US tax cuts could cost Australian home buyers
CALL it the Trump butterfly effect — but US President’s radical new tax package could end up hitting Australian homebuyers painfully in the hip pocket.
NSW
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CALL it the Trump butterfly effect — but US President’s radical new tax package could end up hitting Australian homebuyers painfully in the hip pocket.
Economists say ripples from the Trump administration’s big company tax cuts could flow through to cause higher interest rates in the second half of 2018, forcing average NSW mortgages up by $66 a month for every 0.25 per cent increase.
The reasoning is that the tax cuts will stimulate the US economy, raise US inflation, cause the US Federal Reserve to continue to hike American interest rates, and boost the strength of the US dollar.
Independent economist Saul Eslake believes the impact of a rising US dollar will even-tually cause our dollar to dip.
“A weaker Aussie dollar is something the Reserve Bank will initially welcome, although it may also eventually mean that it’s more likely that the RBA puts interest rates up,” Mr Eslake said.
“Not because they have to follow the US, but because if the currency falls a lot, that will reduce the need for low interest rates to stimulate growth in Australia.”
TRUMP TAX CUTS: AUSTRALIA WARNED OF ECONOMIC HIT
Mr Eslake believes an interest rate hike is on the cards for Aussie mortgage holders as early as August if our dollar falls below US70c.
The Reserve Bank of Australia has kept interest rates at the record low of 1.5 per cent for 16 months in an attempt to stimulate the economy — but that stimulation may not be required if the Aussie dollar starts to fall and wage growth begins to pick up.
“You are going to see a stronger US economy and a higher US dollar,” Deloitte Access Economics partner Chris Richardson said.
“By pushing up the US dollar, that sends some of the strengths in the US economy out to the world and Australia will be a beneficiary of that.”
TREASURER LAUDS TRUMP’S RADICAL MOVE TO SLASH TAX
TREASURER Scott Morrison says Donald Trump’s massive tax cut are “excellent news” for the United States, using the almost $2 trillion corporate and income tax reduction to push for Parliament to pass the Coalition’s own company tax break.
Congress passed the biggest tax cut in US history — $1.96 trillion — early yesterday morning, with Australian Treasury advice warning lower international taxes would hit the domestic economy and lower GDP by 1 per cent over the next decade.
“Were Australia to implement the government’s Enterprise Tax Plan, this would in fact negate these impacts and at least ensure that Australia was left no worse off,” Mr Morrison said.
“If Australia implements policy changes to offset those of other countries, Australia can maintain investment and gross domestic product.”
The contentious US bill provides $1.95 billion in permanent corporate tax cuts and temporary income tax reductions, with the Trump administration claiming it will create economic growth of more than 4 per cent next year.
But Goldman Sachs estimates it will add just 0.3 per cent to the economy over two years before its impact disappears.
After months of wrangling, Congress passed legislation that cuts the top income tax bracket alongside others, and reduced company tax from as much as 35 per cent to a flat rate of 21 per cent for all businesses.
Mr Morrison said Treasury advice based on information from the International Monetary Fund showed Australia was “increasingly vulnerable to what are major step changes in the global tax environment, such as the US plan”.
“This could exacerbate existing concerns regarding the sustainability of the Australian tax base and they would need to consider medium term tax receipt projections once the full parameters of the US proposal were clearer,” he said.
The Turnbull government has planned to cut company taxes to 25 per cent across the board, but that move was stymied in the Senate after being opposed by Labor.
Companies with annual turnovers of $50 million or less will have their tax rate cut by 5 per cent by 2026-27 under the first tranche of changes which was successful, while larger corporations will have to wait as the Treasurer pushes for the remaining cuts to be passed.
But Labor is claiming Mr Morrison is “politicising” the Treasury by refusing to publicly release the brief, which was partially published in The Australian newspaper.
“It says a lot about the quality of Scott Morrison as Treasurer that he is incapable of making an argument without politicising the Treasury,” Labor treasury spokesman Chris Bowen said.
The brief shows Treasury noting Australia’s tax rate has historically kept at pace with the OECD average.