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Tax Cuts Vanish As Quick As You Can Say Gst And Timor
Sydney Morning Herald
Thursday February 3, 2000
Home loan borrowers will see their promised tax cut this July eroded and wiped out entirely in some cases by interest rate increases, the East Timor levy and the effect of the GST on prices.
Single people with no children earning less than $40,000 a year and with a $135,000 mortgage (the average, according to the Australian Bureau of Statistics) will be worse off, according to a Herald analysis based on University of Canberra modelling.
The standard variable mortgage rate will increase from 6.55 per cent to 7.3 per cent due to the two interest rate increases since November, pushing up repayments by just under $15 a week on a $135,000, 25-year standard variable mortgage.
While many low income earners don't have mortgages or can afford only small home loans, someone on $40,000 a year is on above-average earnings and will be worse off if they have an average mortgage, even though they won't pay the one-off East Timor levy.
Indeed, the increased payments of $11 a week on a more modest $100,000 mortgage would also leave singles earning under $40,000 in deficit once the cost of the GST and the interest rate increases totalling 0.75 percentage points is balanced against the tax cuts.
Other single income mortgagors will see their tax benefit at least halved, while single and dual income families with mortgages will also see their benefit substantially slashed. For those earning above $50,000, it's been a case of the gradually vanishing tax benefit.
Someone on an annual salary of $80,000 has seen their weekly gain fall from $55 in the original package to $33.65 after the Democrats deal, which stripped high income earners of much of their income tax reduction.
The East Timor levy slashed the gain to $26 for 2000-01, and the interest rate rises have trimmed it again to a little over $11 just 20 per cent of the original windfall.
Labor attacked the Government over the interest rate rise, blaming it on the GST, even though the Reserve Bank's statement outlining its reasons for the move made no mention of it.
``There are three reasons for today's interest rate rise: GST," said Labor's shadow treasurer, Mr Simon Crean, said yesterday. ``So much for John Howard's promise that no Australian would be worse off as a result of his GST."
Labor claims the stimulus to the economy from the $5 billion in tax cuts (after the cost of the GST is taken into account) will add pressure to inflation and had been factored in by the Reserve Bank.
To entice voters into accepting the GST, the Government made generous cuts to income tax and increases in social security payments. Under the new regime, anyone earning under $50,000 80 per cent of taxpayers will pay a top marginal tax rate of 30 per cent.
The Treasurer, Mr Costello, dismissed Labor's claims of a GST-generated rate rise as ``silly and desperate", noting that even after the recent rate increases, the average home mortgage interest rate was still lower than that averaged in the '70s, '80s and '90s.
``I fully expect if there's an earthquake next week Mr Beazley will probably claim that's a result of the GST," Mr Costello said.
HOW THE GST TAX CUTS WILL BE ERODED:
Single person
ESTIMATED IMPACT
Private Original With the After
After 0.75%
income GST Democrats the Timor
increase on standard
proposal deal
Levy $135,000 mortgage
$p/a $p/w $p/w $p/w
rate $p/w
30,000 2.28 3.17 3.17
-11.69
40,000 9.68 10.81 10.81
-4.05
50,000 31.31 32.56 32.66
17.80
60,000 41.67 39.38 33.63
18.77
70,000 52.04 36.52 29.80
14.94
80,000 55.69 33.65 25.98
11.12
90,000 52.62 30.79 22.16
7.30
100,000 49.56 27.92 18.33
3.47
110,000 46.50 25.06 3.95
-10.91
120,000 43.44 22.20 -0.82
-15.68
130,000 40.38 19.33 -5.60
-20.46
140,000 37.31 16.47 -10.38
-25.24
150,000 34.25 13.60 -15.17
-30.03
* Impact of GST takes into account the value of tax cuts and the estimated price
effect of the GST
for this type of family. Interest rate increase $14.86 per week.
DUAL INCOME COUPLE - TWO CHILDREN * *
ESTIMATED IMPACT*
Private Original With the After
After 0.75%
income GST Democrats the Timor
increase on standard
proposal deal
Levy $135,000 mortgage
$p/a $p/w $p/w $p/w
rate $p/w
30,000 41.71 44.52 44.52
29.66
40,000 16.06 19.47 19.47
4.61
50,000 4.26 8.27
8.27 -6.59
60,000 7.97 12.60 12.60
-2.26
70,000 11.68 16.93 16.93
2.07
80,000 32.44 38.11 38.11
23.25
90,000 39.74 45.95 45.95
31.09
100,000 61.27 68.01 68.01
53.15
110,000 71.53 74.93 64.38
49.52
120,000 81.80 81.85 70.35
55.49
130,000 92.06 79.19 66.72
51.86
140,000 103.33 76.52 63.10
48.24
150,000 112.59 73.85 59.47
44.61
* Impact of GST takes into account the value of tax cuts and the estimated price
effect of the GST
for this type of family. Interest rate increase $14.86 per week.
* * 50%:50% income split. Both children aged 5 to 12
SOURCE: UNIVERSITY OF CANBERRA/MARKET FAXTS
© 2000 Sydney Morning Herald
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