Tuesday, March 17, 2015

Hockey is right. Eating into super would get home ownership back on track

Can we give Joe Hockey a break?

He says he is prepared to consider allowing us to dip into our super to buy houses. What on earth could be wrong with that? A house is far more useful in retirement than superannuation. Just ask anyone who has tried to survive without one.

When the Harmer pension review examined the question some years ago it found only 3 per cent of home-owning single pensioners were in severe poverty compared up to one quarter of those who rented.

Rent eats income. It's why houses are important in retirement. They relieve us of the need to pay rent.

When renters attempt to earn that income they lose half of it in cuts to whatever pension they are on. Homeowners don't need to earn that income.

Labor is saying silly things about home ownership right now. Its deputy Tanya Plibersek says "you can't eat your family home, you can't pay your electricity bill with it". But you can do those things by saving on rent and you can do them by taking advantage of services that allow you to borrow against your home. Centrelink offers one. You can get up to the full pension fortnightly right up until the day you die taken out of the value of your home, and you'll never be kicked out. Private operators offer similar deals. The Financial Review had a feature on them on Saturday.

Australians are right to want to dip into their super to buy houses. Many do it the minute they can, telling their super fund trustee they've "retired" at the age of 55. They use the payout to pay down their mortgage and get back to work. You can't blame them. It sets them up for retirement better than would super...

It would set them up even better if they were able to use their super to pay down their mortgages earlier, before they grow.

They can't because the present system forces them to save year in, year out at 9.5 per cent even when they should be paying down debt. Like attempting to drive a car by pressing on both the brake and accelerator pedals at the same time, it is possible to save and be in debt simultaneously but wasteful.

That's how Young Labor saw it on the eve of Kevin Rudd's election in 2007. Yes, Young Labor. It proposed what Hockey is now proposing. Australians up to the age of 30 would be able to dip into their super for the deposit on a home.

"What good is having an extra $15,000 in super when you're 65 if you're still renting when you are 85?" asked its then national president Sam Crosby.

Labor's Wayne Swan responded. He came up with a plan for super-like savings accounts, especially to save for deposits.

The contributions and earnings would be taxed like super - at a flat rate of 15 per cent - up to a generous limit. After four or more years they could be withdrawn but only for the purpose of buying a first home.

The plan bombed partly because Swan made the mistake of making explicit the unfairness of the super tax concessions. Treasury told him to tax the accounts normally and achieve an effective tax rate of 15 per cent by making direct contributions, more for high earners, less for low earners.

Invited to submit comments on the treasury website, Australians were appalled.

"I am shocked and utterly disillusioned to find that under the current proposal, the government contribution is twice as much for those paying the highest rate of income tax," wrote one.

Swan modified the scheme somewhat and it died of lack of use.  

The main reason it bombed was that Australians didn't have the spare cash to put the accounts. Nine per cent of their income was going into super whether it was wise or not.

Compulsory super is a one-size-fits-all solution to a problem that hasn't been clearly defined.

It takes the same proportion of wages each year regardless of the calls on income that year and the size of the debt that would otherwise be paid down.

Canadians are able to withdraw up to $25,000 from their super funds to buy first homes on the proviso that after a year than begin paying it back in equal installments over 15 years. New Zealand and Singapore offer similar deals.

It's said that if it happened here it would push up the price of houses, but that's true of any measure that makes houses easier to buy. Denying someone access to their own money in order to deny them access to the housing market is a particularly cruel way to restrain prices.

The best way to hold down prices for first home buyers is to take out the competition. Second and third homebuyers (so called "investors") now almost outnumber owner occupiers at auctions. One out of every seven Australian taxpayers is a landlord.

It can be said in their defence that they provide rental accommodation, just as that used to be said for the far smaller number of foreign investors in real estate against whom the government has taken action. But by elbowing out of the way would-be owner occupiers those landlords are also creating a class of people to rent to, a class of Australians who may never be able to afford their own homes.

Eliminating negative gearing (while allowing it to stay for existing landlords) would remove the competition. Along with allowing Australians access to their own money to buy their own houses it would ensure that more of us had the kind of genuine security in retirement that only a home can give.

Home ownership was once a article of faith of the Coalition. Hockey has at least shown an interest in getting it back on track.

In The Age and Sydney Morning Herald

Related Posts

. Why Abbott will have to clean up Labor's super tax mess

. Advice for Hockey: Slug super and fix the budget in one hit

. Budget 2015. Will Hockey ramp up tax on super contributions?