Collect information and review material from the media about the details of the Budget. Also investigate the likely impact of this Budget on the Australian economy for the next financial year and beyond.
households move to consolidate their financial position," Treasury says.
"Dwelling investment could decline more sharply than expected if the economic climate deteriorates and investors adopt a more conservative position."
While worried about soaring house prices overseas, Treasury is banking on moderate rises to continue to encourage consumers to keep shopping. "If inflation and low interest rates are further capitalised into house prices, wealth accumulation could provide a further support for consumption."
But on investor-driven apartment buying, Treasury shares the alarm of the Reserve Bank at the rush into the market, and predicts a looming crisis, with the "possibility of substantial oversupply and a sharp correction in prices and building activity".
Fiscal outlook
¡P This Budget will continue a sound fiscal management, as the Government is committed to maintain its good record.
¡P The 2003-04 Budget provides a cash surplus of $2.2 billion while delivering personal income tax cuts.
Effect on economy
With a cash surplus of $2.2 billion, the government has enough money to operate efficiently and to achieve goals. This will help the economy in the short to medium term to perform as expected; provided that it is not affected by external factors such as interest rate cut in US.
Personal income tax reductions
¡P Australian taxpayers will share in personal income tax cuts worth $10.7 billion over the next four years.
¡P Personal income tax thresholds will be raised and additional assistance for low income earners will be provided through an increase in the low income tax offset from $150 to $235 per year and an increase in the income level from which the offset is reduced. For example, a taxpayer earning $35,000 per year will have a reduction in the tax they pay of $208 per year, a taxpayer earning $55,000 per year will save $448 per year; and a taxpayer earning $75,000 per year will save $573 per year.
Comments
With the cut in personal income tax, it is expected that Australians will have more money to be saved. However, some economists criticised that the small reduction in income tax is offset by the increase in bill payments.
Effect on economy
Peter Costello gave PAYE tax cuts of a mere $2.4 billion. But PAYE collections have been rising at an enormous rate as Australians move quickly into high-income territory. A lot of Australians are reluctant to pay 47 per cent tax (plus a Medicare levy) on incomes above $62,500. More than half the new home loans in Australia are now investor loans led by negative gearing exercises aimed at reducing personal income tax and achieving capital gains taxed at half income tax rates. Therefore dwelling construction for last year has skyrocketed by 18 per cent and was a key driver of the economy.
In 2000-01, PAYE collections were $75 billion. In 2006-07, they are forecast to be $109 million ¡V a rise of $34 million, or 45 per cent, in five years. The $2.4 billion cut represents only 7 per cent [next page]