Cheap housing idea splits the Liberal Party

IT’S the controversial concept that could make buying a home much easier. Abbott and Hockey love it — but one of their closest colleagues has trashed it.

IT’S the idea that could make buying your first home much, much easier. Prime Minister Tony Abbott and Treasurer Joe Hockey have both enthusiastically spruiked the concept — but only a few months ago one of their closest colleagues absolutely trashed the idea.

After releasing the government’s intergenerational report last week, Mr Hockey said Australians should be given flexibility to use their superannuation in new ways. He went so far to suggest that younger people could be allowed to dip into their super savings to buy their first home.

Mr Abbott has supported concept, telling reporters yesterday that it was a “perfectly good and respectable idea” that had worked well in other countries, such as Singapore.

“It is something that I am very happy to see further debated but there are obviously some issues around it, and let’s fully consider it,” he said.

Joe Hockey and Tony Abbott have floated the idea of allowing Aussies to dip into their super to pay for their first home.

While the PM and Treasurer have been publicly endorsing the proposal in recent days, the idea of messing with Australia’s mandatory saving scheme was summarily rubbished by one of their closest allies within the Liberal Party only months ago.

News.com.au asked Finance Minister Mathias Cormann in October whether the government thought the idea of allowing people to dip into their superannuation funds to buy their first home had merit — and his response couldn’t have been clearer.

“No we don’t support this idea,” Senator Cormann told news.com.au.

“Superannuation is a tax effective savings vehicle designed to help people fund their living costs in retirement.

“Increasing the amount of money going into real estate by facilitating access to super savings pre-retirement will not improve housing affordability.

“It would increase demand for housing and, all other things being equal, would actually drive up house prices by more. That is, it would reduce housing affordability, including for first home buyers.

“The only effective way to tackle housing affordability is by boosting housing supply, not by boosting demand.”

They are cigar-puffing buddies when it comes to Australia’s Budget, but Joe Hockey and Mathias Cormann don’t see eye to eye on Australia’s superannuation system. Picture: Gary Ramage

Senator Cormann was asked 2GB radio yesterday afternoon whether the idea was merely Mr Hockey’s “thought bubble”.

“Joe said that we should have a conversation about how we can put ourselves onto a stronger foundation for the future, given the ageing of the population, given the changing nature of our careers over a much longer period of time. We need to have the conversation and then we can make some informed judgments at the end of that process,” Senator Cormann told Ben Fordham.

But he stopped short of endorsing the concept.

“Home ownership is very important and it is something that we should continue to encourage. When we look at house prices though, prices of anything are a function of supply and demand and what we have to be careful of is that we actually fix the problem and don’t exacerbate the problem. By increasing demand, in the end with supply staying the same, you will be at risk of pushing up prices further. The only way to really sustainably bring down housing prices and make housing more affordable is to ensure that supply keeps up with growing demand,” he said.

These comments, which came from Mr Hockey’s right-hand man on Australia’s financial management, are much closer to a stinging attack by former Labor prime minister Paul Keating published today in The Australian Financial Review.

Mr Keating, who was prime minister from 1991-96 and introduced compulsory super in 1992, wrote that allowing people to take money out of their mandatory savings for property or training would “amount to the destruction of one of the best retirement systems in the world”.

“What would the aged-care budget with the baby-boom bulge look like without the supplementary income from superannuation savings? It would be a horror story,” Mr Keating wrote.

PM Tony Abbott says the superannuation for housing idea is “perfectly good and respectable”.

The Labor Opposition and industry groups have also criticised the idea, saying it would actually push up house prices and erode retirement savings.

Shadow treasurer Chris Bowen has mocked the concept as a “thought bubble” that would only harm the superannuation system.

“We need superannuation more than ever before because we are living longer,” he told ABC radio.

“It could have the perverse impact of making housing affordability worse and undermining retirement incomes for people on lower and middle incomes.”

Treasurer Joe Hockey has called for Australians to be given for flexibility in how their super is used.

Last year, South Australian independent senator Nick Xenophon pushed for Australia to explore adopting a scheme similar to Canada’s Home Buyers’ Plan, which allows residents to withdraw funds up to $25,000 in a year from their retirement savings to buy or build a home.

The Canadian scheme has been operating for 22 years with about one-eighth of first home buyers aged 25 to 44 participating.

Generally, withdrawals have to be paid back into the retirement funds within 15 years.

Similar schemes have also been successful in Singapore and New Zealand.