Recently we have discussed the first 4 points of our 5 Point Plan to address housing affordability. These blogs explained our recommendations to the Australia Government in relation to interest tax deductions / negative gearing, Capital Gains Tax (CGT), Stamp duty reductions & changes to the land tax system.
As per our 5 Point Plan petition that we launched late last year, our final recommendation to the Australian Government relates to creating a new First Home Savers Account with the following enhanced features to encourage aspiring first home buyers to save more for their first home:
- Run by financial institutions, such as local banks.
- Ability to salary sacrifice up to $7,500 of your annual salary into these accounts, with contributions tax-free.
- Ability to contribute up to $7,500 of your after tax savings into these accounts, with contributions tax-free.
- Ability to invest in cash or managed funds offered by the financial institution providers.
- No tax on investment earnings in the account.
- You (the account holder) must make contributions in three separate financial years before being eligible to withdraw the account funds for purposes of your first home deposit or to go towards your first home mortgage.
Unfortunately, in the Abbott-Hockey Government’s first budget, the First Home Saver Account Scheme was abolished on 30 June 2015. This was the only direct assistance aimed at helping first home buyers save for their deposit. However, the scheme was not considered a great success as only 50,000 (approximately) accounts in total were opened according to Government figures, whereas the Rudd Government predicted 750,000 in the four year period from 2008-2012 alone. FHBA believes the scheme failed due to reasons such as lack of flexibility, lack of promotion and a lack of understanding of the product.
FHBA believes our recommendation of the return of the scheme with greater flexible features will enhance the scheme, making it a more attractive saving opportunity for aspiring first home buyers, whilst only having a limited impact on the Government bottom line. FHBA sees the following benefits arising if our recommendation was implemented:
- Allowing account holders of the enhanced FHSA Scheme to salary sacrifice up to $7,500 of their salary into this account will permit first home buyers to receive tax incentives in relation to saving for property using their own hard earned money. This will also help level the playing field when it comes to tax incentives, as currently only investors receive tax incentives through existing schemes such as negative gearing and CGT concessions.
- The ability for aspiring first home buyers to salary sacrifice income into this tax-free savings account also means there is less of a need to grant first home buyers access to their superannuation (which should remain for the sole purpose of retirement savings).
- Competition among Australian financial institutions will be greater as they work to attract customers who are saving for their first home. Increased competition will also boost the interest rates financial institutions are offering to savers of this account.
- As interest rate savings returns have fallen since the original scheme, the opportunity for aspiring first home buyers to invest in alternative assets such as managed funds will allow first home buyers to achieve greater investment returns, which is important in this low interest rate environment.
- By making interest and investment earnings tax free, this scheme will increase after tax returns compared to the old scheme which had an inefficient 15% income tax.
- The previous FHSA scheme was criticised for a lack of flexibility, such as four year lock in periods, the ability to only invest in cash and only being able to invest after tax funds. With our recommended enhanced scheme being more favorable.
We hope you have enjoyed reading the 5 part explanation of our 5 point petition to the Government. Please click on the link below to show your support and to view a summary of our 5 recommendations.
To view some of the more attractive interest rates the banks are offering now, please click here.
