The Prime Minister is betting the house on a super play to win over young voters by allowing them to take $50,000 out of their super to buy their first home. It’s a politically smart move but it has been bagged by the super industry and the guy who created compulsory super — former Treasurer and PM, Paul Keating.
Not known for his subtlety with words, PJK called it a “frontal assault” on super, linking it to his belief that the Liberals “hate the superannuation system”.
He thinks the Coalition likes to keep ordinary Australians poor and on the pension, which shows you how good he is at politics, but the reality is the Libs are more afraid of the power of the industry super funds sector that now have become a real force in the economy.
Armed with the incrementally small amount of super from millions of workers, these funds are now building some of the huge office towers and apartment blocks in our nation’s capitals, buying Sydney Airport, voting at annual general meetings against banks that lend to coal companies and advancing the goals of climate change activists, while doing a pretty good job in generating good returns for their members.
They are powerful and they are pro-Labor, as they came out of the union movement. In reality, the Coalition would prefer a super industry more dominated by financial institutions, which are more on their political wavelength.
So there is a political reason for ScoMo and the Coalition not being too fussed to promote super at the expense of Aussies getting into property.
And then there is the other political reason that Aussies also love property more than super. And there is a reasonable argument that because compulsory super is now taking 10% of a young person’s wage, it’s a lot harder for them to buy a home than it was for baby boomers, many of whom had no super until 1992 when Paul Keating made it compulsory at 3% of their wage.
And then there is the economic/investing argument that property can be a better investment than super for some who buy in the right area, where prices go ballistic. Also, you’re taxed 15% of super until retirement, but a person’s principal property is capital gains tax-free when you sell it, and you can sell it at any time and access your money, unlike super.
Your super in retirement is tax-free but retirement years are being pushed up, so you can see why many Aussies prefer property over super.
As a financial planner, I like both. Seeing a client with a growing property and super portfolio makes me suspect that they’re heading in the right direction for a materially satisfying retirement. But younger people feel blocked from getting on the property ladder by the high price of homes and the subsequent difficulty of getting a deposit, coupled with the fact they lose 10% of their wage to super.
So there’s both political and economic merit in ScoMo’s plan but it will reduce someone’s super and it will mean they’ll probably have to downsize and sell their principal property when they retire and their super balance is too low.
The Super Home Buyer Scheme would start by July 2023 and would not be restricted by price caps on the income someone could earn or the value of the property they wish to buy. Each super member could access $50,000 and it will put more people into the property market, which will not only improve the number of buyers, it will push prices up.
The SMH reported that the Industry Super Australia chief executive Bernie Dean estimated the use of super savings would drive up property prices by 16% in Sydney, 9% in Melbourne, 8% in Brisbane and 14% in Perth. How he worked that out, I suspect, is based on a few assumptions and guesswork, but his overall argument has merit.
These super homebuyers will have to save up to 5% for a deposit before accessing the super money and will be able to use up to 40% of their super savings in their funds.
The SMH says: “It would be able to be used alongside the Home Guarantee Scheme and the First Home Super Saver Scheme as well as a policy also unveiled yesterday to allow all Australians over the age of 55 to 'downsize' their homes and put up to $300,000 from the proceeds, per person, into super funds outside existing contribution caps."
This actually would allow older Australians with crappy super balances to sell their home, buy something cheaper and a couple could slam $600,000 into super in one go!
This is a sensible political play with some conflicting implications, both positive and negative, but after one million people have already voted, isn’t this good election idea a tad too late?
I guess we’ll find out on Saturday.