Robert McClelland (Barton, Australian Labor Party, Shadow Minister for Defence) Share this | Hansard source

The act which the Defence Force (Home Loans Assistance) Amendment Bill 2006 amends was introduced in 1991 to assist eligible ADF personnel and ex-members to purchase their own homes. For ADF personnel, assistance with housing has been a valued benefit which has built on the assistance traditionally provided to veterans returning from war. These days, the differential for ADF personnel serving is not so dramatic but no less valuable. The scheme provides a subsidy on the interest of a home loan through the approved lender—in this case the National Australia Bank. Single members have an entitlement to the subsidy up to a limit of $80,000. Married or de facto couples, where each has an entitlement, have a combined limit of $160,000 on one property.

The Defence Housing Authority administers the scheme on behalf of the Department of Defence. The act was last amended in 1996, when the eligible period was reduced from six years to five years of full-time service. The limit of any one loan to be subsidised was increased from $40,000 to $80,000 with some retrospectivity. The benefit was also extended to active and emergency reserve personnel. Fringe benefits tax is payable except where the entitlement was obtained due to reserve service only or as the result of warlike or operational non-warlike service.

The subsidy is payable only where the beneficiary lives in the house mortgaged and where no other property is owned at the time of application. The subsidy is equal to 40 per cent of the average monthly interest of the loan. The DHA calculates that the average over a 25-year period divides that by 300, which is the number of monthly repayments, and then multiplies that result by 40 to reach the subsidy level payable. The only change to the subsidy is through changes to interest rates during the period of the loan. There are special arrangements for the establishment and benchmarking of that interest rate which form part of the agreement between DHA and the bank.

The key point was to get ADF members the best deal possible. That deal, though, no longer stacks up in the modern marketplace. The total amount borrowed is subject to normal bank rules, but the subsidy, as mentioned, applies only to the first $80,000. The balance over that limit is treated as a normal top-up loan, which is a standard commercial home loan. The reality is that anywhere around Australia you are not going to be able to purchase a property or a home for anything resembling $80,000. The original loan amount is used for the calculation of the subsidy regardless of the loan repayments, which are based on the actual cost or the actual full extent of the loan to purchase a property.

As an example, a loan of $80,000 at, say, 7.7 per cent would require a payment of $569 per month. The subsidy on that would be $120.93, leaving a reduced payment of $448 a month. That is a significant saving but the drawback is that, if you are in advance of repayments, you cannot redraw—that is, you cannot re-borrow the amount of your entitlement. You can, however, transfer the loan to a new property once the existing property is sold. In essence, that is a summary of how the scheme works.

There are of course many shortcomings to this program, which are now most notable as recruitment dries up and incentives to join the ADF are few and far between. In fact, this amended bill completely misses the opportunity to do something concrete to address the shortcomings. The bill Defence Force (Home Loans Assistance) Amendment Bill 2006 does no more than extend the life of the program for 12 months while the minister sorts out something else to do from a long-term perspective. The bill does nothing more than extend the operation of the act until 31 December 2007, at which time a review will be conducted.

Frankly, that review should have been conducted more than a year ago, because the shortcomings of this scheme have been well known for a long time. Those shortcomings include the following: firstly, the upper limit of the subsidy in no way recognises the real cost of housing or the average size of mortgages these days, as I have mentioned; secondly, it pays no heed to the comparative advantage and cost of rental accommodation and the subsidy implicit in those rents; thirdly, the scheme also restricts ADF personnel to the very limited range of home loan products negotiated by the government with the National Australia Bank; and, finally, it fails to recognise the needs of ADF personnel who are shifted from pillar to post almost annually with enormous disruption to their family life.

These are major drawbacks and have been known weaknesses for many years. As usual, ADF personnel have been taken for granted and told to be grateful for what they have. The revision of this important scheme does not go far enough to address the sleeping giant which is ADF recruitment and retention. The 2005 Defence attitudes survey identified that approximately 66 per cent of ADF personnel are dissatisfied with their current salaries. This is an increase on earlier years and stands in contrast with the 50 per cent of Defence civilian employees who expressed dissatisfaction with their salaries. Equally significant is the fact that fewer than half of Navy and Army personnel reported that their workplace promotes a healthy work-life balance, and one-third of Defence personnel are actually actively looking for other work.

