John Howard has thrown up the prospect of the Federal Government depositing funds directly into new bank accounts to help children save for a house deposit if Budget surpluses remain strong. The Prime Minister unveiled a multi-pronged $2.1 billion plan at the Coalition policy launch to keep alive the Australian dream of home ownership.
Measures include selling off more Commonwealth land for housing, more tax-attractive shared-equity schemes and funding for infrastructure on new housing estates. But the centre piece of the plan were new tax-free home savings accounts for children and young adults, which Mr Howard said would enable them to get a `"foot in the door of their first home''.
"The Coalition is committed to Australia remaining a great home-owning society, where the dream of home ownership remains at the heart of the Australian experience and within reach of each successive generation,'' Mr Howard said.
Under the proposal, children and young adults will be able to open home savings accounts from which there will be no tax on interest. Annual contributions up to $1000 for children under 18 would be tax-deductible for the children, their parents, grandparents or friends. For people aged 18-39, the tax deduction is available only to themselves. But for adults, deposits up to $10,000 can also be contributed into the accounts each year.
The savings can be withdrawn at any time after the person reaches 18, but can be used only as a deposit on a first home or flat. The cost of the tax-free home saver accounts will be $1.565 billion over four years. But Mr Howard suggested that over time the Government would also chip in money to keep the home ownership dream alive.
Opposition Leader Kevin Rudd has also chimed in with a proposal to allow first home buyers to contribute up to 10% of their pre-tax salary into a special fund subject to the same tax rules as superannuation, being a flat rate of 15%. The fund will become available after four years, offering an estimated $64,000 deposit for a couple on the average wage.
The potential effects of Rudd's proposal in relation to house prices could be interesting, as this may encourage first-home buyers to "hold back" and take advantage of the scheme in four years time. It is not clear whether or not this is an intended outcome of the plan. Price effect aside, despite Mr Rudd's concern regarding the housing affordability crisis, the PM's plan offers a stronger financial boost for would be borrowers.