Robert McClelland (Barton, Australian Labor Party, Shadow Minister for Defence) Share this | Link to 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.

Peter Slipper (Fisher, Liberal Party) Share this | Link to this | Hansard source

I am always pleased to follow the member for Barton’s speeches in this place. Before the member leaves the chamber, though, I would like to point out that the Prime Minister has indicated to the parliament that the difficulty in affordability of housing is at least partly caused by the lack of availability of land. I think the member for Barton unintentionally placed interest rates as being the reason for people being unable to purchase homes, which is a fairly unusual statement bearing in mind that interest rates, relatively speaking, are still low compared with what they have been historically.

The member for Barton also wrongly suggested that the government placed military bases willy-nilly in marginal seats to benefit marginal coalition members. Interestingly, while he delivered a broadside on service conditions and indicated that people are dissatisfied with the government and the conditions in the armed forces, he also seemed to suggest that a majority of service personnel vote for the coalition. On the one hand he said that we are not providing adequate terms and conditions for serving personnel; on the other hand he said that we want to place these people, who apparently should be dissatisfied with the government, in marginal coalition seats. I cannot quite follow the honourable member’s reasoning.

However, I do agree with him that recruiting is very important and, as a nation, we need to make sure that we have appropriate levels of conditions so that in today’s uncertain world we are able to obtain the number of enlistments that we need. We also need to retain many more of those people who are currently in service. Given your ministerial experience in this general area, Mr Deputy Speaker Scott, I know you would understand the importance of what I have just said and you would share my concern about the need to provide appropriate levels of benefits to those people who have served our nation so well for so many years.

The defence home loan has been around for a considerable period. Originally, it might even have been called a war service loan and it may have been allocated to those who served in the Second World War. Australia does have a very proud history and heritage in the area of defence. Our history is punctuated by battles on numerous frontiers. Not all of these have been won, but on the whole they have added to our maturity and strength as a nation.

Most Australians who sign up for the military do not sign up because of financial reward or to get what they can out of the system. They sign up so that they are able to make a contribution to the security of their families and their nation, and it is a selfless step underpinned by a love of the country in which they live.

For the last couple of years I have had the very great fortune to participate in the Australian Defence Force Parliamentary Program, which is an excellent opportunity for members of parliament who have had no military experience to get some real taste of life in the military. I am pleased to see the member for Wakefield, who is a former colonel, in the chamber. He is a great member and I know that he will be here for as long as he wants to be because he is doing such a wonderful job. When I was privileged to go on the ADF Parliamentary Program this year, I was very pleased that the member for Wakefield was able to be there too. In fact, he knew more than many of the instructors, and he was instructing those of us who were not as skilled as him in the use of weapons in how actually to use them.

Having said that, I do think it is important for us to understand the trials and tribulations and the stresses on family life of the serving personnel of the ADF and the length of time that they are away from their families and their homes. If I had not participated in this ADF program, I simply would not have been aware that people who serve in the Royal Australian Navy at sea are actually away sometimes for eight out of every 12 months. Many people joined what they thought was a peacetime Defence Force, and this is part of the reason for a bit of the turnover. The ADF has been much more proactive in overseas deployments in the last few years. There are many people who probably joined the armed forces never really intending to be deployed, and all of a sudden what they understood was going to be their service life was turned upside down. People who join the ADF at the moment, of course, would do so being aware of the reality of the situation.

I want to extol the role played by our fighting men and women. I want to commend them on their decision to sign up. It is only fitting that they should be recognised in various ways, including through defence home loans. The Defence Force (Home Loans Assistance) Amendment Bill 2006 affords a level of support for members of the Australian Defence Force in the area of homeownership. Recently, on 18 August, Australia commemorated the 40th anniversary of the Battle of Long Tan. At that battle, during the war in Vietnam, intelligent tactics, clever coordination of assets and sheer determination enabled the Australian forces to defeat a significantly larger opposing force. The government recognises the role played by our ex-service men and men, and I am very pleased, like other members, to have been able to announce funding for veterans’ organisations.

