Tax cuts, first homebuyer loan scheme to be expanded in Federal Budget

First home buyers are set to win in this year’s budget with an expansion to a loan scheme and personal income tax cuts to be announced.

Personal income tax cuts for workers and an expansion of the first homebuyer loans scheme for new homes will be announced on Tuesday night in a budget focused on creating jobs.

News.com.au has confirmed the Morrison Government is extending the First Home Buyer Loan Scheme to support the residential construction industry and help first home buyers to enter the market sooner.

The extension of the scheme will help an estimated 10,000 first home buyers secure a loan for a home with a deposit of as little as 5 per cent but only for new builds.

The existing scheme reached capacity on May 27, after the 10,000 limit of borrower guarantees was reached. The majority of successful applicants were single and aged under 30.

The cap on the value of the new homes eligible for the scheme will also be increased to $950,000 in Sydney and $850,000 in Victoria. The cap will rise to $550,000 for new homes in WA, SA, the Northern Territory and Tasmania.

Lower price caps will apply in regional areas and an income threshold will also apply. All applicants must be first home buyers and have earned less than $125,000 for singles and $200,000 for couples.

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First home buyers are set to win under the budget next week.

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Treasurer Josh Frydenberg said the focus on new home builds was designed to support jobs in the construction industry.

“Helping another 10,000 first home buyers to buy a new home through our First Home Loan Deposit Scheme will help to support all our tradies right through the supply chain including painters, builders, plumbers and electricians,’’ Mr Frydenberg said.

“In addition to the Government’s HomeBuilder program, these measures will support residential construction activity and jobs across the industry at a time when the economy and the sector needs it most.”

Traditionally, first home buyers with a deposit of less than 20 per cent will need to pay lenders mortgage insurance.

But under the scheme eligible first home buyers can purchase a modest home with a deposit of as little as 5 per cent. The Federal Government then “guarantees” up to 15 per cent of the home loan.

“The First Home Loan Deposit Scheme has already helped almost 20,000 first home buyers purchase a home this year with a deposit as low as 5 per cent,’’ Assistant Treasurer Michael Sukkar said.

“Building on the success of the existing scheme, an additional 10,000 first home buyers will be able to obtain a loan to build a new home or purchase a newly built home with a deposit of as little as 5 per cent.

“Eligible first home buyers will also be able to take advantage of the Morrison Government’s First Home Super Saver Scheme and HomeBuilder, and first home buyers may also be eligible for state and territory grants and concessions.”

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Australian Prime Minister Scott Morrison during his 'Pre-Budget Address'. Picture: NCA NewsWire / Gary Ramage

Treasurer Josh Frydenberg is tipped to backdate personal income tax cuts in Tuesday night’s budget ensuring workers have more money in their pockets and don’t have to wait for tax relief.

The “instant” tax relief can be delivered swiftly despite the new financial year commencing on July 1, according to tax experts.

It would simply involve the Australian Taxation Office changing the weekly tax table that companies use to pay wages and salaries in this financial year, ensuring workers can keep more of what they earn.

The tax cuts, worth $20 billion, were scheduled to come into force in 2022. A third stage of the tax cuts, with a tax rate of 32.5 per cent to apply to the vast majority of workers, is currently scheduled from 2024.

The personal income tax cuts for middle income earners are worth up to $2565-a-year for workers earning more than $120,000 or $50 a week and $1080 a year or $20 a week for anyone earning more than $50,000.

In an interview with news.com.au, Treasurer Josh Frydenberg refused to be drawn on the method of bringing forward relief but confirmed the fast-tracking of the tax cuts will be revealed on Tuesday night.

“You will have to wait. I am not giving away the budget,” he said.

“But as you know, we took tax cuts to the last election. We successfully legislated them. The reality is they got passed. There are three stages and we’ve given active consideration to the timing of those stages and more will be known on budget night.”

But the tax cuts will require new legislation, setting the scene for a potential battle with the Labor Party in the Senate if the legislation includes bringing forward tax cuts for high income earners originally scheduled in 2024.

“To change the timing of the tax cuts will require legislation,” Mr Frydenberg confirmed.

Experts say there’s a couple of different ways those tax cuts could be delivered into workers’ pockets quickly.

Deloitte Access Economics’ Chris Richardson said bringing forward the tax cuts will also help tackle the “fiscal cliff” when the JobKeeper scheme is scrapped in March.

“The band-aids come off in March 2021. If the tax cuts don’t start until July 2021 that’s a long time to wait,’’ he said.

“My gut says something has got to help fill that gap. You want to get it into their hot little hands now so that they spend, spend, spend.”