Government Flattens Out Rebate For Richer And Poorer First-home Buyers

The Age

Wednesday May 14, 2008

Marc Moncrief

FIRST-home buyers on higher incomes will get less help than they might have expected from the budget after the Government changed the tax treatment they had mooted for special savings accounts to help raise a deposit.

As part of a trend in yesterday's budget to create a "more equitable" tax system attacking perceived benefits to wealthier Australians, the Government will add a co-contribution of 17% to the first $5000 deposited in first-home saver accounts.

The accounts are one of several initiatives promised at last year's election and included in this budget.

The Government has also established a $623 million fund to encourage landlords to cut rents for low-income earners, a $512 million housing affordability fund to make it easier to free up land for housing and a National Housing Supply Council to identify land that could be used for housing to avoid property bubbles.

The first-home saver accounts, promised by Labor at the election to help first-home buyers cope with booming house prices, were expected to include a Government co-contribution tied to the account holder's income tax rate.

The flat 17% rate means those on higher incomes will get substantially less than they would have under the system as it was described in a discussion paper released in February, while those on lower incomes will get a bit more.

Under the original system, those in the bottom three tax rate bands would have got a 15% co-contribution. Under the tax thresholds in the budget, this would have covered anyone with taxable income up to $80,000.

Those making more money, and consequently paying a higher rate of income tax, would have received a higher co-contribution rate.

For example, those paying 45% of their income in tax - in yesterday's budget, those on $180,000 or more - would have received a 30% co-contribution.

Those making between $80,000 and $180,000 would have received a 25% co-contribution.

This would have meant richer people getting more money from government through these accounts than their poorer peers.

On the first $5000 saved, someone making $180,000 or more would have received $1500 compared with $750 for someone making less than $80,000.

Under the new arrangements, both savers will get $850 on the first $5000.

The Government has compared the accounts to superannuation accounts and it is expected the money deposited will be invested on financial markets.

Whatever gains are made on the investments will be taxed at 15%, a concessional rate also applied to super fund returns.

AT A GLANCE BUDGET 2008

- First home saver accounts including 15% tax rate on returns, a flat, 17% Government co-contribution on the first $5000 deposited and tax-free withdrawals if used to buy or build a home.

- $623 million rental affordability scheme to encourage landlords to cut rental prices for low income earners.

- $512 million housing affordability fund to make it easier to free up land for housing.

- National Housing Supply Council to identify land that could be used for housing to avoid property bubbles.

LIKELY IMPACT

- More help than expected for lowincome earners with less money for the wealthy.

- Cheaper rents for low-income earners but more red tape for landlords.

- More consistent, national approach to land release.

© 2008 The Age

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