I would just like to digress briefly to state that the Queensland Air Museum at Caloundra was allocated $2,800 for a display of photographs and wartime memorabilia relating to the Vietnam War, and the Maleny RSL subbranch in Queensland’s Sunshine Coast hinterland received $1,400 to go towards a memorial service and a commemorative dinner. The Australian government also allocated $30,000 towards a memorial constructed in my electorate, on the bluff at Alexandra Headland, to commemorate the ex-HMAS Brisbane that was sunk as a dive wreck off the coastline last year. You would be aware of that, Mr Deputy Speaker Scott, because I think you were Minister Assisting the Minister for Defence at the time, and the Queensland Beattie Labor government would not provide the cost of sinking that ship, something that would usually be in the purview of a state government. I think we went to you and you gave us $1 million and later $3 million to make sure that that ship was able to be sunk as a dive wreck off the Sunshine Coast, bringing tens of thousands of dive tourists to the Sunshine Coast, boosting our local economy and at the same time improving our marine environment. On behalf of the Sunshine Coast, Mr Deputy Speaker, I would like to thank you for that very proactive decision by your good self when you were serving as a minister of the Crown. The grants to ex-service organisations that I mentioned do help citizens remember what fighting men and women have done and the personal sacrifices they make that accompany their enlistment in the Australian defence forces.

The Defence Home Owner Scheme also recognises the men and women of the ADF in that it provides individual members with a subsidy on the interest expense incurred on their mortgage. As was indicated by other members, this subsidy is linked to home loans received through the National Australia Bank, up to a maximum of $80,000. As the member for Barton mentioned in his contribution, the scheme was due to finish at the end of this year, on 31 December, but this bill provides for the scheme to be extended by 12 months until 31 December 2007.

The program was set up at a time when banks were the major suppliers of home loans. As we are all aware, this is not necessarily the case now, with there being many and varied providers of home loans in today’s market. I think that is a very positive change, and that change has benefited many people. The providers of home loans include building societies, community banks, dedicated lending agents and the like, and the mortgage market has evolved and will continue to evolve.

In recognition of this changing marketplace, the ADF is reviewing the Defence Home Owner Scheme. It does not wish for its fighting men and women to lose access to the scheme in the meantime, so it is a necessary evil that this scheme will be extended for an additional 12 months. This bill is all about making sure that the men and women who have served our nation in the armed forces are able to continue receiving support until such time as the review has taken place. The opposition has attacked the timeliness of the review and the need for the extension of time which is provided for in this bill. I think it ought to be pointed out that this is an attack on the detail of the process rather than on the overall objectives of the scheme. I think the member for Blaxland opposite is nodding his agreement.

Michael Hatton (Blaxland, Australian Labor Party) Share this | Link to this | Hansard source

No, I am looking at the time.

Peter Slipper (Fisher, Liberal Party) Share this | Link to this | Hansard source

I have another 10 minutes, but knowing that the member for Blaxland is anxious to make his contribution I certainly will not be detaining the House for that long. It is often easy to criticise delays. My own past experience in the parliament has indicated that it is quite a long and time-consuming process for a bill to be talked about, as to what ought to be included, then for it to go to the drafters and then for it to go through all the necessary processes. I am not going to defend the delay. I do think it is unfortunate. But we have no option other than to extend the life of the existing scheme while the review is taking place. I know that review will also consider what we need to do to make sure that people stay in or join and then stay in the defence forces. So it is better that the review is not hurried. The review ought to be able to take its course. However, in the meantime it is important to recognise through the defence home loans scheme the service of those people to whom this country owes so much. I am pleased to be able to commend this bill to the House.

