Bills Digest no. 61 2008–09
Appropriation (Economic Security Strategy) Bill (No. 2)
2008-09
WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.
CONTENTS
Passage history
Purpose
Background
Financial implications
Main provisions
Concluding comments
Contact officer & copyright details
Passage history
Date
introduced: 11 November 2008
House: House of Representatives
Portfolio: Finance and Deregulation
Commencement:
On Royal
Assent
Links: The relevant
links to the Bill, Explanatory Memorandum and second reading
speech can be accessed via BillsNet, which is at http://www.aph.gov.au/bills/.
When Bills have been passed they can be found at ComLaw, which is
at http://www.comlaw.gov.au/.
To appropriate
approximately $1.184 billion for the non-ordinary (or other )
annual services of government as part of the government s Economic
Security Strategy.
On 14 October 2008, the Rudd Government
announced
its Economic Security Strategy.[1] The context for the announcement is what may be
the most severe downturn in the world economy since the Second
World War. The downturn has inevitably affected Australia, which
faces the prospect of a sharp decline in economic growth if not a
recession. To try to counter the slowdown, the government announced
a discretionary fiscal stimulus package known as the Economic
Security Strategy. For additional background, see the Bills Digest
for Appropriation (Economic Security Strategy) Bill (No. 1)
2008-09.
The Appropriation (Economic Security Strategy)
Bill (No. 2) 2008-09 (the Bill) seeks funding for only one
component of the Economic Security Strategy, namely, a short term
increase in assistance to those seeking to buy their first home.
All of the proposed funding is through Treasury. Two related bills
the Appropriation (Economic Security Strategy) Bill (No. 1) 2008-09
and the Social Security and Other Legislation Amendment (Economic
Security Strategy) Bill 2008 seek funding for the other components
of the Economic Security Strategy.[2] Under the First Home Owners Boost component of the
Economic Security Strategy, the existing grant for first home
buyers who purchase established homes will double from $7,000 to
$14,000 while the grant for those purchasing a newly-constructed
home will treble to $21,000.
The First Home Owners Boost took effect from
14 October 2008 and all contracts entered into by 30 June 2009 will
be eligible for the additional assistance. The government estimates
that over 150,000 first home buyers will benefit from the First
Home Owners Boost which is expected to cost around $1.5 billion
over 2008-09 and 2009-10.[3]
A range of measures providing direct financial
assistance to first home buyers have been implemented at various
times by Commonwealth and state governments. A First Home Owners
Scheme (FHOS) was initially introduced by the Commonwealth
government on 1 October 1983 and terminated in the 1990
Budget.[4] It
replaced three other Commonwealth schemes in operation at that
time: the Home Deposit Assistance Scheme, the Special Tax Rebate
Scheme for first home buyers and the General Tax Rebate on Housing
Loan Interest. In contrast to current arrangements, the benefit
payable under FHOS was means tested, related to the number of
dependent children and spread receipt of payments over several
years.
The current First Home Owner s Grant
(FHOG)[5] was
established via agreement between the Commonwealth and states and
territories. It was developed as part of the arrangements for
implementing the new tax system which came into effect on 1 July
2000. The FHOG introduced on 1 July 2000 is effectively funded out
of GST revenues and administered by the states. There is no
specific Commonwealth legislation for the FHOG. All legislation
concerning FHOG is state based as per the Intergovernmental
Agreement on the Reform of Commonwealth-State Financial
Relations (the Agreement) signed in June 1999.[6]
The main rationale for the FHOG is given in
Paragraph 15 of the Agreement, which states:
To offset the impact of the introduction of a
GST, the States and Territories will assist first homebuyers
through the funding and administration of a new uniform First Home
Owners Scheme.
In March 2001, the Commonwealth made an
additional $7,000 grant available to first home owners building or
purchasing new homes before 31 December 2001. The Commonwealth
fully funded the additional FHOS with a Specific Purpose Payment
through the States to meet the cost of grants. The Government
extended the additional FHOS at a rate of $3,000 for new homes
built or purchased between 1 January and 30 June 2002.
