Michael Sukkar (Deakin, Liberal Party, Shadow Minister for Social Services) Share this | Link to this | Hansard source

This is a good opportunity for me to speak on the Social Services and Other Legislation Amendment (Incentivising Pensioners to Downsize) Bill 2022. The good news for those who will benefit from this bill is that, to the government's credit, they've adopted a policy announced by the former coalition government, a policy built on a succession of work which I'll go into in some detail. That work sought to do a couple of things. Firstly, of course, it sought to support pensioners in the broadest possible way with respect to, in most cases, their single biggest asset—their home. One foundational feature of our tax system and our social services system has been the way in which we treat the principal place of residence. The way in which it is treated, in a preferential tax sense, certainly gives rise to the view on this side of the chamber that your principal place of residence, your home, which is in most cases your single biggest asset, is one of the foundational parts of your economic wellbeing.

This was an announcement from the former coalition government that built on a succession of work that we had done to support that cohort of individuals, not just to support their economic wellbeing, as I said, but also to meet another policy objective. That other policy objective was trying to free up as much housing stock as possible. We know that the Australian housing market has had a renaissance. It certainly did in the later stages of the coalition government, when we saw residential construction booming and numbers of first home buyers hitting record levels. Nonetheless, our view has always been that where you can free up more stock—in addition to increasing your housing stock by building—there's a benefit to broader community.

This announcement from the coalition, which has been adopted by the government, as I said, built on work that we did to encourage people, particularly older Australians, to downsize by removing some of the inherent and structural disincentives to doing that that sat within the system. One of the very successful measures that we put in place to encourage that freeing up of stock was the downsizer superannuation contribution measure that we introduced when I was Assistant Treasurer. That solved one key problem for senior Australians seeking to downsize their property: what could you do with the proceeds of that downsizing when it was trapped outside of super and you couldn't get it back into super without breaching annual contribution caps?

The way we did that through the downsizing measure was by introducing a rule that, if you had a principal place of residence that you had owned for at least 10 years, met some other conditions and had proceeds from that downsize, you could contribute up to $300,000 into your superannuation account, thereby removing the concessional contribution caps. That amounted to $600,000 for couples. I'm very pleased that that measure has at latest count seen $8.9 billion—nearly $9 billion—flow into superannuation. People no longer have that disincentive of proceeds sitting outside the tax-preferred environment of superannuation and are entitled to put up to $600,000 of those proceeds, into their superannuation, therefore supporting their retirement income.

We made further changes after it was quite evident that the downsizer measure which we put in place was very successful. We reduced the age at which people could take advantage of that from 65 to 60 and then, in the most recent budget before the election, we reduced it even further, to 55. There was a huge body of work to support senior Australians and the way in which their principal place of residence interacted with the tax and social services system. It is really important work for so many individuals, and this is proven by the fact that nearly $9 billion has already flowed into superannuation. It's clear that Australians are voting with their feet in taking advantage of that.

The benefit was, yes, supporting their retirement income and their economic future but also achieving another policy objective: freeing up more housing stock. You can't generalise too much, but, typically, there is downsizing from that large family home into something somewhat smaller once people get to a certain stage of their life, thereby freeing up those larger, typically family homes for that next generation of families coming through, so removing that incentive was a very important precursor to the bill in front of us today.

As I said, I am very pleased that the government has adopted coalition policy. Credit where it's due: they obviously recognise good policy as announced by the former government, and therefore I'm very pleased to be speaking on it now. This bill amends the Social Security Act and, of course, the Veterans' Entitlements Act to support pensioners even further along with some other eligible income support recipients when they sell and ultimately purchase a new home. This bill achieves that objective by doing two things. I will go into a bit more detail on each of them, but, broadly speaking, firstly, these two things extend the existing assets test exemption for the principal home sale proceeds, which a person or a couple intends to use to purchase a new principal home, from the existing period of 12 months to 24 months, doubling the period in which an eligible person is able to have those sale proceeds of their principal place of residence exempt for assets test purposes. We think that's a very sensible amendment, which is why we announced it, obviously. It is to give people that extra time that they need without feeling rushed and hurried into making that further purchase of their new home. Secondly, this bill proposes to apply only the lower below threshold deeming rate to the proceeds of that asset sale, which is the exempt principal home sale proceeds, when calculating deemed income.

In essence, whilst the existing law enables that 12-month period to use the proceeds of that sale to purchase a new home without effectively being punished for those additional assets that were previously tax exempt as your principal home but are now liquid—more often than not, sitting in a bank account waiting to be spent on the new home—not only is that exempt for a longer period of time, but that corpus of money that is sitting there as the proceeds of the sale will now only have the lower deeming rate applied to it as an imputed rate of return.

At present—and it will continue—that imputed rate of return on that income impacts pensioners and their pension entitlement. Reducing that deeming rate from at present about 2¼ per cent, which is the upper threshold, to 2.5 per cent is a very encouraging change because it will mean that there's a lower imputed income on those sale proceeds. Let's be frank: for most people downsizing from one home to another, those funds will be sitting in a bank account, probably in an environment that's not earning them a great deal of return, because they're looking to deploy those funds into a new home. So we think that lower deeming threshold is a really important measure.

For the purposes of this bill and for the purposes of the way in which the rules have operated, your principal home is defined by the home you live in—and there are tests around that—and the first two hectares of land that it's on. The home must be on a single title. Currently, an income support recipient's principal home is exempt from the social security assets test. Again, an important foundational feature of our tax in the social services system is the concept that your principal home is treated that way. As I said, the extension that is allowed for this bill, from 12 to 24 months, is important. It is worth noting that under the existing law there is, and has been for a long time, scope available to increase that period from 12 to 24 months on a case-by-case basis only in extenuating circumstances. This hard wires into the law a standing ability to have those proceeds exempt for 24 months as opposed to 12, not relying on the extenuating criteria that are currently there. Those applying on a case-by-case basis, in most cases, people have to maintain that 12-month rule when looking to deploy that funding.

As I said, the home sale proceeds at the moment are subject to deeming provisions—that imputed rate of return that I spoke about. Under the current deeming arrangements, the lower deeming rate of 0.25 is applied to the value of financial assets up to a deeming threshold of $56,400 for singles and $93,600 for couples. The upper deeming rate, presently at 2.25 per cent, applies to the value of financial assets above those thresholds. In making this announcement prior to the election, we wanted to give seniors selling their current property greater confidence to do so. To support people in making that decision to downsize, the best way to do it was to remove the disincentives that existed in the system at that time. The way the proceeds of that sale were dealt with was a challenge for those people. But we also think it is important for people to have the certainty that they'll have as long as they need—reasonably—to find that new property. We think 24 months is an appropriate measure, particularly given the environment—

Sharon Claydon (Newcastle, Australian Labor Party) Share this | Link to this | Hansard source

The debate is interrupted in accordance with standing order 43. The debate may be resumed at a later hour. You will be granted leave to continue speaking when the debate is resumed.