It's time to follow lead of Britain
Younger Australians struggling to achieve home ownership can only hope that our politicians and bureaucrats are aware of and quickly follow Britain's budget's Lifetime Individual Savings Account (LISA) initiative.
LISA provides a 25 per cent bonus on savings up to £4000 a year up to the age of 50 with the earnings accruing tax free in the fund. The amount accumulated can be withdrawn in part or full as a deposit for a first home at any time. Both partners can access their separate accounts for purchase of a jointly owned home.
Unlike our superannuation arrangements, earnings in LISA accounts are not subject to any tax and the rules governing access to the funds are user friendly. If kept till age 60, the accumulated balance is accessible tax free. Prior to this, withdrawals of money are permitted but the government contribution and earnings on that bonus is lost and a 5 per cent charge is levied.
By having a flat 25 per cent bonus up to a fixed amount, the government assistance is limited in amount and doesn't vary with the income of the saver. Most importantly, it encourages voluntary saving both to help achieve home ownership and for retirement in a much more flexible way than our superannuation arrangements do.
There are two huge drawbacks for younger and even middle-aged Australians making voluntary superannuation contributions. The first is that all the savings and accumulated earnings are tied up untouchable until at least age 60. The second is that diverting money in to superannuation does not help achieve home ownership.
For wage earners, compulsory employer superannuation contributions already limit their capacity to save to acquire home ownership or pay off a mortgage quickly. Money needed for this purpose has to come from their wages after the deduction of personal income tax and the compulsory employer contributions.
By its very nature, forcing money to be tied up untouchable in superannuation limits the capacity of individuals to deal with situations such as unemployment, relationship break-downs and other unexpected financial pressures.
For lower and even middle income taxpayers, moreover, the superannuation tax advantages compare unfavourably with the preferential tax and social security treatment of owning the family home outright.
Without a radical change in government policy, achieving home ownership is almost certainly going to become much more difficult as the ageing of our population continues to increase the pressure to collect taxation revenue from the working age population. This is why changing the emphasis of our tax assistance for retirement saving to encompass elements of Britain's LISA strategy demands serious attention.