The purpose of the additional FHOS was to
provide a short-term stimulus to activity in the residential
construction sector. As such, the additional grant was introduced
for a limited period, and applied only to first home buyers
purchasing or building a new home.[7]
|
First Home Owners Scheme ($ million)
|
|
|
|
|
NSW
|
VIC
|
QLD
|
WA
|
SA
|
TAS
|
ACT
|
NT
|
TOTAL
|
|
|
|
2007-08
e
|
320.4
|
268.1
|
216.2
|
95.3
|
72.6
|
20.3
|
19.1
|
8.8
|
1020.8
|
|
2006-07
|
318.7
|
275.4
|
215.0
|
94.7
|
72.2
|
20.2
|
19.0
|
8.8
|
1024.0
|
|
2005-06
|
288.5
|
293.9
|
181.1
|
128.3
|
66.8
|
18.3
|
16.0
|
10.3
|
1003.4
|
|
2004-05
|
271.0
|
256.6
|
165.2
|
124.7
|
65.1
|
18.1
|
13.7
|
9.2
|
923.6
|
|
2003-04
|
237.9
|
195.8
|
168.8
|
93.9
|
57.0
|
19.5
|
11.3
|
7.8
|
792.0
|
|
2002-03
|
287.4
|
225.4
|
209.2
|
108.7
|
67.0
|
27.4
|
16.0
|
8.3
|
949.4
|
|
2001-02
|
440.0
|
329.2
|
316.2
|
157.9
|
105.0
|
37.1
|
25.9
|
11.8
|
1423.1
|
|
2000-01
|
287.7
|
232.0
|
205.8
|
110.5
|
100.0
|
30.2
|
21.0
|
8.9
|
996.1
|
|
|
|
Estimated total 2000-01 to 2007-08
|
2451.6
|
2076.4
|
1677.5
|
914.0
|
605.7
|
191.1
|
142.0
|
73.9
|
8132.4
|
|
Additional First Home Owners Scheme ($
million)
|
|
|
|
2008-09
e
|
0.0
|
2.3
|
0.0
|
0.0
|
0.0
|
0.0
|
0.0
|
0.0
|
2.4
|
|
2007-08
e
|
0.0
|
0.0
|
0.0
|
0.0
|
0.0
|
0.0
|
0.0
|
0.0
|
0.0
|
|
2006-07
|
0.0
|
0.0
|
0.0
|
0.0
|
0.0
|
0.0
|
0.0
|
0.0
|
0.0
|
|
2005-06
|
1.2
|
0.0
|
0.0
|
0.0
|
0.0
|
0.2
|
0.0
|
0.0
|
1.3
|
|
2004-05
|
0.0
|
0.0
|
0.0
|
0.0
|
0.0
|
0.0
|
0.0
|
0.0
|
0.0
|
|
2003-04
|
2.1
|
0.0
|
0.0
|
0.0
|
0.0
|
0.2
|
0.0
|
0.0
|
2.3
|
|
2002-03
|
15.5
|
25.2
|
3.3
|
5.5
|
4.5
|
0.9
|
1.2
|
0.4
|
56.5
|
|
2001-02
|
80.1
|
89.3
|
82.0
|
62.0
|
23.3
|
3.8
|
4.0
|
2.9
|
337.5
|
|
2000-01
|
18.4
|
15.3
|
9.4
|
7.3
|
5.9
|
1.7
|
1.4
|
0.6
|
60.0
|
|
|
|
Estimated total 2000-01 to 2008-09
|
117.3
|
132.1
|
94.7
|
74.8
|
33.7
|
6.8
|
6.6
|
3.9
|
460.0
|
|
First Home Owners Boost ($'000)
|
|
2009-10
e
|
112.4
|
95.8
|
68.7
|
38.1
|
23.4
|
6.8
|
5.7
|
2.9
|
353.6
|
|
2008-09
e
|
376.5
|
321.1
|
230.1
|
127.5
|
78.3
|
22.7
|
19.0
|
9.6
|
1184.9
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated total 2008-09 to 2009-10
|
488.8
|
417.0
|
298.8
|
165.6
|
101.7
|
29.4
|
24.7
|
12.5
|
1538.5
|
|
Sources:
Final
Budget Outcome for 2000-01 to 2006-07
Budget Paper No. 3 2007 08
Mid-Year Economic and Fiscal Outlook 2008-09
e -
estimated
|
Property and construction industry
organisations have welcomed the increases in the FHOG. The Housing
Industry Association (HIA) has described the measure as a proactive
decision and necessary to save jobs in the residential construction
industry . HIA Managing Director Ron Silberberg said:
The tripling of FHOG appropriately is targeted
at increasing the supply of new housing and will complement other
major initiatives to increase the availability of lower-cost new
housing. By moving quickly to stabilise the industry s supply
capacity, the initiative will help to ensure the industry is better
placed to handle a sustained upswing in general buyer activity down
the track.[8]
The Property Council of Australia observed
With the demand for housing dramatically exceeding supply, the
tripling of the grant to $21,000 will get builders building again
and first home buyers buying again and remarked there has never
been a better time to introduce this cash injection. [9]
In its response The Real Estate Institute of
Australia (REIA) noted it had been advocating for such an
initiative for some time and contends:
This decision, combined with last week s
reduction in interest rates, should provide a much needed impetus
