Tax cuts a godsend for property investors

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The Howard government's proposed $34bn package of tax cuts is likely to benefit low income earners looking to get a head start entering the housing market, according to an industry body.

The Real Estate Institute of Australia (REIA says this extra cash in pocket can be contributed towards extra or higher mortgage repayments to reduce the principal, thus enabling buyers to pay off their mortgage sooner. Alternatively, the money can be funnelled into a high interest savings account for use towards a future investment deposit. A negatively-geared investment property will slice off even more taxable income, resulting in buyers being liable for less tax.

Whilst many experts believe the tax cuts may boost household spending that could result in higher inflation numbers, the REIA says the phased approach to tax cuts will save homebuyers and investors money by minimising the risk of interest rate pressure, thereby keeping mortgage repayments at bay.

However, while most Australians are expected to greet this new tax regime with open arms, political parties have been encouraged to also revise business taxes to cultivate stronger business confidence and productivity through industrial relations reform and retention of unfair dismissal exemptions for small businesses.

The REIA has welcomed the changes, but claims it as being a 'band aid effect' merely covering up the underlying issue. "The structural issues underpinning Australia's declining housing affordability are still to be addressed," says REIA president, Graham Joyce. "The cuts don't address the financial balancing act many aspiring young homebuyers face in paying off burgeoning HECS debts, while trying to start a family and raising money for the deposit and costs to purchase a home."

REIA is also picketing for the government to implement more structural strategies to the housing affordability crisis through an increase in the First Home Owner Grant, and easier access to voluntary contributions to superannuation to be used towards home deposits.

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