In the world of professional politics, it’s not uncommon to leak policy ideas to journalists to gauge public reaction.
The Coalition did it with a ‘super-into-housing’ plan a few weeks back and received a near unanimous reaction: terrible idea.
This week it seems to be at it again, with the Financial Review receiving a tip-off about the reverse – a ‘housing-into-super’ plan.
The plan would, reportedly, allow retirees to sell their home and recycle some of the proceeds into their tax-protected super savings.
The idea is that this would increase the number of large family homes on the market, helping to ease runaway house prices and thereby improving affordability.
It’s not as terrible as the ‘super-into-housing’ idea, but then ‘not terrible’ isn’t quite enough.
To recap, the ‘super into housing’ idea would have allowed young Australians to take a chunk of their super savings and ‘invest’ it in a housing market that is well overdue for a serious price correction.
So they would risk not only losing their equity stake, but would be starting again from scratch in trying to save for retirement. Dumb. Really dumb.
The new idea, by contrast, would allow downsizing empty nesters to sell their large property, buy a smaller one, and stash a large part of the difference in their tax-protected superannuation fund.
The funny thing is, most middle Australians can already do this.
When the government ‘reined in’ overgenerous superannuation tax concessions last year, it set a maximum limit on tax-free retirement funds at $1.6 million, and limited annual contributions to lightly taxed accumulation funds at $100,000 per year.
So if an empty nester sold a $1.2 million home in the suburbs and bought a nice townhouse for $800,000, their accountant would likely advise them to stash $100,000 per year in their accumulation fund.
It would soon be safe from the tax man, though increasing that annual $100,000 cap for downsizers would obviously be a better incentive to sell up.
Once in the accumulation account, the money’s earnings would be taxed at 15 per cent. However, if the linked retirement account lost money, funds could be shifted over from the accumulation account to top up the retirement account.
If that all sounds a bit confusing, don’t worry. Most Australian super savers don’t get anywhere near the $1.6 million threshold.
In its 2016/17 budget submission, the Association of Super Funds of Australia pointed out that the average super balance for men aged 65 or over was $406,000 and for women was $239,000.
A bigger concern for down-shifters would be how the extra super assets would reduce their part-pension entitlement – and to ease that concern, the government would have to quarantine at least part of the money shifted over from the normal pension assets test.
The problem with that? It was the Coalition itself that scrapped exactly such a scheme legislated by the previous Labor government. Embarrassing.
Once the bigger picture is understood, the plan as reported starts to look like a sop to wealthy Coalition voters and donors.
Some Coalition supporters were mortified by the concession caps passed by the Turnbull government last year – even after party room pressure saw the budget savings halved from $6 billion to $3 billion over four years.
They might be happy if the new plan makes it into the budget, but voters who are yet to get into the housing market, or parents and grandparents worried about their offspring being stuck in the ‘rent generation’, will be suffering a double blow.
Not only would the Coalition be ignoring the two main causes of the housing affordability crisis – negative gearing and the capital gains tax discount – but it would then be trying to pass off an electoral fix aimed at the wealthy as an ‘affordabilty’ measure for real battlers.
But then perhaps the report of the plan is wrong, or the leaker smart enough to realise that what they’ve ‘run up the flagpole’ is very easy to tear to shreds.