to first home buyers who have been waiting to enter the housing
market The decision should also see a positive response by the home
construction industry in increasing the production of new
dwellings.[10]
The REIA has also urged the government to
review the impact of the First Home Owners Boost before payments
return to previous levels in June 2009.
The First Home Owners Boost has attracted a
good deal of press commentary. In the main commentators agree that
the tripling of the grant for purchase of a newly constructed home
will assist the residential construction sector at least by
bringing forward construction activity that would otherwise have
occurred in 2009-10.[11] However most have questioned the value of doubling the
grant for purchase of established houses.
Typical of the commentary is that by ANZ
Banking Group s Chief Economist Saul Eslake:
The trebling of the First Home Owners' Grant
for buyers committing to a newly-constructed dwelling during the
current financial year will undoubtedly stimulate additional
housing activity in the short-term, principally by "pulling
forward" demand from 2009-10. However, I do have reservations about
the wisdom of doubling the grant for first-time purchasers of
existing dwellings. I have long argued that money initially put
into the hands of homebuyers ends up in the pockets of
home-sellers, and results in higher house prices rather than
improved housing affordability.
Unless the Government is seriously concerned
about the risk that home prices could fall sharply (which would of
course be the greatest single favour would-be first-time buyers
could ask for, although I think it is unlikely to happen on a wide
scale), this component of the Government's package is likely to be
relatively ineffective in boosting activity.[12]
Very similar sentiments were expressed by
The Australian s National Affairs Editor, Mike
Steketee.[13]
Elsewhere an opinion piece in The
Australian, whilst acknowledging the Prime Minister s argument
that the two measures the government has introduced to increase the
supply of houses would tend to offset any risk of the grant
increase simply feeding into prices, concluded that:
neither [the government s rental affordability
scheme and the housing affordability scheme] can stop the
first-home owners grant from being passed on from taxpayer to
seller, because Labor's supply-side measures will take years to
deliver their promised benefits.[14]
A more acerbic assessment of the whole notion
of direct assistance to first homebuyers was provided by The
Age s Associate Editor:
But the first house owner's grant is a poor
piece of policy. It was awful when the Howard government introduced
it and it's just as bad now. It distorts prices and quickly
benefits vendors and builders ahead of purchasers. And it has
little to do with remaking home buying more equitable. The
millionaire's son gets it just as easily as the son of the contract
cleaner from St Albans.
And three media reports have noted that the
Minister for Finance and Deregulation and the Minister for Housing
have previously expressed strong reservations about the
FHOS.[15]
An assessment of the FHOS was undertaken by
the Productivity Commission (PC) as part of its 2004 inquiry into
first home ownership. The PC noted:
while the FHOS was conceived as compensation to
first home buyers for the introduction of the GST, its ongoing
justification in this role is questionable. The money involved
could yield a higher return to the community if redirected to
support the broader housing needs of low income households.
