Australia’s housing market is at a crossroads and the key questions are how much are we talking about and how much is it worth?
What we know for sure is that investors have been spending a lot more money in recent months, and it has had a positive impact on the stock market.
It also suggests that investors are being forced to use more risk-free assets in their portfolios, a trend that is now being followed by investors in Australia’s financial services sector.
Key points:The Federal Government has announced an investment tax credit of up to $2,500 per personEvery time you make a small investment, you earn an extra $1In an interview on ABC Radio’s RN Breakfast, the Reserve Bank’s Paul Kelly described the move as “an extraordinary moment for Australia”.
“It’s a very significant shift in thinking for a lot of investors,” he said.
“I think the evidence is that this tax credit is going to help people get into their portfolios more, that the value of those portfolios will go up and that’s going to improve their overall financial health.”
The Federal Reserve announced a new tax credit worth up to AU$2,000 per person.
When you make small investments, you get an extra 1.2% return on your moneyThe Reserve Bank said the tax credit would be available for investors aged over 18, for whom the average income in Australia was $90,000.
“It will provide a much-needed tax break for small investors,” it said.
“It is also important to note that investors under 18 are unlikely to have any direct income from investments or have any financial support from their parents.”
It was announced in a letter to the Federal Parliament by Treasurer Scott Morrison, who has called the tax-credit a “first step” to boosting the economy.
“This tax credit will help to lift the standard of living of Australian households and will provide certainty for investors in a challenging economic environment,” he wrote.
Mr Kelly said that for the first time, the government had recognised the value that small investors add to the Australian economy.
We have always known that the best way to grow the economy is through small investment,” he told RN Breakfast.”
But we have been missing that mark for a long time.
“For too long, we’ve relied on the investment-to-income ratio of about 80 per cent.”
He said the current ratio was not sustainable.
“The government needs to look at a much different approach to how they look at the economy and invest in the future,” he added.
The Reserve Board said that as a result of the tax, it would “help to ensure a fair share of investment income from investment to income for the most financially secure Australians”.
The Australian Financial Services Union (AFSU) welcomed the move, saying the new tax cut “will help ensure that Australians are earning more in the market”.
“This is a significant step forward and we are very excited about the new measures introduced today,” the union’s secretary-general, Rob Stokes, said in a statement.
“We look forward to working with the government to see what other changes can be made to the system in order to ensure that it is fair for all Australians.”
What’s in a name?
The tax credit was introduced in October last year, after the Reserve Board raised concerns about the lack of a clear definition of investment.
Under the new definition, investors can earn the tax benefit if their income is $2 million or more.
What do you need to know about investment tax credits?
The Reserve has also announced an extra interest-free savings account to encourage people to take out a larger amount of money.
The Government has also promised a “substantial tax cut” for investors with income over $100,000 a year.
In recent months the Reserve has warned that the tax could be seen as a tax on investment.
The new tax break was announced by the Treasurer in an open letter to parliament.
Mr Kelly acknowledged the tax change was significant, saying it would provide certainty and “a significant tax cut for investors”.
“The Reserve also recognises the importance of investment for the Australian tax system, and the financial benefits that will accrue to all Australians, from lower tax bills to a greater degree of tax relief,” he noted.
“And we will work with the Treasurer to ensure this tax relief is as equitable and fair as possible, as we continue to drive investment growth.”
Topics:housing,economic-trends,investments,investor-finance,wealth-and-pensions,australiaFirst posted September 01, 2019 13:25:00More stories from New South Wales