Federal Labor's Low Tax First Home Saver Accounts - Larger Deposits And Higher National Savings
A Rudd Labor Government will help aspiring first home buyers save a larger deposit by establishing new, low tax, First Home Saver Accounts.
Over the first three years Federal Labor’s First Home Saver Accounts will help around half a million first home buyers save a bigger deposit by establishing superannuation-style low tax savings accounts.
Federal Labor’s First Home Saver Accounts will help boost national savings, with the accounts anticipated to hold around $3.5 billion in savings after three years.
Federal Labor’s First Home Saver Accounts will allow a couple – each on an average wage and saving 10 per cent of their income – to save a deposit of around $64,000 over five years.
This $64,000 deposit is around $14,500 - or 30 percent - more than could be achieved by saving through an ordinary deposit account.
This benefit amounts to $2,900 extra a year in savings towards a home deposit.
One of the greatest obstacles to buying a first home is saving a deposit.
A larger deposit will also reduce the debt burden for young homebuyers and can help them avoid incurring costly mortgage insurance.
The new First Home Saver Accounts will build on the arrangements for superannuation - allowing potential first home buyers to access similar tax breaks on their first home savings and unlock higher returns.
Savings with Labor’s First Home Saver Account will receive preferential tax treatment in two key ways compared to ordinary savings accounts:
- Savers will be eligible for a low tax rate of 15 per cent on the first $5000 of income they deposit in their account each year - rather than the ordinary tax rate they would pay.
- Interest earned will be taxed at 15 per cent or less.
Under an ordinary savings account both contributions and interest earned on savings are taxed at the individual’s relevant income tax rate.
As a result, the tax benefit provided by the First Home Saver Account will enable most first home buyers to save substantially more than they otherwise would.
In addition to the first $5,000 in tax-preferred contributions an additional $5,000 a year may be contributed towards a First Home Saver Account from after tax income without paying any further tax on that contribution.
This will allow parents to help their children to save their deposit.
Even though it typically takes first homebuyers an average of five years to save an adequate home deposit, Labor’s plan will allow savings to be withdrawn after four years to provide a reasonable degree of flexibility in an ever changing property market.
The minimum savings period of four years will also enable superannuation funds to achieve higher rates of return on First Home Saver Account deposits.
Withdrawals from the accounts will only be permitted for the purchase of an eligible first home and will be tax-free.
The newly-created accounts will be separate to individuals existing superannuation and individuals will not be able to access their existing retirement savings.
A Rudd Labor Government will forgo $600 million in tax revenue – in the first three years – to give first home buyers access to the newly-created accounts.
The National Housing Affordability crisis
According to official statistics it has never been harder for first home buyers to purchase a first home in Australia:
- The average home now costs seven times the average annual wage – up from four times the average annual wage just ten years ago;
- Nationally, first home buyers are now spending 31.7 per cent of their total income on mortgage repayments – up from 17.9 per cent in 1996;
- The proportion of homes being bought by first home owners declined from 21.8 percent in June 1996 to 17.1 percent today.
Labor’s National Housing Affordability Strategy
Federal Labor’s First Home Saver Account scheme is part of our responsible approach to economic management.
First Home Saver Accounts will work in conjunction with Federal Labor’s existing $1.1 billion worth of commitments to increase the supply of affordable first homes and rental properties. They include:
- Housing Affordability Fund, which will increase housing supply by providing money for local infrastructure, and giving state and local government incentives to lower development charges;
- National Rental Affordability Scheme, which will provide investors tax incentives to increase the supply of new affordable rental properties across Australia, saving 50,000 low-middle income families 20 per cent on their rental bills; and
- Introduce a better approach to land release with all surplus Commonwealth land being freed for housing development or community infrastructure.
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