restructuring your existing mortgage to reduce fees or interest, or look at whether you would be financially better off refinancing instead.
- UTILITY SPENDING: Look at all your utility bills and investigate all options available to you, to potentially reduce them
- SECOND HAND ITEMS: Consider second hand and recycled items for discretionary purchases when appropriate and where it can make a significant difference to your hip pocket.
Tags: affordability, Budget, Federal budget, First Home Buyers, First Home Savers Account, tax cuts