The PC further commented:
If governments wish to continue providing
direct assistance to first home buyers, the current FHOS provides
an administratively simple and flexible basis for delivering the
bulk of such assistance.
However, a deficiency in the present
arrangements, reflecting the initial compensation rationale, is
their limited targeting. The bulk of FHOS assistance goes to
households with above-average incomes, who might otherwise have
purchased a house before too long, even without assistance. In the
Commission s view, the scheme would have a greater impact on first
home ownership if it were more closely targeted at lower income
households, with a commensurate increase in grant levels.
The PC recommended that if the FHOS was to
continue:
assistance should be targeted to the housing
needs of lower income households by restricting eligibility to
homes below (regionally differentiated) price ceilings.[16]
More recently the FHOG was addressed by the
Senate Committee inquiry into housing affordability. The committee
appeared to agree with the view of many witnesses that FHOG
contributed to higher house prices and recommended an increase in
the grant for newly-constructed dwellings and a reduction in the
grant for existing dwellings.[17]
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The Bill appropriates about $1 184.8
million.
For the most part, the Bill s provisions are
identical to those in Appropriation Act (No. 2) 2008-09,
which appropriated funds for services other than ordinary annual
services. The Bill differs from Appropriation Act (No. 2)
2008-09 in that certain provisions in Appropriation Act
(No. 2) 2008-09 are not relevant to the Bill, for example,
those relating to the advance to the Finance Minister.
Clause 3 contains
definitions. Most definitions are identical to those in
Appropriation Act (No. 2) 2008-09. The following are some
of the definitions in clause 3:
- CAC Act body: this is a Commonwealth authority or company
within the meaning of the Commonwealth Authorities and
Companies Act 1997
- CAC Act body payment item: this is the amount set out in
Schedule 2 (see below) in relation to a CAC Act
body
- Chief Executive is defined as having the same meaning as in the
Financial Management and Accountability Act 1997.
The Bill does not appropriate funds to a CAC
Act body. However, it seems that the definitions of CAC Act body
and the CAC Act body payment item are retained because the Bill
relates to other Acts containing payments to CAC Act bodies.
Clause 3 expands the
definition of Portfolio Budget Statements compared with the
definition in Appropriation Act (No. 2) 2008-09 to include
the Portfolio Budget Statements for the Bills for Appropriation
Act (No. 1) 2008-09 and for Appropriation Act (No. 2)
2008-09. Similarly, clause 3 expands the
definition of Portfolio Supplementary Estimates Statements to
include not just those for the Bill but also for the bill for the
Appropriation (Economic Security Strategy) Act (No. 1)
2008-09.
Clause 6 of Part
2 provides that the total of the items in Schedule
2 is $1 184 833 000.
Clause 7 deals with payments
to the states, territories and local government. Subclause
7(2) specifies that if the Portfolio Budget Statements or
Portfolio Supplementary Estimates Statements indicate that certain
activities were intended to be for a particular outcome, then
expenditure on those activities is taken to be as contributing to
the outcome.
Clause 8 deals with
administered items . Subclause 8(1) provides that
the amount identified for an administered item in an outcome can be
used to contribute to that outcome. The wording of
subclause 8(2) is identical to that in
subclause 7(2).
Clause 9 deals with
administered assets and liabilities. Subclause
9(1) provides that the amount identified for an agency s
administered assets and liabilities may be applied to achieving any
of the agency s outcomes, which are specified in Schedule
2 of the Bill [paragraph 9(1)(a)] or in
Schedule 1 to the Appropriation (Economic Security
Strategy) Act (No. 1) 2008-2009 [paragraph
9(1)(b)] or in Schedule 2 to the Appropriation Act
(No. 2) 2008-2009 [paragraph 9(1)(c)] or in
Schedule 1 to the Appropriation Act (No. 1) 2008-2009
[paragraph 9(1)(d)].
Clause 10 Other
departmental items provides that the amount specified in
an other departmental item for an Agency may be applied for the
departmental expenditure of the Agency.
