First Home Saver Accounts – Making the Australian dream a reality and fighting inflation

Federal Cabinet today formally approved the establishment of First Home Savers Accounts to help first home buyers save for their first home and help fight inflation.

Cabinet also formally approved a consultation schedule – beginning this week – to assist with the detailed design features of the Accounts.

First Home Saver Accounts are the first of their kind in Australia, and from 1 July 2008 will ensure a couple each earning average incomes and saving for their first home, putting aside 10 per cent of their incomes, will be able to save a deposit of more than $85,000 after five years of disciplined savings.

This is up to $14,000 more than they would have saved otherwise, depending on returns.

The First Home Saver Accounts signed off by Federal Cabinet today have been considerably strengthened since their first announcement during the election campaign.

Improvements include:

• Boosting assistance for low income earners through the provision of a minimum 15 per cent Government contribution on after tax contributions of up to $5,000; and
• Delivering a streamlined up-front Government contribution directly into accounts rather than through a more complex system of salary sacrificing.

Helping to fight inflation

First Home Saver Accounts are also part of the Rudd Government’s five point plan to win the war on inflation, encouraging private savings and helping put downward pressure on inflation and interest rates.

This initiative will help boost national savings, with the accounts anticipated to hold around $4 billion in savings after four years.

Strengthened First Home Savers Accounts

A Rudd Labor Government will invest $850 million over the first four years of this initiative to give first home buyers access to the newly-created accounts.

The strengthened financial support now offered by the Australian Government’s First Home Savers Accounts reflects the increased financial pressure many families now face.

Since the announcement of the FHSA policy during the election campaign, we have worked to improve the policy to provide greater benefits to lower income earners.

We will now ensure low income earners benefit from the First Home Saver Account by providing a minimum 15 per cent contribution on after-tax contributions of up to $5,000.

This means Australians paying no tax, or those on the 15 per cent marginal income tax rate, with individual contributions of $5,000 will receive a $750 Government contribution paid into their First Home Saver Account. Those on the zero and 15 per cent marginal income tax rates may not have otherwise benefited.

Other improvements include:

• Simplification of the contribution arrangements – there will be a single annual post-tax contributions cap of $10,000 (indexed); Improved accessibility – banks, building societies, credit unions and life insurers will be able to offer the accounts.
• Aspiring eligible first home buyers will benefit from the enhanced First Home Saver Accounts, regardless of their marginal income tax rate.

The Australian Government’s commitment to helping working families

The Liberal Party’s inflation legacy has made it harder for working families, especially first home buyers, to save a deposit and buy themselves a home.

The new First Home Saver Accounts will reflect the arrangements for superannuation – allowing first home buyers to access similar benefits on their first home savings, and unlock higher returns.

The FHSA initiative will complement the Government’s National Housing Affordability Strategy to increase the supply of affordable first homes.

Today’s announcement delivers and improves on a key election commitment and brings the dream of home-ownership a step closer to reality for hundreds of thousands of Australians, while fighting inflation.

Further details about the improvements to First Home Saver Accounts will be released this week with the consultation paper.