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Thursday, 9 November 2006
Page: 57

Senator MARK BISHOP (1:20 PM) —The Defence Force (Home Loans Assistance) Amendment Bill 2006 amends the act which was introduced in 1999 to assist eligible Australian defence personnel and ex-members to purchase their own home. For ADF personnel, assistance with housing, in latter years, has been a most valued benefit, building on the assistance also traditionally provided to veterans returning from overseas engagements. These days, of course, the differential for serving ADF personnel is not so dramatic, but the benefits are no less valuable.

This scheme provides a subsidy on the interest of a home loan borrowed from an approved lender, in this case, the National Australia Bank. Single members have an entitlement to a subsidy up to a ceiling of $80,000. Married or de facto couples who each have an entitlement have a combined ceiling of $160,000 on one property. The Defence Housing Authority, the DHA, administers the scheme on behalf of the Department of Defence. The act was last amended in 1996 when the eligibility period was reduced from six years to five years of full-time service.

The amount of the limit of any one loan to be subsidised was then increased from $40,000 up to $80,000, with some retrospectivity. The benefit was also extended to active and emergency service 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 only payable 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 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 payable.

The only change to the subsidy is through changes to interest rates in 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 in 1996 and presumably today was to get the best deal for ADF members. That deal, it must be said, some 10 years on no longer stacks up and is no longer as worthwhile as it was in 1991 and 1996. The total amount borrowed is subject to normal bank rules, but the subsidy that is granted only applies to the first $80,000. The balance over that limit is treated as a normal top-up loan, which is negotiated at standard commercial home loan rates. The original loan amount is used for the calculation of the subsidy regardless of loan repayments.

As an example, a loan of $80,000 at, say, 7.07 per cent would normally require a repayment of $569 per month, but the subsidy on that would be $120.93, leaving a reduced payment of $448 a month. That is a significant saving. The drawback, though, is that if you are in advance of repayments—paying early—you cannot redraw. That is, you cannot re-borrow the amount you have paid in advance. However, you can transfer the loan to a new property once the existing property is sold. In essence, that is how the scheme works.

There are of course many shortcomings to this program which are now most noticeable as recruitment dries up and incentives to join the ADF are few and far between. In fact, this amendment bill misses the opportunity to do something about that. This bill does little more than extend the life of the current program for 12 months while the minister sorts something out. The bill does nothing more than extend the operation of the act until 31 December 2007, at which time—we are advised—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 understood for a significant period of time. I will outline those shortcomings. The upper limit of the subsidy in no way recognises the real cost of housing or the average size of mortgages these days. It pays no heed to the comparative advantage and cost of rental accommodation and the subsidy implicit in those rents. The scheme also restricts ADF personnel to the very limited range of home loan products negotiated by the government with the National Australia Bank. It fails to recognise the needs of ADF personnel who are shifted from pillar to post almost annually, with enormous disruption to their families. These are major drawbacks and have been known as weaknesses for many years. As usual, ADF personnel have been taken for granted and are expected to be grateful for what they have.

We are now losing personnel in droves and not attracting sufficient new men and women. This is a problem of the government’s own making. It is a problem caused by its own negligence and its repeated failure to act over the last 10 years but more particularly in the last five or six years. Recruitment is now a panic issue, and the publicity machine, making silk 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 for years. But, as is so often the case, they are ignored. This is not just about budget money. It is about caring for those people who are used as props for government publicity; it is about recruiting the people we need and, more importantly, once having introduced them into the service, keeping them and re-signing them for term after term.

It is little wonder that Defence cannot compete. In this case, there will be no action until 2008 at the earliest—after the review is concluded, we presume—which is when the new sunset clause in this bill comes into effect. We simply urge the government to get serious, do this review in a few months and get fresh legislation into the parliament to smarten up this antique scheme as a matter of urgency. This bill, then, simply extends the current scheme effectively until 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 this scheme. You can assume that that represents pretty much the total of ADF personnel who find homeownership attractive while in service. In comparison, almost 70 per cent of the general population are committed to homeownership—but that is getting much harder for the obvious reasons that have been in the press of late. Interest rates are going through the roof, and that is all due to key strategic decisions made by the government prior to and around the time of the last election. Those whose votes the Prime Minister tried to buy are now suffering dearly.

Fortunately, ADF personnel will not be represented in large numbers among them—simply because there are too many obstacles to homeownership in their way. To begin with, they cannot settle anywhere without being shifted with high frequency. We know of ADF families whose children may have attended as many as 20 different schools. These people are modern-day gypsies. For them, renting is the only option. Compounding that, we have military bases scattered everywhere, not often with any rationale except that of history. Noticeably they are often in conservative party electorates—pork-barrelling at the time was the key motive. Even new bases and transfers of units are from non-conservative electorates to marginal conservative electorates. There is not the slightest attempt to look at a real rationale which puts people and defence needs first.

Sadly, for ADF personnel it is unlikely that owning a home will become an option prior to discharge. Indeed, getting out simply to achieve that life goal is, for any family, a huge incentive. It seems to be a strange circumstance that so many ADF personnel rent from DHA at an admittedly generous subsidy but fail to buy a house, even with this assistance, because the ceiling, with modern-day prices, is at too low a level. Why couldn’t DHA encourage ADF personnel to buy under the scheme and allow DHA to manage their leases when they are posted? 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 us.

In conclusion, the review will be conducted in late 2007 into early 2008. We do hope this review produces some recommendations that provide a modern approach both to homeownership and to rental options within the ADF. We trust that the review will be actioned as a matter of urgency.