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Budget 2017: super now key to housing

The government delivered the federal budget with super again taking a central role, explains Byron Smith.

Among the key take outs from the federal budget – first-home buyers get a tax break to save in their super, most of us will be paying more for Medicare and the federal budget will return to surplus in several years.

In short, the two main measures affecting superannuation account holders are that:

  • first-home buyers can save toward a home loan deposit in their super
  • seniors may add $300,000 extra to their super if they sell their home.

Housing and super

Perhaps the most critical measure is the First Home Super Savers Scheme, where savers can contribute from their before-tax income into their superannuation fund, and be taxed at the 15 per cent superannuation tax rate instead of their marginal tax rate. When funds (including earnings) are withdrawn to purchase a home they'll be taxed at the marginal rate less a 30 per cent tax offset.

First home savers can contribute $15,000 a year under this scheme to a maximum of $30,000 per person, which will be $60,000 for a couple. The Treasurer concluded that “under this plan, most first home savers will be able accelerate their savings by at least 30 per cent”.

The Association of Superannuation Funds of Australia chief executive officer Martin Fahy said “one potential benefit of this policy is that it will encourage young Australians to engage with their super earlier in life”.

The other major target is older Australians who will be encouraged to downsize to free up housing stock for young families. Those aged 65 and over can make an after-tax contribution up to $300,000 into their superannuation account out of the money from the sale of their home.

They must have held the home for 10 years and it has to be their principal place of residence. Both partners in a relationship can do this, meaning combined they can contribute $600,000 to super.

This will be an additional super contribution, and those making such a contribution won’t be subject to the usual contribution cap and voluntary contribution rules, so they won’t:

  • Have to pass the usual work test for 65-to-74 year olds
  • Be restricted from contributing if their super balance is above $1.6 million.

Fahy said the measure would make it easier for retirees aged 65 and over to monetise the family home to improve people’s ability to invest in super to secure a comfortable retirement.

“There will be some retirees who want to move to more suitable housing or put money aside from selling the family home to cover essential living or health care costs.

“This measure can improve flexibility and living standards in retirement, while boosting supply of family homes,” he said.

Economic outlook

Scott Morrison described the budget as practical and realistic, not over-promising and showing that the government was living within its means.

“This budget is about making the right choices to secure the better days ahead. Our choices are based on the principles of fairness, security and opportunity,” he announced, beginning his budget address.

He said the budget is on track to reach surplus in three years, by 2020-21, “from a forecast deficit of $29.4 billion in 2017-18 to a projected surplus of $7.4 billion in 2020-21”.

And he painted a rosy picture of the Australian economy for the next few years saying it was expected to rebound to 3 per cent over the next two years.

He added that the wage growth of Australians was expected to increase from 2 per cent a year to more than 3 per cent over the next four years.

Medicare

The levy almost all Australians pay for Medicare will increase by half a per cent in two years, so the government can fully pay for the National Disability Insurance Scheme. It says this scheme is underfunded by $55.7 billion over the next 10 years.

The income level that people will start paying the levy has increased to:

  • $21,655 for singles
  • $36,541 for families (add $3356 for each child)
  • $34,244 for single seniors/pensioners
  • $47,670 for family seniors/pensioners (add $3356 for each child).

Education and welfare

For schools, the government will provide $18.6 billion in extra funding, to all schools, for the next 10 years. This is based on recommendations from the Gonski school funding review earlier this decade.

University students will have to pay more for their courses from 2018 onward, with a 1.82 per cent increase to the Higher Education Loan Program each year, cumulating to a 7.5 per cent increase by 2021. Once fully implemented in 2021, this measure would result in an increase in total student fees of between $2000 and $3600 for a four-year course.

The minimum yearly income to start repayments will be lowered to $42,000, at a 1 per cent repayment rate. This will climb to a 10 per cent repayment rate at the maximum income threshold of $119,882.

In welfare measures, the government will reinstitute the pensioner concession card to those that were ineligible for it under the pension assets test. This gives them access to state and territory concessions.

It will expand the ParentsNext program, which support young parents to get jobs, with a particular focus on women and indigenous Australians.

And there’ll be a general crackdown on welfare recipients who don’t meet obligations, a drug testing trial, stricter residency rules and verification requirements.