Spent some time this evening reading the proposed (PDF) scheme.
In summary, the First Home Saver Account scheme offers the following:
- per annum, participants can contribute up to $10,000 post-tax money into a First Home Saver Account
- per annum, the government will co-contribute on the first $5,000 at a rate which starts at 15% and rises to 30% for participants on the highest marginal tax rates of 45%
- interest earned on the account is taxed at a flat 15%
- There is no means test for this. It doesn't matter how much you earn, as long as you haven't yet bought a home you can participate. This is a ridiculous way to address the problem of home affordability - giving everyone money to buy a house essentially drives the price of housing up, meaning no one is actually any better off. Anyone heard of the crazy concept of inflation?
- Why does the government's contribution RISE as the participant's income rises? Does anyone earning over $100k seriously need the government to help them save for their first home? I'd even argue that the threshold should be lower but I'm not sure how much lower.
- "The account holder must not have previously bought or built a first home to live in (they will still be eligible if they have previously purchased an investment property or block of land)."
Uhh, you can afford an investment property but you can't afford to buy a home?!
- "Who can make a contribution -- There will be no restrictions on who can make a contribution into an account."
Why isn't this restricted such that contributions can only be made via the tax system? Having no restrictions just invites Rich Daddy to pay into a First Home Saver Account for Silver Spoon Son as soon as he turns 18. By the time he finishes Uni Rich Daddy has saved him $30-50k (depending on length of degree), the government has coughed up $2-3k in co-contributions (assuming Silver Spoon Son has no other income, otherwise its even more), and Rich Daddy has minimised the tax he might otherwise pay on interest income. The idea of investing $5k a year at 15% + 7% or so that one can get from high interest accounts is pretty attractive. Additionally, forcing contributions via the tax system would essentially demand that a First Home Saver has some regular income thereby providing them a way to service a loan which they will inevitably have to enter into.
- "The Government is inviting comment on the possibility of a $50,000 (indexed) overall cap."
Yes, there needs to be a limit, unless the scheme is modified to be means tested, then it won't matter since no one is going to be able to reach the limit.
The idea of a scheme which grants low income families/individuals a way of saving for their first home is fine. However such a scheme MUST be means tested (assets and earning capacity) - if someone is already sitting on $50k or $100k it doesn't really make any sense to throw them money when they can already afford a deposit. Having a means test would also disqualify anyone who already owns an investment property. Finally, the co-contribution should start at something quite high (like 50%) and drop significantly as income rises. I really don't see a need for folks earning $80k (for example) needing the government to help them save for a deposit.
Of course, I am assuming that the goal of this scheme is to allow low income earners to put a self-owned roof over their head, as opposed to enabling middle income aspirants to buy their swanky renovated terrace in Hot Suburb of the Year. Personally since the introduction of the First Home Buyer's Grant all I've seen is abuse of the scheme to purchase investment properties which are lived in for exactly 6 months, I really can't see how the First Home Saver Account will be any different without some means testing.