Budget measures - 'First Home Super Savers Scheme' ..... Good or Stupid?
Announced in Tuesday nights' Federal Budget, the Turnbull government will launch a tax break for people saving for their first home, in the form of voluntary contributions to superannuation.
The First Home Super Savers Scheme will come into effect from 1 July this year. It's complex, but is it any good?
Savers will be able to make additional contributions to their super account which is taxed at the concessional rate of 15%, rather than the standard marginal rate on their salary, in a manner similar to salary sacrifice.
Contributions will be capped at $15,000 per year up to a total of $30,000.
The extra contributions will only be eligible to earn interest on a deemed rate based on 90-day bank bills, plus 3%. It won't be allocated to standard superannuation investments such as blue chip shares. Any interest earned will also be taxed at 15%.
Withdrawals on the savings are allowed from 1 July, 2018 and taxed at the marginal rate the person incurs on their salary, but the tax applied at the marginal rate will then be reduced by 30%.
In a worked example, the government cited a person earning $60,000 per year who salary sacrifices $10,000 of pre-tax income into their super account over three years.
After tax, they would have $8,500 per year invested, accumulating to $25,500 after three years, with after-tax interest earned of $1,880 -- $27,380 in total.
The government said that tax on the $27,380 at the person's marginal tax rate, less the 30% offset, would leave net tax to pay of $1,880. That leaves $25,760 for a deposit.
There are commentators, qualified and otherwise, suggesting that the property market has peaked....that interest rates are going to go up, - and that the property market is in for a significant correction. If so, then this leaves me with 2 questions;
1) Is this new scheme too little, too late? - and more importantly;
2) Is the Government encouraging young Australians to take on massive debts at the wrong time?