It is difficult to reconcile these levels of dissatisfaction and the staggering number of personnel getting out with the government’s commitment to increased troop numbers. The figures show that last year’s recruitment target achieved only a 77 per cent success rate and the Army separation rate last year was 14 per cent—an increase of five per cent from 2004. These figures indicate that the Army will reduce its size over the next 12 months, conflicting with the government’s stated intention of its desire to increase Army numbers by 3,000 over the next decade.

The government cannot turn around these declining Defence numbers without addressing the fundamental concerns of our serving men and women and the interests of their families. These concerns have been expressed in the attitude survey in no uncertain terms. The government must address outdated conditions of service and salaries that are not keeping pace with average weekly earnings. It must become more sensitive to alleviating the particular pressures on ADF families, particularly in the current high operational tempo.

We are now losing personnel in droves and attracting few others. This is a problem essentially of the government’s own making. It is a problem of its own negligence and failure to act despite all the warning signs. Now recruitment has become a panic issue, and the publicity machine, making a silk purse out of a sow’s ear as usual, is in overdrive. ADF personnel need to know that this is not a new phenomenon. It has been a problem of great concern to them for many years. We urge the government to get serious, do its review of the home loan scheme within months rather than a year and get fresh legislation into the parliament to smarten up this antique scheme as a matter of urgency.

As I have mentioned, the bill simply extends the current scheme to 2008. Entitlements will be preserved, as will the agreement with the National Australia Bank. As I understand it, there are about 6,500 ADF personnel using the scheme. We can assume that this represents pretty much the total of ADF personnel who find homeownership attractive while in service. This is compared to the general population, in which homeownership is a commitment made by almost 70 per cent of families but which is getting much harder due to rising interest rates—despite all the indications of the government’s intentions prior to the last election.

Fortunately, or perhaps unfortunately, for ADF personnel, not many will be represented in the large number of people who will be suffering from higher interest rates simply because there are not too many who have the commitment to homeownership. To begin with, Defence personnel cannot settle anywhere without being shifted frequently. We know of ADF families whose children have attended as many as 20 different schools. In many ways, they are modern day gypsies, and the reality is that, for many, renting is the only option. Compounding that, we have military bases scattered everywhere. This is not often based on rational planning—other than when it suits the location of marginal seats. There is not the slightest attempt to look at a real rationale, which puts people and defence needs first, rather than political interests in terms of shoring up votes in marginal seats.

Nor is it likely for ADF personnel that owning a home will become an option before discharge. Indeed, getting out simply to achieve that life goal for any family is a huge incentive to leave the armed forces. It seems to be a strange circumstance that so many ADF personnel rent from the DHA at a generous subsidy but fail to buy a house even with assistance under the housing loan scheme. Why couldn’t the DHA, for instance, encourage those people to buy under the scheme and allow DHA to manage their leases when they are posted to another location or overseas? One can only imagine innovative options going beyond the current limits which would give ADF people the same benefits of homeownership as the rest of the community and provide an incentive to remain in the defence forces.

We sincerely hope that the review produces some options, just as it might have done several years ago when these problems were equally apparent. Such frequent relocations and absences from home in the current high-operational tempo can be difficult for members and their families and may affect the decision to remain in the service. Homeownership in the posted locality may provide a stabilising factor.

In that light, the government might consider broader reforms to the scheme in a bid to encourage greater instances of owner-occupied housing among the Defence Force. Such broader reforms should properly address any disparity in entitlements between owner-occupiers and those members renting in the private market or living in Defence Housing Authority homes. The discounted rental rates and rental allowances are currently regarded as more generous than the assistance provided to ADF home occupiers under the scheme in its present form. Such disparities are likely to discourage members from taking advantage of the scheme and may negate the benefits of such assistance to the retention of trained personnel.

The scheme in its current form goes beyond assistance in buying a home to include assistance in completing or renovating a house already owned and lived in. A similar flexibility in application should exist in any subsequent schemes. The dedicated members of the ADF provide an invaluable service to our nation. The particular demands of service life placed on members and their families are not necessarily reflected in the civilian world. Initiatives to mitigate these demands and alleviate some of the pressures on defence families are essential.

The subsidised home loans initiative established by the Labor government in 1991 is part of the deal. The modernisation of the initiative and recognition of modern-day market values is important recognition of the sacrifices made by service members and their families. That is why we support the bill, but that is why the government needs to redouble its efforts to get the scheme in order so that it is relevant to modern defence families.

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