Borrowers can gain most from tax cuts
Among the Federal Budget measures for 2004-05 and beyond, it is the tax cuts that could deliver the most far-reaching, positive impact across Australian households – if used sensibly. For the many property-investing Australians of recent years, the tax cuts create big potential for the quicker repayment of debt that will ultimately produce the equivalent of a whole year's worth of extra income in retirement.
Among those who have received a tax cut – generally higher earning, middle aged Australians – will be the many who have invested in property in recent years. Most have borrowed heavily, either against the equity in their own home or with an investment loan, and face the prospect of reaching retirement with significant debts still hanging over their heads.
The income tax cuts, which by 2005 will put an extra $1000 to $2200 a year in the pockets of those earning over $60,000, provide the opportunity to make significant inroads into this debt with extra repayments. Devoting an extra $1000 a year to a 25-year $250,000 mortgage from the second year onwards will save almost $30,000 in interest payments and help rebuild valuable equity in their most biggest asset.
Higher income earners devoting their $2200 in annual tax savings to home-equity or investment loan repayments will save almost $56,000 in interest over the life of the loan. These savings are roughly equivalent to a whole year's income needs for many retirees.
Work out the potential savings on your home or investment loan with our extra repayments calculator
Other Budget beneficiaries
The Budget has also delivered superannuation tax relief for higher income earners, help for lower income earners saving for retirement and a large payments package for young families. Given the raft of expenses young parents face, they will need little help deciding what to do with their baby payments or the further family assistance measures coming their way.
The increase in the superannuation co-contribution for lower income earners is an offer that should be accepted by those who can afford it. The Government will match every $1 in super contributions with another $1.50 up to a limit of $1500. For those on lower incomes who can find the money to contribute, do so, for an instant 150 per cent return on your money and a kick-start on the difficult task of building a nest egg for retirement.