Michael Hatton (Blaxland, Australian Labor Party) Share this | Link to this | Hansard source

It may be novel but I intend to speak to the Defence Force (Home Loans Assistance) Amendment Bill 2006, though I will engage in some rebuttal as I do so. The fundamental purpose of this bill, which deals with a program that has now run for 15 years—since 1991, when the Australian Labor Party in government initiated this process—is to allow for an extra year to take stock of and review the situation of Defence Force housing loans. The Labor Party’s criticism with regard to timeliness is entirely apt. The scheme finishes at the end of this year, so this bill is necessary to give an extra year to the program so that the review can be conducted.

What is the review fundamentally about and drawn to? The review was announced on 10 May this year. Its broad objectives, as the chair of the defence committee and I, as deputy chair of that committee, well appreciate, are to support recruitment, retention and resettlement. The review is also looking at the scheme being cost-effective for Defence, and it recognises the benefits that homeownership provides to both members and Defence. It is a necessary review at the end of a 15-year program. It should have happened a year ago. That is our one fundamental criticism of this process. There are a series of other shortcomings here in terms of the process and the actual operation of this, and they have already been canvassed at some length by the shadow minister. I will reiterate those if I have time.

The core of this is that time and circumstance change just about everything. In 1991 it was responsible and reasonable to have the first $80,000 of a home loan given to a member of the services—to provide them with a subsidy for that $80,000—when the average cost of a home loan for a person in Australia was much lower than today. That was an important contribution then but, with the effluxion of time, the change in circumstance and the fact that it now costs much more to buy in, even for a married couple with $160,000 that can be subsidised there is no longer a situation where that is the core part of the loan. It is a part, but now a relatively much smaller part.

Although this is within the context of being able to get a full loan from an institution—here it is the National Australia Bank, and has been since 1991, and part of the review will be how to spread that out further to enable more people to participate or more institutions to participate—it is also indicative of what the situation was prior to the banks coming fully in, prior to the reforms that were made by Paul Keating when he was Treasurer.

The ADF home loan situation is now the one that applied when John Howard was Treasurer, when the only way people could afford to buy was to take out a cocktail loan. They would go to the bank and get part of the loan from the bank, but they would have to go off to another set of lenders to get the rest of the money they needed to buy. Whatever the banking institution’s interest rate was, there was a much higher interest rate with those other lenders, so the total price of the cocktail was significantly high.

The fundamental change in putting banking institutions into first place in home loans and having a pegged rate—13½ per cent when that initially came in—was to not only peg down the price but also put banks in first place. As part of that process for the Australian Defence Force, doing a special deal with the National Australia Bank to provide subsidised loans allowed people to get a loan and, crucially, be able to take that loan from one property to another. The nature of serving in the Defence Force is such that people have to move from one end of Australia to the other, or be posted overseas. They could spend time, for instance, at HMAS Cairns. At HMAS Cairns the current accommodation is just off base. Young people have moved into that and a lot of people are in rented accommodation there. Some people have chosen to buy. But you will find that people throughout the service in the past 15 years have quite often taken a very long period of time to finally buy a property and take advantage of this loan. One of the reasons for that is the very nature of defence service—its peripatetic nature. People move around so much that they do not settle on a place to finally stay, and therefore mentally see themselves as buying a home, for quite a long period of time.

Part of the problem with this process is the effluxion of time and circumstance and now the relatively much greater interest burden that is faced by people in Australia’s defence forces under the Howard government, compared to the interest burden that was faced under the Hawke-Keating government. It is the cost of that loan, and the amount of their income that has to be directed towards it, that not only leads to this review, and therefore the extension of time in this legislation, but is the fundamental core of the problem at base. The shortcomings of this bill—I quote the shadow defence minister and will, hopefully, come back to this issue when I continue my speech—are as follows:

... firstly, the upper limit of the subsidy in no way recognises the real cost of housing or the average size of mortgages these days ... 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.

Mr Deputy Speaker Scott, with your past ministerial experience and from your current role as chair of the Defence subcommittee, you know and understand the full ramifications of those issues for the Defence Force—as do I, serving as deputy chair of that subcommittee. I seek leave to continue my remarks later.

Leave granted; debate adjourned.