You can remind yourself of some of the details of Labor’s first home saver account policy announced during last year’s election campaign here. They have certainly done a mighty fine job of making a simple sounding idea complicated. Summarised below are the key high-level facts you need to know:
- The new first home saver accounts will be modeled on superannuation.
- The first $5000 per annum deposited into a first home saver account will be taxed at only 15%.
- Any interest earned on funds in the first home saver account will be taxed at 15% or less.
- An additional $5000 per annum can be deposited into a first home saver account from after tax income without any further taxation being applied.
- Withdrawals from the first home saver accounts can only be for a first home purchase and will be tax free.
- The government will contribute an additional 15-30% per annum to contributions made into a first home saver account depending on the account owner’s marginal tax rate.
The Treasury Department earlier this year conducted a public consultation on the accounts, with submissions from the consultation period not yet having been released into the public domain. The consultation paper that outlines the proposed policy in somewhat more rigorous detail is here, and has certainly drawn a few fair worthy criticisms, as Jessica Irvine has observed in today’s SMH.
Probably the most damning criticism of the present incarnation of the policy is that it is regressive; first home buyers on higher incomes will have considerably more to gain from the accounts than the people who, let’s face it, need affordable housing most:
Under the current plan, people earning less than $80,000 get a government contribution of 15 cents for every dollar saved, those earning more than $80,000 get 25 cents and those on more than $180,000 get 30 cents.
I am not sure quite how that makes any sense. Are we trying to get people on lower incomes into housing, or are we trying to create a tax loophole to be exploited by rich families intent on buying first nests for all their kids?
There are also some practical shortcomings of the current policy parameters that seem to need some reconsideration. The first home saver accounts are currently intended to be available to people aged 18 and older; seemingly discouraging those nearing adulthood and earning money from saving towards their first home. There is currently no provision for the emergency withdrawal of funds, which is one of the major practical drawbacks of the current superannuation scheme, and presents particular problems once again for people on lower incomes. Sometimes unexpected expenses come up. Accidents happen, and people, sadly, can get sick. In today’s modern and increasingly “user-pays” world, people really do need their government to have a bit of faith in them and be provided with some degree of flexibility.
I think this policy idea still has great potential, but it seems clear that a few of its rough edges need to be smoothed out. More importantly, this policy needs to be tailored to the people who need government assistance most, not those who need it least.
I eagerly await the government’s response to the Treasury inquiry. I expect we shall see it emerge as part of the Budget, if not before.
Tags: Affordable Housing, First Home Saver Accounts, Superannuation