Tax cuts, higher wages boost household finances

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Despite feeling the heat of higher interest rates and the rising cost of living, many Australians are in a strong financial position, according to a leading economist.

Craig James, chief equities economist, CommSec, said that while rate hikes and higher petrol prices have attracted much attention recently, wage increases and tax cuts have been quietly boosting purchasing power over the past six years.

"While some consumers are indeed struggling, that's by no means the rule. Living costs have certainly been rising, but so have wages. And in a few days' time, another round of tax cuts will be delivered - the sixth consecutive time that either tax thresholds have been lifted or rates have been cut."

James added that his analysis of wage, tax and cost of living data revealed that a person who took out an average housing loan six years ago and was earning the average wage, would today be ahead by more than $425 a month - even after allowing for rising living costs.

CommSec also found that borrowers who have taken out home loans in the past two years are likely to find it harder to cope with higher interest rates and living costs. Interestingly, James pointed out that those who took out mortgages more than three years ago are more likely to be in front, despite numerous rate hikes.

"Even newbie mortgagors would be back in front if they manage to secure wage increases in the early weeks of the new financial year. A 4% wage increase would boost monthly net pay for an average wage earner by around $138 - more than covering a couple of rate hikes as well as the higher petrol prices over 2008."

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