It may not be popular in political or financial circles, but the treasurer’s call for a debate on the use of superannuation for housing resonates where it counts.
Treasurer Joe Hockey’s call for a national debate on the merits of allowing younger people to access their superannuation to purchase their first home provoked some fairly strong reactions from both sides of politics.
Not many of them were positive, even from his side of politics.
Prime Minister Tony Abbott hedged his bets, Malcolm Turnbull and Senator Cory Bernadi criticised the idea, while former treasurer Peter Costello also came out strongly opposed.
Undeterred, Mr Hockey says similar home funding arrangements connected to personal retirement schemes work well in Switzerland, Singapore and Canada.
In early March, the treasurer released the 2015 Intergenerational Report, which highlighted that by 2055 there will be a shortage of workers to support an ever-growing number of non-workers.
While national retirement savings are growing, the government is spending $100 million daily more than it collects, and continues borrowing to meet this unsustainable shortfall.
It was in the wash-up of the Intergenerational Report that Mr Hockey suggested young Australians should have access to their superannuation accounts to acquire property.
He has flagged that a more flexible super system might even allow retirement savings accounts to be leveraged for property or even retraining.
The attacks from Labor came firstly from former PM and treasurer Paul Keating, who introduced compulsory superannuation (and actually floated the Hockey idea as a 1993 election policy), and then from treasury spokesman Chris Bowen, who labelled the idea a ‘thought bubble’.
They, like those Liberals opposed, argue superannuation should only be used for retirement.
Finance columnist Daryl Dixon has questioned the self-serving lobbying by many in the compulsory superannuation industry, where the priority has been to control a steady stream of other people’s money, to feather-bed fund managers.
Mr Dixon argued that, while the US system grants a tax deduction for interest on home owner debt up to $1 million and provides no assistance to investors, the Australian tax system provides minimal assistance to owner-occupiers while offering unlimited tax deductions to investors.
“Many first home buyers will soon be at risk of losing sight of the Australian dream of home ownership without intervention from the federal government” Mr Alcock said.
He supports the call for allowing young people to access their superannuation as happens in Canada.
Under the Canadian scheme, first home buyers are able to access up to $25,000 from their superannuation, with the requisite safeguard in that the money must be repaid over 15 years.
“Given that a vast amount of people’s income goes into superannuation, this suggestion makes absolute sense,” Mr Alcock said.
Despite modelling by PwC claiming that changing super rules to fund housing would cost the government at least $500 million annually in lost revenue, Mr Hockey may well have found a way of broadening the coalition’s political base.
An Essential poll taken soon after Mr Hockey’s announcement suggested young people and Greens voters responded well to the idea.
While traditional coalition and Labor supporters are far less impressed, Greens voters back the treasurer’s proposal 50 per cent to 32 per cent, with those under age 24 backing the idea ‘very strongly’.
They realise that an asset-test free home is far more useful in retirement than having a Centrelink assessable super fund and renting.
The 2009 Harmer Pension Review found that only 3 per cent of home-owning single pensioners were in severe poverty compared with up to one quarter of those in rental accommodation.
Owning one’s home is so important in retirement, since there is no need to pay rent.
Following sound financial planning advice, many fund members arrange for the maximum drawdown to be paid as soon as it is available, often by telling their super fund trustee they have ‘retired’ at age 55.
After clearing their mortgage from super fund proceeds, they are back at work in no time.
Being mortgage free sets them up for retirement better than would super alone.
One advantage of enabling first home buyers to access their super for a modest home deposit is that there is a tangible incentive for them to become actively engaged with their own fund.
The Australian Taxation Office has already appropriated more than $700 million in lost super accounts because many young people find their 50-year super fund to be quite intangible.
However, by enhancing the system, suddenly their fund has greater relevance as it allows them to use their savings to enter the housing market, which, in many ways, is a kind of tax-free superannuation in any event.
So whatever your view, the groundwork is being laid for a fascinating federal election campaign.
Steve Blizard – Roxburgh Securities