The federal government plans to give young workers the option to “salary sacrifice” into superannuation to save for housing deposits, but experts say the devil is still in the detail and the policy is unlikely to prompt small business owners to plan ahead for their own future.
After promising to address the national housing affordability crisis, the government came to the table in last night’s federal budget with measures designed to increase supply and allow first home buyers to build deposits.
The policies include funding for a national homeless scheme, concessions for home owners over 65 to divert funds from the sale of their homes into superannuation, and the First Home Super Scheme.
According to policy details released in Tuesday’s budget papers, the scheme would allow individuals to contribute up to $15,000 each year, capped at $30,000 in total, as voluntary contributions to their superannuation to save for their first property from July 1, 2017.
These contributions would be taxed at 15% on the way in, and there would be a 30% offset to the marginal tax rate when an individual was ready to withdraw the funds to buy a property.
The government says employers will set this up via salary sacrifice, while self-employed people and business owners who pay their own wages will have to make a voluntary contribution to their super and then claim a tax deduction on their personal income tax returns.
The policy measures are estimated to cost $260 million over the forward estimates.
While the idea of allowing Australians to draw on their super to buy a house was reportedly fiercely debated in Cabinet, this policy creates a separate set of funds within the super architecture exclusively for the use of buying property.
However, not all parties are convinced this will address the long-term problem of rocketing property prices across the nation.
For example, in the NAB’s 2017 budget response, the bank’s chief economist Alan Oster said while some of the government’s housing supply measures included in the budget will “clearly help” boost supply in the market, “it is less obvious that boosting first home buyers’ ability to build a deposit will do anything other than add to house price pressures”.
Meanwhile, some in the real estate sector also raised the possibility in the lead-up to the budget that putting more funds into the hands of buyers could push prices higher.
“Any initiative that puts more money into the hands of potential buyers just fuels the fire and pushes prices further up. Research shows that more than half of Australians believe affordability will get worse over the next 12 months and our Consumer Sentiment Index shows people firmly believe prices will continue to go up,” co-founder of real estate agent comparison platform OpenAgent, Zoe Pointon, said in a statement to SmartCompany on Monday.
Jonathan Philpot, wealth management partner at HLB Mann Judd Sydney, told SmartCompany this morning that while the policy will allow first home buyers to save a significant chunk over a short time, there are still plenty of details to be ironed out.
“I haven’t seen any detail yet on the whole complexities of, just say you’re a couple, and one person has owned a property before — I haven’t seen any detail on that [if you can use the scheme],” he says.
Philpot says the policy will be a good incentive for many young business owners to save for property, and while some will have to claim back the tax concessions on personal tax returns, they will still receive the advantages.
However, he says anyone thinking about jumping in once the scheme goes live should read the fine print because it’s unclear how the funds will get released.
The government has said the Australian Taxation Office is responsible for administering the scheme, including “ensur[ing] that people purchase their first home after they withdraw from superannuation for their deposit”.
Philpot says it is unclear how that will actually be tracked and we’ll have to wait for details of the policy.
“You would really have to be aware of all the rules — like how do you get the money out? You’re not able to withdraw it if it’s not used for buying a house.”
Meanwhile, even though superannuation is being used as a vehicle for savings, Philpot says it’s unlikely to encourage small business owners to start thinking about super for retirement purposes, observing a failure to save for retirement still plagues many SME owners.
“Would someone who’s 25, who is not looking for a first home, be more engaged to invest in super because of this [policy]? No,” he says.
“One of the big things for small business owners is the risk they’ve tied up everything in their business. If things go sour, there’s no safety there,” he says.
“I don’t really see the whole change towards, ‘yes, I should be increasing my super contributions’. Generally it’s too far down the list to worry about.”