Financial markets have been anticipating a 50% chance of the Reserve Bank of Australia cutting the official interest rates even further this year. It didn’t happen today, as the Reserve Bank of Australia has decided to keep interest rates on hold. It remains at the record low of 0.25%.
What economic measures will be taken to deal with the downturn caused by COVID-19 will be known after tonight’s Budget announcement. It is expected to include a number of measures aimed at both households and businesses in order to encourage them to spend and invest.
Income tax cuts are expected to be front and centre. The government will bring forward tax cuts that were to start in mid-2022 – they will now start in July this year. Under the proposal, the top threshold of the 19% tax bracket will rise to $45,000 and the top threshold of the 32.5% bracket will rise from $90,000 to $120,000.
What does this mean for the average Australian? For workers earning around $50,000 a year, the $1080 per annum tax cut that was scheduled for 2022 will be brought forward. Furthermore, this cut will be backdated to this financial year, beginning from July. They should see around an extra $30 in their pockets by December.
For those earning $120,000 or more, the tax cut will be worth up to $70 a week until July 1, 2021. The maximum tax cut of $2500 in 2022 will provide around $50 a week but will be increased for the remaining weeks of the financial year.
The government hopes this will encourage spending in the lead-up to Christmas, and therefore turbocharge the Australia economy.
The government is also expected to offer businesses some relief. It’s not clear exactly what will be announced this evening, but is predicted to include asset write-offs and a cut to the corporate tax rate.
These and other announcements, combined with the record low interest rate, should be good news for mortgage holders. If you have any questions, please don’t hesitate to contact us.