ANY first home buyer will tell you that saving for a home deposit is the single biggest barrier to getting on the property ladder.
On top of that, there’s stamp duty, lenders mortgage insurance, building inspections, pest inspections; the list goes on. It’s expensive to save for your first home. Prohibitively expensive.
Home ownership is important because it provides emotional and financial stability. But it also provides security in retirement — and this is important for both the retiree and the government.
Association of Superannuation Funds of Australia figures show a Sydney homeowning couple needs to have saved about $640,000 to support a “comfortable” retirement from age 65.
Sydney retiree couples who rent need about $1.17 million, or more than half a million dollars more.
The family home is going to be your biggest asset in retirement. But it is also a big asset to the government because it takes the pressure off the superannuation and aged pension system, particularly with an ageing population and a rising cost of living.
So if home ownership is crucial for a comfortable retirement, why is it that you can salary sacrifice to boost your superannuation but you can’t salary sacrifice to save for your first home?
That’s the question that first homebuyer advocates, First Home Buyers Australia (FHBA), are asking. They are now calling on the government to reintroduce the First Home Savers Account.
“Property is the biggest driver of wealth in Australia,” FHBA co-founder Taj Singh news.com.au.
“If a person is able to buy a home, that is going to generate wealth over time and then they are less reliant on the government to help them when they retire.”
FIRST HOME SAVER ACCOUNT
The Rudd Government initially introduced the First Home Saver Accounts scheme, however, it was abolished by the Federal Government in 2015 due to a lack of take-up.
But the issue with the original version, according to Mr Singh, wasn’t that it wasn’t a good idea, it’s that the government just didn’t make it attractive enough to first homebuyers.
Instead, FHBA wants a new and improved scheme similar to superannuation, focusing on salary sacrificing and attractive tax incentives.
“We believe we can incorporate superannuation-like features and have some tax benefits there for first home buyers so they are incentivised to put money into the account and they are incentivised to save more money,” Mr Singh said.
“One of the things is the ability to allow first homebuyers to salary sacrifice their pre-tax wages, like they can do with super, into their account. Then tax those contributions at the same rate as super, which is 15 per cent. It essentially acts like a superannuation account.”
Salary sacrificing is an arrangement between you and your employer, where you can take money straight from your pre-tax salary. The advantage of salary sacrificing is that it reduces your taxable income and therefore puts more money in your pocket.
For example, if you earned $75,000 a year and salary sacrificed $10,000 a year into a First Home Savers Account, it would reduce your taxable income by $10,000, meaning you would only pay income tax on $65,000.
The new scheme should also abolish tax on interest earned.
“You shouldn’t pay any tax on the interest you earn on that account. At the moment, if you put your money in a bank account, you’re going to be paying tax on that money. Basically, your savings are reduced by the amount you have to pay in tax,” Mr Singh said.
Interest earned in the old First Home Savers Account scheme was taxed at a rate of 15 per cent.
And just like superannuation, the First Home Savers Account should also allow you to invest your savings and boost your returns.
“We would also like the ability to invest in a variety of different funds, like you can with super. With super, you can invest it in managed funds or shares,” Mr Singh said.
“To make it more attractive, give people the ability to chase higher returns because at the moment, the banks only pay an average 2-3 per cent on a savings account.”
Daniel Cohen and Taj Singh, co-founders of First Home Buyers Australia, say saving for your first home should be treated like saving for your superannuation.Source:News Corp Australia
In addition to salary sacrificing, FHBA believes the federal government should also make co-contributions on after-tax contributions.
They say the government should pay $0.50 for every $1, up to a maximum of $750 per year. Previously, the government made a 17 per cent contribution on the first $6000 deposited after-tax each financial year.
First home buyers should also have to make a minimum annual contribution of $1000 each year over at least three separate financial years. It was previously four separate financial years.
Mortgage Choice chief executive officer John Flavell said he would welcome an improved First Home Savers Account. However, he remained cautious of “cumbersome” restrictions, which he believed led to the original scheme’s demise.
“The original First Home Savers Account was great in theory, but didn’t quite hit the mark when put into practice,” Mr Flavell told news.com.au.
“Unfortunately, the original First Home Savers Account came with a lot of restrictions, including a minimum amount of time that the account had to be used for. As a result, only first home buyers who actively started their savings plans long before they wished to buy could actually take advantage of the account.
“The newly proposed account seems to address a lot of hurdles associated with the old account, so as long as the new account is developed with first home buyers’ best interests at heart and is well communicated to this market, then it should be applauded and welcomed.”
When Mr Singh’s co-founder, Daniel Cohen, put the idea of resurrecting the scheme to a vote at the Sustainable Australia’s Housing Affordability Summit in Sydney this month, 85 per cent of the 150-strong crowd voted in favour.
On the back of the public vote, Sustainable Australia president William Bourke said this policy would now be included in its “multi-policy approach” to address housing affordability.
