It’s great to be poor again, as Rudd starts his clamp down on the various schemes and rebates that accumulate over time to throw money at various problems that have come up. The housing crisis was one of the key messages that Kevin Rudd,
Australia’s new Prime Minister targeted as a key point of difference which is one area somewhat exempt from the purge. Following a grand Howard tradition on setting up schemes and programs which often lead to very little change to the problem they are trying to solve.Howard brought us a range of different grants targeting first home buyers, senior citizens and converting cars to LPG plus an confusing array of a various tax breaks targeting everything from starting a new business to the vote wining favorites of health care and child care. Rudd is set to follow the same trend with a slight difference.While Howard targeted the middle and upper class giving them impressive tax cuts and access to benefits that previously were restricted by the time you reach a certain income are now back in vogue and are sure to be a target of the May budget.Tax breaks for out of pocket health expenses were a classic Liberal government examples of excess structuring the program so the key beneficiaries were those that could afford the out of pocket expenses to start with. The well off suburbs got the lion’s share of the funding while the poorer parts of the community were left without the resources to take advantage of the impressive tax break.
When Rudd announced the first home buyers accounts there was wide spread fan fare but little criticism of the changing goal posts he introduced into the program. The program has been toned down as the real after-election cost has become evident.While it remains a first big broken promise of the Rudd era, but it maybe be a promise worth breaking to limit, even slightly the Government’s benefits being misdirected to those that don’t need them as much as the lower and middle income earners.
Instead of being able to direct pre-tax income benefiting the higher tax band more than any other and leaving the lowest income earners who pay no tax left out it will pay a rebate back into the accounts to to a similar effect. This will also increase amount saved within the accounts as they will be putting in and additional $750 – $1500 depending on the taxpayer’s income instead of just forgoing tax revenue.
The big plus for any one waiting on sidelines will be the lower tax rate on earnings which give a super like benefit accessible well before old age. This still benefits the rich more than the poor but they have taken a step in the right direction.
What is more alarming is these accounts while having a greater impact for first home buyers will not cost anywhere near the pervious Government’s helpless First Home Buyers Grants costing almost a billion dollars a year while doing nothing to help the average home buyer as developers had more leeway to increase their prices.
But the savings accounts will have a similar as the Grant, as when the account holders will be for the first time will be able to access there cash to buy into the housing market of 2012 will no doubt lead to a huge spike of pent up demand. This may lead many account holders hostage to even higher prices and restricted to when they can buy a home. As they may have been able to buy at a great price in 2011 but might lose out if the market booms in 2012 before they can buy up. No one knows and the Government will have to deal with that well in to a second term if it able to get a second term.
The full and actual details will be vital in determining the usefulness of these accounts. As the rules and ‘fact sheets’ issued to dates are general advisories and subject to change. Kind of like a non-core promise to translate it into the Howard speak of old.
The scheme has its merits but like most Government influenced programs that go far from solving the actual problem at hand but makes the look like they are doing a lot more. They are most likely to be better off saving the money and leaving the market to itself. The housing crisis is basic supply and demand. It is the supply stupid; the demand is only to be expected with a growing population. Solve that and you have gone a long way to fixing the issue.