Tax Cuts and Interest Rates

So over the next few weeks when all banks have passed on their second rate cut and the Governments first tax cut has been finalized we will all have a nice little increase in after tax cash flow.

Based upon my situation I calculate this to be roughly an increase of $350 per month.

The idea is we take this money and spend it to stimulate the economy. The concern is a lot of people will simply use this money to save or reduce debt, both of which at this stage do nothing for the economy.

So I’m just generally interested what my fellow PC members plans are for their new found fortunes?

 

Will keep my mortgage repayments the same, and any extra cash from tax cuts will go towards buying ETFs.

Now you might say I'm not spending it, but:

a) as a result of me paying back more of my loan, the bank now has more capacity to lend to others
b) the federal budget deficit also goes down because my negative gear gets lower. If everyone does this then maybe taxes could be reduced even further after this round is passed.
b) whoever I buy the shares from now has cash to spend

So I disagree it does nothing for the economy. Look through the initial decisions and it does, and it will even make JoFry and ScoMo happy too.

 

4200/yr in 2019?

 

Debt recycling. At these rates returns from dividend stocks are looking great

 

We'll probably just dump it into the offset until we figure what we want to do with it, probably deposit on another place or maybe an EFT. It will be interesting to see if it does anything in term of confidence building, basically the RBA has called out the government and ask it to do it's job but government is too hell bent on ripping money out of the economy for a surplus that we don't need (it political capital for them).

 

But if they repay debt, there will be more available money in the financial system, which makes credit cheaper and more available, which will keep the Property Ponzi going.

 

"The first stage of the plan will deliver up to $1080 to low and middle-income earners when they lodge their tax returns in coming months.
The second stage tops up a low-income tax offset, meaning people earning up to $45,000 - instead of $41,000 - will have a 19 per cent tax rate.
The final stage flattens the tax rate from 32.5 per cent to 30 per cent for people earning between $45,000 and $200,000 from mid-2024."

What does it mean for people like me who have already lodged their tax return?

 

"the ATO has stated that it cannot process the higher amount until the law is passed but will be able to automatically amend a return if the law changes after a taxpayer receives their assessment".

 

Nothing the government does changes how much I spend. Extra money just means more debt being paid down.

 

OK but what happens when you pay down debt.
Eventually what they do will make a difference to the way you or your children spend.

It’s just a matter of when

 

With zero debt, low expenses and minimal material needs the effect will be I won't even notice.

Will continue look at the level of cash and decided, as is my normal practice, what I will or wont place in the share market.

Sadly for retailers the chances I will buy furniture, clothing, new TV, car or other unnecessary knickknacks are extremely slim. Sorry about that Mr/Mrs/Ms Economy.

 

Buy a bigger tv! I haven't upgraded mine since the good o'l days... the plasma bonus of '08 lol.

 

In spite of what RBA is pretending they are panicky to fire from all cylinders, what do they know?

The intention of tax/rate cuts is not its future impact,
Gov/Reg wants the spending now so the spending multipliers has its economic impact asap.

Tax-cuts to higher income earners mostly ends up in savings/investments (so not immediately helpful) whereas the same for lower income earners most likely ends up getting spend giving full economic bang for the buck.

 

Not at all! Already living on rents, and now some dividends with surplus going to pay down debt. We buy what we want, when we want it. Some years we spend little & others a lot, but Government decisions don't affect spending decisions. Last financial year bought two houses & a new (8month old) car for cash. That was before tax cuts or interest cuts. This year we will be selling one, maybe two houses, depending on the market conditions in the area. Hubby would like to upgrade the PPOR, but that won't happen until I see value. It might be this year, it might be next...or it might be in 5 years time. Again, nothing to do with interest rates or tax cuts....this is just what we do.

 

In general, given the strength of the employment markets, economists would likely believe there'd be a fairly large consumption impact from these changes and flow through to GDP. I.e. there's been a GFC type regulatory response ($1k to lots of households + rate cuts). But it doesn't feel like that for Aussies now. So more is likely to be spent, because people feel more certain about things now relative to then. I suspect retail to perform a fair bit better now given the supplement to the economy/consumption from these changes.

 

Haha I did this over the weekend - last one I got was when I was at uni 10 years ago. It did feel like retail was pretty dead shopping around.

Not sure if rate/tax cuts spurred it on...pretty sure it was because the Aussie's are playing a World Cup semi in a week (perhaps the RBA should factor this into their retail forecasts!)

 

Lower income owners are already primarily tax recipients.

So mid upper income earners is where tax breaks have to go to create spending and encourage entrepreneurial spirit.

 

Isn't the $1080 for the low/middle income earners only, not everyone?

 

depends on the purpose? if the intention is immediate sugar hit for economy with biggest bang for bucks give it to low income earners, No saving all spending.

 

Last year it was withdrawal of CCRebate, this year nothing out of upcoming tax cuts
its been a reliable disappointment.