Super changes are long overdue
Senator Nick Xenophon’s proposal for Australia to follow Canada’s lead and allow first-home buyers to access part of their super as a home deposit highlights a serious flaw in our compulsory super arrangements. The compulsory 9.5 per cent of salary diverted into super increases the difficulty of achieving home ownership, especially in the middle-income range.
Other countries, including Singapore and Canada, have recognised this by special arrangements whereby superannuation savings can assist the task of acquiring a family home.
The Singapore model is highly effective, with home ownership, the funding of small business and children’s education all assisted by allowing access to funds building up in the Central Provident Fund.
The Canadian model proposed by Senator Xenophon is more limited in scope, as it only assists first-home buyers with access to a deposit. This proposal has already drawn flak on several grounds, including that it would add to the already strong upward pressure on house prices because of low interest rates.
However, without fundamental changes to our superannuation arrangements, many more Australians will reach retirement without a home and inadequate retirement income. This situation is the result of a succession of rule changes forcing Australian workers to contribute to super accounts that are tied up and untouchable until age 60 or even later.
Forcing younger and middle-aged Australian workers to contribute to super reduces take-home pay for a 34.5 per cent marginal rate payer (applying up to $80,000 a year) and reduces income available to service a mortgage by 6 per cent of their superable salary. Not being compelled to do this would allow mortgages to be paid off more quickly and assist people to achieve home ownership.
The critics arguing that policy changes allowing superannuation savings to help achieve home ownership will only boost house prices miss the point. By pursuing, for example, the integration of the two key reasons for saving – achieving home ownership and building up retirement assets as Singapore has so successfully done – it would be feasible to make radical changes to our negative gearing arrangements without increasing property prices.
Simple changes such as restricting negative gearing tax benefits to newly constructed properties for a maximum period of, say, 10 years would immediately reduce the unfair competition to purchase existing properties created by the unlimited tax subsidies for negative gearing.
If further action is required to stabilise or reduce property prices, the government could set a maximum time period for which overall losses can be claimed for investment properties.
The government underwriting investment losses for an extended period is a massive waste of public resources. Encouraging Australians to boost their superannuation and helping them to achieve home ownership at the same time would provide much larger benefits to the community.