Clause 11 deals with CAC Act
body payments. Subclause 11(1) provides that an
amount appropriated for a CAC Act body payment item may only be
applied for payment to the CAC Act body named. Subclause
11(2) provides that if an Act provides that a CAC Act body
must be paid amounts that are appropriated by the Parliament for
the purposes of the body, and Schedule 2 contains a CAC Act body
payment item for that body, then the body must be paid the full
amount specified in the item.
Three clauses in Part 3 deal with reductions
to appropriations:
- clause 12 deals with
adjustments to (a) payments to the states, territories and local
government and (b) administered items
- clause 13 deals with (a)
administered assets and liabilities and (b) other departmental
items, that is, equity injections, loans, and previous years
outputs, and
- clause 14 with reductions to
CAC Act bodies payment items.
Subclause 12(1) stipulates
that the amount by which payments to the states, territories and
local government and for administered items can be reduced is the
difference between what has been appropriated and what has been
spent, the latter being the amount shown in agencies financial
statements. However, paragraph
12(2)(a) gives the Finance Minister power to
determine that subclause 12(1) does not apply or
that subclause 12(1) applies as if the amount in
the annual report were the amount that the Finance Minister
determines [paragraph
12(2)(b)].
Subclause 13(1) enables the
minister responsible for an agency, or the chief executive of the
agency where the Finance Minister is responsible for the agency to
seek a reduction in administered assets and liabilities and other
departmental items, while subclause 13(2) empowers
the Finance Minister to make a determination that accords with the
request. However, the determination cannot reduce the appropriation
below zero [subclause 13(3)]. Requests are not
legislative instruments [subclause 13(5)]. While
the Finance Minister s determinations are legislative instruments
and are disallowable, the determinations are not subject to the
sunsetting provisions of the Legislative Instruments Act
2003 [subclause 13(6)].
The wording in clause 14
which deals with reductions to CAC Act bodies payment items is
almost the same as for clause 13. However, whereas
a request can come from the Chief Executive of an agency for which
the Finance Minister is responsible in the case of clause
13, a similar request must come from the Secretary of the
Department in the case of CAC Act bodies [paragraph
14(1)(b)]. Subclause 14(5) confirms that a reduction can
be made for a CAC Act body even though it has been allocated funds
under subsection 11(2).
Section 96 of the Constitution provides in
part:
the Parliament may grant financial assistance
to any State on such terms and conditions as the Parliament thinks
fit.
This is the section under which the Australian
Government provides grants of financial assistance to the states,
territories and local government. Clause 16
delegates Parliament s power to the responsible Minister listed in
Schedule 1. (In this case, there is only one
Minister, namely, the Treasurer). Clause 16 provides the Ministers
with power to determine the terms and conditions under which
payments may be made [paragraph 16(2)(a)] and the
amounts and times of payments [paragraph
16(2)(b)]. Determinations in paragraph
2(a) and paragraph 16(2)(b) are not
legislative instruments [subclause 16(4)].
Schedule 1 confers on
the Ministers named in this case the Treasurer power to determine
the conditions under which payments to the states, territories and
local governments may be made, and the amounts and timing of those
payments
Schedule 2 contains the
detail of appropriations.
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Concluding comments
In terms of the fiscal stimulus the housing
component of the Economic Security Strategy will impart to the
Australian economy, it is likely that the newly-constructed home
element will have a greater effect than the element for established
houses. This is mostly because it more directly targets the home
construction industry, but it is also partly due to the grant for
newly-constructed homes being larger ($21 000 versus $14 000). In
contrast, the established houses element will increase demand for
the stock of established houses. All other things being equal, this
would tend to push up the price of established houses. While this
may stimulate demand for newly-constructed houses, the effect is
indirect.
The overall stimulus resulting from the First
Home Owners Boost will depend in significant part on strength of
those factors which are behind the fall in demand for housing and
hence any possible general fall in house prices. Any stimulatory
impact will also be influenced by the split between first home
buyers demand for established versus newly-constructed houses.
It also needs to be remembered that in the
broader context the demand for housing and home purchase
affordability should be considerably boosted by the recent, large
reductions in interest rates.
Peter Hicks, Scott Kompo-Harms and Richard Webb
24 November 2008
Bills Digest Service
Parliamentary Library
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