Mark Bishop (WA, Australian Labor Party) Share this | Hansard source

The incorporated speech read as follows—

This bill has been a long time in gestation. In the past couple of years we have seen the current, inadequate scheme extended a number of times. The scheme has been administered by Defence Housing Australia, previously the Defence Housing Authority, with funds provided by the National Australia Bank. It should have been replaced years ago. There are two reasons for saying this: firstly, the loans available that attract any subsidy are limited to $80,000—which means the balance of any home loan or indeed any second mortgage is obtained at market rates. Secondly, there is currently only one provider of loans under the scheme and that is the National Australia Bank. Information available indicates that of the 50,000 ADF personnel - only 4,500 current serving personnel have taken advantage of it. No doubt some have chosen to borrow elsewhere without taking advantage of the subsidy.

It is obvious that many defence force personnel and their families prefer to rent. That too is attractive given the generous level of subsidy available, and good quality rental housing is now provided by DHA. It can also be said that properties surrounding some Defence bases are not always an attractive investment propositions. In remote areas of course there may be no investment opportunities at all. In others, it simply might not be a sensible investment option due to low rates of capital gain, not to mention the constant disruption of buying and selling in short time frames because of 2 to 3 year posting rotations. Indeed that problem will also apply to the new scheme. However, for some a property purchased in a good locality may become an investment property for the future, as properties purchased with a subsidy can be rented out after one year of occupation. And I understand this has occurred. However, the subsidy will then become taxable. Although, with a capital gains tax exemption. Rental subsidies can then be accessed as normal.

We should be encouraging a higher level of home ownership among ADF personnel. Home-ownership is enjoyed by 70% of the Australian population, but denied ADF people. It is effectively denied, not because ADF families are unable or unwilling to work towards home-ownership but because of frequent postings, the volatile nature of the property market in many of places where bases are located, it makes the decision to purchase difficult. By contrast, there is a high standard of subsidised rental housing. Home ownership might not seem worth the trouble.

The difficulty with the new policy is that some of those qualifications remain—but more on that shortly. Let me describe the key features of the new scheme. The new scheme is in fact much more than a home ownership scheme. It will also compliment the Government’s, retention programs. This is because the subsidy available to those borrowing for their own home will progress in 3 stages. These steps align with the major points in a career when people are shown to resign. That is, at the 4, 8 and 12 year marks. At each stage in this new scheme, the level of borrowing which attracts the subsidy of 37.5% or interest paid increases. While no subsidy is available in the first 4 years of service, it will come into effect at a time when young recruits are contemplating their future career path. And so the scheme will provide an added and generous incentive for them to continue their career in our Defence forces.

Not only is it a genuine and generous home ownership scheme; it will make an attractive recruitment tool. I would like to talk briefly on the generous nature of the new scheme. At the first stage of 4 years the maximum borrowing attracting the subsidy of 37.5% on an amount of just over $187,000. This equates to approximately 2% less than current market interest rates. This is 40% of the national weighted average house price and the value of the subsidy on that amount is $350.00 per month. At the 8 year point the limit attracts subsidy increases to 60% of the average house price, or around $280,000. The value to eligible personnel is $525.00 per month. At the 12 year point it goes to 80% of the average house price or $374,000—and an allowance value of $700 per month. Given that the current interest payable on a mortgage of $230,000 is about $1600 per month—this is a significant allowance. The applicable rate of interest on which the subsidy is based will be set at the median interest rate applicable on or after the 1st July. That is when the new scheme becomes operational. It should be noted that interest rate rises above that level will not be subsidised, but falls in interest rates will result in a decrease in the subsidy.

Overall this scheme entails an entitlement lasting 20 years. For those with war-like service, that period increases for maximum of a further 5 years. Of course that will depend on the accumulated war-like service. This is an entitlement translated from the current scheme. For reservists the benefits are the same except that the service periods will progress at 8, 12 or 16 years. Provision is made for the reservists who perform continuous full time service, and their entitlements will be advanced accordingly.

