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Stage 3 tax cuts to potentially enhance property market access, says PRD Corporate


As the Financial Year 2023-2024 comes to a close, the anticipated Stage 3 tax cuts are set to take effect, promising to assist Australians with the cost of living and potentially improving access to the property market. Dr. Diaswati Mardiasmo, Chief Economist at PRD Corporate, explores the extent to which these tax cuts could facilitate easier entry into the property market amid rising mortgage repayments and climbing property prices.

Home loan affordability has seen a slight improvement for the first time since 2021, with the proportion of family income needed to meet loan repayments dropping from 47.7% to 46.7% between the December 2023 and March 2024 quarters. This change is especially noted in New South Wales, which still ranks as the most expensive state in terms of living costs.

The Stage 3 tax cuts, effective from 1st July 2024, are structured to increase disposable income across various income brackets. For instance, a person earning $70,000 will see their disposable income increase to $37,128.85 in FY2024-2025 from $35,699.88 in FY2023-2024, reflecting a saving of $1,429. This increase in disposable income could enhance mortgage repayment capabilities or improve borrowing capacity for prospective homeowners.

PRD research highlights the impact of these tax cuts on purchasing power. For example, a person with a taxable income of $120,000 will see their borrowing power increase from $615,135.51 to $642,197.44, an uplift of 4.4%. This increased borrowing power allows potential buyers to consider properties in higher price ranges, albeit the actual improvement in market access is somewhat modest and more significant for higher income earners.

Dr. Mardiasmo notes that while the tax cuts will increase the percentage of accessible market properties, the benefits are disproportionately higher for those in higher income brackets. “While the Stage 3 tax cuts improve purchasing power, they will not drastically change the landscape but could instill hope and positivity among prospective buyers, especially when combined with current stable interest rates and optimistic employment and wage growth projections,” stated Dr. Mardiasmo.

This analysis suggests that while the Stage 3 tax cuts offer some advantages, particularly in terms of borrowing capacity and potentially more favorable loan conditions, their impact on broadening access to the property market will be limited, with significant benefits accruing mainly to higher-income individuals. For further details, the full analysis can be accessed through PRD’s research portal.

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