We need to talk about property in superannuation

First-time home buyers Jenny Mertens and Juan Caceres pictured in November. Picture: Glenn Hampson

Liberal MP Tim Wilson is reviving his campaign to allow ongoing early access to super for people who wish to buy a home.

Having tried to get the idea up through the carrot of persuasion he has now quite creatively tried to get traction by raising a stick.

Wilson says if people are not to be allowed to take money out of super for houses, then it follows residential property investment should be removed entirely from the super system. In turn, that would mean super funds could not invest in residential property.

It’s a stretch to suggest this at any time. What would it mean for the self managed super funds which have invested in residential property? Would they be banned too?

In reality Wilson is, of course, targeting what he calls “big super” where he says major super funds profit from property investment while many younger Australians are excluded.

Certainly in prising open superannuation for emergency funds during the COVID-19 crisis the government broke a taboo which held that super should only be used in circumstances of extreme hardship.

What’s more, there is rising evidence that super was beginning to slip out the back door, even outside the high profile early-access program. A recent report from the ATO shows 33,000 people took out around $500m last year though what you might call “traditional” applications based on hardship.

A close look at these applications shows super being used for a wide range of medical purposes, such as IVF.

The Financial Services Council has also called out potential abuse of the system with a suggestion that cosmetic surgery is being regularly approved under the program.

In this context, Wilson’s idea of letting super be used for mortgages sounds reasonable in isolation.

Even Bernie Fraser, the Keating-era RBA chief, has said owning a house rather than renting one would beat the benefits of a super fund over the long term.

The obvious problem is that it would be using the super system to solve problems in the housing system.

What’s more, in opening up the debate on the wider issue of how residential property is treated in the tax system, surely the next step is to take in the whole picture.

If I use my super early in order to buy a house, I don’t just have an immediate advantage; I open up the door to a range of exceptional advantages which are built into our current system.

If I sell my home in the future I will be exempt from capital gains tax on the profit I make on the transaction.

Further down the track, if I retire and seek a government pension, the value of my house will not be taken into consideration for pension access regardless of its price. So I might have got the money to buy my house from my super fund, and then many years later, when it is very valuable, I get to own that house without it diluting my pension access.

And many years later again, if I apply to an aged care facility, the value of my home would once again be excluded from the access criteria.

From a macro perspective, house prices will also rise as a result of any early super scheme, allowing property purchase because anything that helps people buy homes – such as first homebuyer grants – also push prices higher: The only consolation is that the target market -in this case first home buyers – will most likely gain a better market share.

Wilson wants an inquiry into the whole subject and that makes a lot of sense, because they should either leave the system alone or fix it entirely. Fixing it a little bit is not a solution at all.