PRPM NUNISTER May 1974
REDUCTION OF HOME-INTEREST RATES
The Prime Minister, Mr Whitlam, today said that the Labor
scheme for income tax deductibility on home interest paymenLs would
effectively-cut interest rates for home buyers by 3 percent.
It would bring home-interest rates for an average wage earner
wn to their lowest level in ten years.
The Prime Minister announced details of the scheme at a meeting
in Adaminaby in support of the Labor M. P. for Eden-Monaro, Mr Bob Whan.
* r One of the few positive undertakings Mr Snedden had given
waring this campaign was to scrap this scheme, and let interest rates for
home buyers take their course.
Every home owner whether buying a new house, or paying off
an existing dwelling would benefit from Labor's plan.
" Unlike the hasty and unclear election policies of the
Liberal/ Country Party, the Government's scheme has been carefully
costed and prepared over the past year," Mr Whitlam said.
" The legislation has been drafted and the scheme will take
effect from 1 July 1974."
" For an average wage earner with a $ 15,000 loan, it will
effectively reduce a savings bank loan with an interest rate
of 8.5 per cent down to 5.5 per cent, or a building society
interest rate of 9.5 per cent down to 6.2 percent," Mr Whitlam said.
" Mr Snedden has something different to say on interest
rates every day.
" One day he says they would go down, the next day he says they
would not go down, and then again he says they would go up before
they went down.
" On one thing, however, he is quite clear. He has promised that
he would abandon this scheme of tax deductibility for home buyers.
He is apparently more interested in what rate of interest big
business will pay than in the burden of interest rates on home
repayments for the average man.
" It is essential that the home buyer be relieved of the interest
rate burden. I said in my election speech in November 1972 that I
would bring in this scheme for home buyers. I announced in February
that it would begin from the 1st July. It is now ready."
-2-
intee the scheme, all tax-payers whose actual income is
$ 4,000 or below will be entitled to deduct 100 per cent of their
inteestrate payments. The percentage of total interest payments
which is deductIble will be reduced by one per cent for every
$ 100 of income in excess of $ 4,000.
In addition, for new home buyers, the Labor Government would
enter into discussions with lending institutions so as to bring
about a re-arrangement of mortgage payments so that younger home
owners will pay less at a time when the demands on their income
are highest and begin to pay more later in life when they are better
able to provide higher repayments, Mr Whitlam. said.
Tables released by Mr Whitlam providing examples of the effects
of the scheme at different interest rates, different income levels
and for various society loans are attached to this statement.
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THE EFFECTS OF THE SCHEME TO ALLOW INCOME TAX DEDUCTIONS ON HOUSING
LOAN INTEREST AT DIFFERENT LEVELS OF INCOME FOR A S15,000 LOAN a/
Annual Income $ 4,000 $ 6,000 $ 8,000 $ 10,000 $ 12,000
Monthly Income 333.33 500.00 666.67 833.33 1,000.00
Monthly Repayments b/ 132.45 132.45 132.45 132.45 132.45
b/ c/
Monthly Interest Repayments 118.75 118.75 118.75 118.75 118.75
Tax Rebate/ Month 28.08 32.43 28.3 20.95 11.45
New Monthly Repayments 104.37 100.02 104.15 111.50 121.00
Effective Interest Rate -6.7 6.2 6.7 7.4 8.4
Percentage of Monthly Income
Allocated to Repayments
No tax deduction 39.7 26.5 19.7 15.9 13.2
With tax deduction 31.3 20.1 15.6 13.4 12.1
a/ The $ 15,000 loan is to be repaid over a period of 25 years
b/ Based on a current rate of interest of 9 2%
c/ Refers to first year of repayment
d/ If all the tax savings were used to reduce total repayments, the reduced level of repayments
can be associated with a lower " effective" interest rate for the same $ 15,000 loan.
THE EFFECTS OF THE SCHEME TO ALLOW FOR INCOME TAX DEDUCTIONS
ON HOUSING LOAN INTEREST
Annual Income
Mortgage Monthly Income a/
Monthly Repayments a/ b/
Monthly Interest RepaNYments
Tax Rebate per Mornth
New Monthly Repayments C/
Effective Interest Rate M% $ 4,1000
15,000 333.33 132.45 118.75 28.08
104 .37
6.7 $ 6 ,000
17,500 500.00 154.52 138.54 37.38
117. 14
6.3 $ 8,000
20,000 666.67 176.60 158.33 37.34
139.26 6.7 $ 10 ,000
22,500 833.33 198.68 178.13 31.42
167.44 7.4 $ 12 ,000
25,000 -1,000
220.75 197.90 19.08
201.67 8.4
Percentage of Income Allocated
to Repayments
No tax deduction 39.7 30.9 26.5 23.8 22.1
With tax deduction 31.3 23.4 20.9 20.1 20.1
a/ All loans are to be repaid over a period of 25 years at a current interest of 9 12%
b/ Refers to the first year of mortgage repayments.
-W c/ if all of the tax savings were used to reduce total repayments, the reduced level of
repayments can be associated with a lower " effective" interest rate for the same mortgage.