APRA clears air after tiny Tim’s super for homes brain fart

If there’s one thing that most economists seem to agree on it is that Liberal MP Tim Wilson’s plan to allow first home buyers (FHBs) to access their superannuation savings to purchase a home is an unambiguously bad idea.

Over the past several weeks, we’ve seen economists from all walks of life oppose the plan, arguing that it would merely pour more fuel on the housing bonfire, drive up prices, and reduce affordability, while at the same time torching retirement savings.

Earlier this week, the Australian Prudential Regulatory Authority’s (APRA) chairman Wayne Byres gave testimony to a parliamentary committee where he too warned that Tim Wilson’s proposal would force up property prices:

“We are obviously in the current environment keen to avoid things that lead to further escalation in housing prices”…

“You would have to think it would add to the demand.”

“All else equal it is likely to push them [prices] up.”

For mine, the most damning assessment came from consumer advocate Choice, which showed that Tim Wilson’s policy would overwhelming benefit higher income FHBs with larger superannuation savings, while disadvantaging lower income FHBs with minimal savings:

Low-income renters and superannuation

Young low-income renters have minimal superannuation savings.

As noted by Kate Colvin, spokesperson for national housing campaign Everybody’s Home:

“Paradoxically, allowing people to use their super for housing would increase the purchasing power of people who have a high income, and so have a relatively high super balance, exactly the group who are already most able to buy.

“Giving this group access to faster capital will push up prices across the board, making it harder for the people who were already struggling to get a foothold in the market.”

Thus, Tim Wilson’s policy would merely entrench current housing inequities, while lowering overall retirement savings.

A cynic could rightfully argue that Tim Wilson is only championing this super-for-homes policy because he and his partner, who own five residential properties between them, stand to gain financially from the associated uplift in values. Always follow the money.

Unconventional Economist
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Comments

  1. Mable Stirrups

    Well, that and they are trying to undermine the superannuation system without actually coming out and saying that’s what they’re doing.

    • kannigetMEMBER

      The sad thing is, he may be right in that they would be better off having spent the super on property rather than let the already wealthy graft off the proceeds from it sitting in a super fund….

  2. Knee deep in debt we’ll stay
    We’ll keep the creditors away
    And if I bury you in the garden, in the moonlight
    Will you pardon me?
    And tiptoe through the tulips with me

  3. Ritualised Forms

    Off the top of my head I can no longer think of Superannuation – as we currently have it – as serving any real purpose apart from pampering a mainly older and mainly wealthier section of society.  I was a keen supporter of Superannuation as Keating proposed it back in the late 80s, and tend to be a beneficiary of the arrangement, but I think it makes almost no sense for anyone younger than me, and anyone not in a scheme delivering reasonably certain outcomes at relatively low fees (including many older than me).

    The original game plan was to take people off the public pension by getting them and their employers to save for their retirements themselves, and in the course of organising that, creating a pool of investment funds which could support an Australian economy which was then being prepared for competition and exposure to global markets.

    Along the way the supporting struts of this concept were kicked out.  Nobody ever clearly defined what super was for, so what was originally intended for pensions and living expenses in later life evolved into ‘wealth’ management – where it was about maximising the assets and avoiding the payment of taxes, and shelters to facilitate this, and returns.  This particular gate was left open by the way, right from the get go, it was possible simply shunt funds into superannuation schemes, have those funds be treated concessionally by the tax system and then reclaim the funds from super. This appealed to the wealthier of course.

    Then there was an ideological struggle which is still in play, with the mainly conservative governments post 1996 trying to break the domination of the pro Union (or Union dominated) industry ‘superfunds’ – which in the main tend to deliver observably superior returns to members (ie ordinary people contributing to those funds) with less fees and greater ancillary supports than the ‘retail’ funds (mainly big banks and insurance companies – often closely linked to dubious activity of the type identified with the Hayne Royal Commission, invariably charging greater fees, and generally delivering more parsimonious returns) the conservative ideology has maintained would provide superior returns. 

    Despite the stance of the current government there is a fairly solid argument that the large super funds could be amalgamated into one mega fund which would be the default fund for all Australians, and that this would likely deliver superior outcomes for contributing Australians.  The freedom of choice mindset when it comes to superannuation, is closely linked to the freedom to be ripped off, or the freedom to rip off the government by minimising tax schools of thought.

    That of course leads us to the phenomena of SMSFs.  Initially brought in to try and wean some off the dominance of the large industry funds they are now the ‘go to’ option for any self respecting accountant trying to foster ‘investment’ in anything from property speculation through to eucalyptus plantations, or all in share plunges on the company of choice, and many of which have provided a nice receptacle for the offtake of JobKeeper not directly needed to live, and for which many of those same accountants have been structuring their clients finances to maximise entitlement.