The other key factor of this scheme is that the benefit accrues to ADF personnel, even if they might not immediately take advantage of it. Provisions are made in the bill for entitlements to be cashed out providing that amount is used to purchase a home. Unlike the current scheme administered by DHA with National Australia Bank as the sole provider, this scheme is to be administered by the Department of Veterans’ Affairs. The decision was taken after a public tender. Rather than one single provider there will be 3—also decided following an open public tender. Obviously 3 is better than 1 - but of course the obvious question is why not an open market? I understand this decision to set a limit on number of providers was made by Dr Nelson the previous government’s Minister for Defence. The 3 providers chosen are NAB and the two Defence Credit Unions.

Whether a broader market model might have been closer is a moot point. Any changes will entail another tender process and therefore lead to a delay in the introduction of the new scheme. Clearly the restriction of the market to 3 providers provides limited choice and it also guarantees a larger guaranteed market for the 3 providers. This we are told reduces the administrative burden in reconciling payments, but in turn no doubt assists a healthier revenue stream back to the Commonwealth through franchise fees. Franchise fees of this nature have attracted some controversy in that they are seen as exploitive. In fact, such fees seem to be part of the market. And given that the taxpayers are providing a healthy parcel of business it would seem to me to be smart. To the extent that there is significant income stream to the Commonwealth, it might also be said that this enables the level of subsidy provided to be more generous.

Mr Acting Deputy President that in a nutshell is the new scheme. It will be very interesting indeed to see the effect it will have on retention rates over the coming years. In fact given the current level of retention bonuses, salary reviews and all other allowances, it is very clear that we value the experience and expertise of our serving personnel. This new scheme is a part of the current policy matrix. We must also consider the other incentives available. Firstly, there is the Defence Home Purchase Scheme. It provides a $15,000 taxable grant to ADF first home buyers. This grant is on top of the $7,000 first home buyers’ scheme available to all Australians first home buyers. An added bonus for Defence force families is that all current homeowners, who are posted and decide to sell their house and buy another, have all their costs reimbursed. That is conveyancing costs, legal fees, stamp duty as well as agents fees.

Mr Acting Deputy President, as I said earlier, this is a significant and forward thinking housing policy, and I am sure it will pay dividends in the retention rates of our valued and valuable defence force personnel. Whereas previously it was said that renters had an advantage over ADF home buyers, that balance has certainly been redressed. The retention aspects of this policy will build on existing allowances and bonus schemes. In short the longer one serves, the higher the income, and the greater the borrowing the larger the subsidy. As young men and women continue their career in the forces and as they start to build their own families, the new housing scheme will grow to meet their needs. I do note however, the government has put a 5 year sunset clause on this scheme pending a review after the first four years. It would be my hope that the effectiveness of the scheme as a retention tool is closely examined, along with the broader housing policy.

I’d also like to address the administration of this new scheme. While we are not privy to the details of the tender documents, I find it extraordinary that the current specialised provider of Defence housing, DHA, has been passed over in favour of the Department of Veterans’ Affairs. You would think that DVA has little experience in housing. However it appears that the DVA tender was far superior to that submitted by DHA. So my question is why did DHA get it so wrong? Why was their tender document apparently inferior to that of DVA? What is the future for Defence Housing Australia if they are unable to tender successfully for a program that would be considered ‘core business’, against a competitor with limited or no experience in housing? Put simply, DHA is the agency that provides and maintains housing for Australia’s Defence force personnel. Yet despite their carriage of the original housing subsidy scheme DHA appears not to have the expertise to successfully compete in an open public tender for the new scheme.

It will also be interesting to see how the Department of Veterans’ Affairs responds to their new function and what the changes will mean to their role in the future. Clearly there is currently a lot of overlap in the arrangements for the provision of services to serving and ex-service personnel. But in terms of service delivery and accountability this arrangement does question the effectiveness of Defence Housing Australia.

I support the bill, and I know that ADF personnel have been waiting keenly for this for some time. As I have said, this new housing policy, I believe will make serving personnel consider continuing their career in our forces. I am sure some may be amazed at the generosity of this package, with a question as to what the total package of ADF salary and allowances are. I have no quibble with paying what’s needed to retain people in a very competitive labour market, and this new scheme will enhance the remuneration packages available to our Defence forces.

I support the bill.