Super-housing fix a $31b Budget black hole

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By Leith van Onselen

The jury is in: Hockey’s proposal to allow home buyers to raid their superannuation to purchase their first homes is a dumb idea that could blow a $31 billion hole in the Federal Budget by 2049-50, according to new analysis by PwC. From The AFR:

The analysis by PwC provided to The Australian Financial Review is based loosely on a similar scheme in Canada, which allows people to withdraw $25,000 from the equivalent of super for a first home.

PwC partner Paul Abbey said he assumed that an Australian scheme would be limited to people below 35 years, with around half of those eligible choosing to withdraw $25,000 for a 10-year period.

The loss to government – which taxes earnings on super balances at 15 per cent – would be $1.1 billion in 2016-17, and fluctuate between $611 million and $993 million over the next nine years. By 2049-50, the figure would hit $2.1 billion, taking the accumulated hit to government to $31 billion, according to the estimate.

As I noted yesterday, there are really only two approaches to improving housing affordability:

  • Remove artificial (speculative) demand from the market; and/or
  • Introduce measures that improve the supply of affordable land/housing.
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In his interview on Lateline two nights ago, Hockey baulked at unwinding negative gearing or CGT concessions on investment homes, meaning he is uninterested in removing the key source of speculative demand: domestic property investors.

Hockey has also deferred supply-side reform to the states, instead of taking leadership of the issue – or better yet providing financial incentives to states that free-up land supply, relax planning, and build housing-related infrastructure. This is a curious approach, given it is the federal government that has erroneously decided to run a high immigration program, leaving the cash-strapped states to pick-up the bill in managing this growth.

Until Hockey makes genuine attempts to address the key drivers of Australia’s unaffordable housing, then his superannuation fix can be viewed as nothing more than a gimmick. And yet, this gimmick is not even popular among the electorate, with online polls coming out firmly against the idea.

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If Hockey doesn’t back away from this superannuation proposal it will undermine everything else that he attempts to do to ‘fix’ the Budget, much like the flawed paid parental leave did for the Prime Minister.

It is dumb politics as much as it is dumb policy.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.