    From there, there is a concomitant discussion phenomena of lump sum versus annuity which feeds back into the loop of nobody ever having clearly stated what superannuation was actually for.  Most Super funds enable a lump sum payout, which is often taxed concessionally.  Nobody has ever determined to remove access to the government funded old age pension for those who have had access to annuities or lump sums beyond a particular limit.  That means that those in a position to access very significant sums through superannuation accumulation are still entitled to a government funded pension, or social welfare supports if they take a lump sum, splurge on whatever they think appropriate, or are encourage to stash it somewhere where it doesn’t count as income or may not look like theirs, and are encouraged to put their hand out.  This isn’t the case for most people of course, particularly those in the larger industry funds which are influenced by the Union movement, but it is a widespread enough phenomena for many to be perfectly aware of it, and for an entire industry of accountants to be cultivating.

    Even beyond all that there is the positioning of the Australian economy.  Back in the 1980s there was a range of enterprises who were actually thinking that with better investment and a more agile workforce with better training they could compete globally. Superannuation was originally designed to facilitate and support that more competitive and exposed Australia.   Fast forward to 2021 and Australia is the ultimate economic bubble experiment powered by the mining lobby – home to the worlds most expensive people, the worlds most expensive land, and deploying the worlds most expensive energy.  Anyone controlling large volumes of members funds would need to look again at the business case for investing anything in a competing Australian business, and if that is the case then speculating in real estate and pampering the well to do is probably as plausible a use for superannuation as anything else.  But it doesn’t really help Australia or Australians do anything all that much.  Rather it holds them to ransom.

    None of that delivers anything of significance to anyone under their mid 50s (on an ordinary income, may be younger for those on higher incomes, and may be much older for those on lower incomes, particularly if they don’t own their own homes).

    The dizzying heights to which house prices have been driven – by policy, including superannuation – has rendered accumulation in superannuation a particularly feeble post retirement support mechanism – in relation to accommodation needs.  The death of incomes growth over the post mining boom era, and the look the other way approach to fixed inflation sources (starting with energy costs) means that ordinary Australians trying to support ordinary families on ordinary jobs are being ground between rising real costs and declining ability to service those for a range of standard family outlays. The lack of purpose about what super is for and the enthusiasm Liberal politicians (in particular) have for white anting a system which even implausibly eases working lives post retirement, and deforming it into a vast tax avoidance scheme, sees them come up with proposals to shake off 10 or 20 grand here and there to cover their other policy failings (eg Housing, Covid spending support).

    That brings us to the nub of Leith’s posts. Superannuation makes increasingly less sense for more Australians.

    That backdrop to this of course is the Hamlet like figure of Keating.  Super was his baby, and the one he thought would anchor his place in the pantheon of social reformers.  It should have done but hasn’t.  Has he been going mad or has the world he crafted for his genius been deformed by those following?  He comes out to talk to his own younger self in the media from time to time, to try and convince himself, and us, it all still makes sense, increasingly maddened by what he must surely see of his bequest in the world of today.  When the acid test comes – as surely it will – superannuation, as we know it, will be blown away in the winds of history as simply another manifestation of an entitled age

    • Brilliant post. Thank you RF!
      What would you make of an Australian version of the Canadian Tax Free Savings Account?

    • Jumping jack flash

      agree completely.
      Super makes no sense while house prices appreciate faster than super, and housing costs are a significant percentage of income in latter years.

      Basically if you don’t own your home by age 50, then it is very unlikely you will be able to. If you have super, then that’s a bonus, but housing costs (rent) will use up a fair portion of that anyway.

      Best to release super to use for houses.
      Sure, the prices will rise, but isn’t that the point? At the very least you will have a place to live in retirement. The winners will liquidate and downsize, then keep the change for retirement – far in excess of any paltry amount of super saved over the same period.

      The banks and their debt have spoken!

      • FUDINTHENUDMEMBER

        Neither super or houses make sense when bitcoin is appreciating faster than both! The australian govt should be subsidising First Bitcoin Buyers to help get them on the first rung of the Bitcoin Ladder!

        • Jumping jack flash

          This!!

          But you can’t live in a bitcoin in retirement, regardless of the amount of super savings.

    • Keating is superannuation’s King Lear, slowly driven insane by the fact that those deriving the greatest benefits from his creation are the very people he detests the most and has dedicated his life to fighting.

      Those whom the gods seek to destroy, they first drive mad.

    • kierans777MEMBER

      Fantastic comment; should really be a post in it’s own right.

      Some interesting comments from Keating on 730 last week about people passing left over super (“the capital”) as an inheritance (coupled with “you shouldn’t have to eat the house”). Seems old PJK wanted super to be an inheritance vehicle as well but spreading wealth instead of what Howard did by allowing the concentration of wealth.

      • Jumping jack flash

        It made sense, at that time in history before we moved into a debt economy with manipulated interest rates.

        Now the goal is to obtain [someone else’s] debt because no amount of saving and income can match it.

  4. Forms your comments were beautifully written and well considered. Sadly also true.