Is new tax cut the best move?

IF YOU’VE already heard about Malcolm Turnbull’s recent proposal for an income tax cut, you may already be thinking about how you might spend it.

The proposed income tax cut for the next budget to apply to middle-income earners is reportedly going to save those earning around $50,000 to $90,000, between $325 and $1250 respectively.

Interested to know what others think of the idea, I asked my staff, friends, investors and those new to investing whether they would vote for a government that promised to cut their income tax rate by a few hundred dollars a year

.Many said they’d vote for a government that gave them the tax cut, while others doubted whether the government would actually keep this promise. The third group said their decision depended on other policies.

The proposed tax cut is reportedly going to drain around $7.2 billion from the federal Budget. An alternative proposal would cost $4.2 billion.

To put this into perspective, the government deficit is around $474 billion and we’ve been told by the World Bank we must come back to surplus in 2020-21.

While I believe income tax in Australia is too high, lowering the tax rate for middle-income earners may be more of a political strategy than good sense at this time.

So is this sending a confusing message? On one hand, we have a national debt that must be paid down, on the other here is a tax cut that will increase that debt.

Following a solid rise on the market to a high at 6124 points on November 9, the All Ordinaries Index closed at 6038.3 points last week, still above the all-important 6000-point level.

The positive news is that, to date, the market has continued to trade above this level. However, a further rise may be short-lived as the market needs to trade strongly back above the previously mentioned level of resistance at around 6070 points to continue higher at this time.

When this level is again broken, the market will have the required momentum to continue the rise into the target I’ve set for 2017, between 6200 and 6400 points.

I would prefer to see the market take a breather for two or three weeks, prior to a rise.