Reserve tipped to bump up rates

Homeowners face finding another $50 a month to pay the mortgage, with the Reserve Bank tipped to lift official interest rates again today as it battles to dampen house prices and keep inflation pressures at bay.

A quarter percentage point rise this afternoon would mean official rates would have climbed 1.25 percentage points since October, adding more than $240 to the monthly repayments on a $300,000 mortgage.

It would be the biggest run of increases in a 12-month period since the Reserve took the official cash rate from 5 per cent to 6.25 per cent between November 1999 and August 2000.

But the decision could be a close call, with signs of softness in the retail and building sectors lifting expectations the Reserve may wait at least another month before moving in the week before Treasurer Wayne Swan hands down the Federal Budget.

At least mortgage holders may be saved from a “super-sized” lift to their repayments, with the NAB yesterday saying it would not increase its rates more than any move in the official cash rate. Its recent policy of matching rate rises had led to more customers.

That prompted Mr Swan to challenge other major banks to follow NAB’s lead.

TD Securities senior strategist Annette Beacher expects the Reserve board to hold rates today.

But Macquarie Bank rate strategist Rory Robertson said the chance of a rate rise was about 80 per cent.

“Interest rates here remain unusually low, our jobs market is strengthening, China and bulk-commodity prices are booming, so, too, local home prices, and the world’s biggest economy increasingly is getting back on its feet,” he said.

A new survey from Dun and Bradstreet of business executives out today shows sales, growth, employment and capital investment expectations all rising. 

Source  :  www.thewest.com.au

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Stamp duty on home loans under review

STAMP duty on housing loans could be abolished after the Henry tax review, which is likely to recommend states be given a share of income tax to make up the difference.

The most likely path to do this would be for the Commonwealth to give the states the ability to impose their own surcharge on income tax, which would be collected for them by the Australian Tax Office.

 The Henry review has been inundated with submissions calling for the end of stamp duty.

Tax economists argue that the tax on moving house, although easy to collect, leads to poor use of the housing stock and poor labour mobility, The Australian reports.Having to pay stamp duty not only discourages elderly people from moving to more appropriate accommodation, it also deters people from moving house to a better jobs market. 

At a conference conducted by the Henry tax review at the Melbourne Institute last week, both international and Australian tax economists said stamp duty should go, with Melbourne University professor John Freebairn describing the tax as “a piece of garbage”.

The review panel is being influenced by state submissions arguing that replacing stamp duty by extending other state taxes, such as payroll tax or land tax, would be too difficult to implement nationally.

Tasmanian Treasury secretary Don Challen, who is close to the inquiry’s head, federal Treasury secretary Ken Henry, told last week’s conference that reform of state taxes would succeed only with leadership from the national government.                                                                                                                                                     

“If you want to achieve a difficult reform, you’ve got to make it a national one,” Mr Challen said.

He said it would be too hard to win political consensus to extend land or payroll taxes.

“It requires eight lots of political commitment and eight lots of legislation and that path is doomed to failure,” he said.

However, he said he believed states would be willing to act on stamp duty if the commonwealth provided an avenue for alternative revenue.

The idea of giving states a cut of income tax was pressed two years ago by the OECD, which suggested the states “piggy-back” on income tax. The OECD also urged states to drop stamp duty.

One of the world’s leading experts on federal taxes, Canada’s Richard Bird, said the states were heading for a financial crisis because they did not have a sufficient tax base to support their burgeoning health and education costs, which were all rising much faster than the consumer price index.

One of the problems with stamp duty for the states is that it is vulnerable to the state of property markets.

Stamp duty usually raises about $14 billion a year for the states, but the recent state budgets showed big falls of more than $1bn each in NSW and Queensland, in 2008-09, for example.

“In Australia, it should certainly be feasible to permit states to impose a surcharge on the federal personal income tax base,” Professor Bird said.

He said that, ideally, Australia would follow the Scandinavian practice of allowing states to have a flat tax surcharge on income, rather than mirroring the commonwealth’s progressive taxation.

The states would be allowed to set their own level, making states more responsible for their own finances.

Source  :  www.news.com.au

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