In the US 401ks get used for all sorts of things. Emergencies such as unemployment, or as down payments for a house. In Australia the government pays for these, unbelievably, the federal government pays for people’s first house down payment.

I dont see this as feasible until taxes decrease in Australia at the federal level (they take all income taxes) and Australians get antsy about the government ability to provide pension and unemployment benefits. I also dont see this as feasible while the government takes so much tax from people. It will shrink an already depleted take home pay cheque.

A third issue is diasporans. At any one time approx 5% of Australians work overseas. They will most likely have “mandatory” savings plans in Australia that are not having anything added to the principle. [I have superannuation in Australia that is getting fees leveraged against it]. There will need to be a way for diasporans to liquidate it entirely, or add to it from overseas.

Cameron, whatever the $7,000 first home-owners grant might be or do, one thing it is plainly NOT is a 10% deposit on even a worst-house-in-the-worst-suburb home anywhere (bar a few dying country towns). In terms of capital cities, $7,000 is not even close to being a 5% deposit, in fact.

Also, as far as “emergencies such as unemployment” go, in Australia, there is a de facto allowance of this, via early release provisions (of which the main req is for 6 months unemployment).

Nicholas, one thing that you don’t seem to be considering is the interaction of home ownership with working-life retirement savings (forced or otherwise), and standard of living within retirement. My generation’s (b. 1963-1978) having significantly lower levels of home ownership than those older http://www.abc.net.au/am/content/2003/s990533.htm (a situation that was entirely predictable as a matter of tax and higher eduction policy, but which was only belatedly communicated to us), marks our retirements as going to need a lot more cash/other-assets than previous generations. This is not because of grandiose anticipated lifestyle, but simply because home ownership (which is something even the very poorest of Australia’s current retirees usually enjoy) provides an important financial buffer.

Compounding this (although it could also be said to be a predictable policy outcome), my generation’s actual savings rates have been abysmal http://www.aph.gov.au/house/committee/efpa/super/index.htm , despite 12 years of compulsory super. The reasons for this are multi-faceted: enforced

I dont see why government should pay for this. In the US mortgages for $300,000 USD can be had for $6,000 down. They are brutal mortgages after three years, moving to variable interest rate. But the market has supplied a product in that instance. The other option in the US is to raid the 401K for the house deposit. Which is also common.

But a grant for first home buyers? That has nothing to do with ensuring a safety net. I would rather Nicholas’ default saving scheme which can be raided to buy property or in emergencies than the government giving grants.

Is there any comparison between total US taxes and total Australian taxes?

As I understand it, US property taxes are very high.

Had a quick check on the tax difference. At the federal level, there there is an 8% difference in income tax, with the US being lower. The state I am in also collects about 5% of my salary in income tax. Which NSW wouldnt. The state I am in also has a 4.5% sales tax, while the feds in Australia leverage a 10% GST. America is far more federalist than Australia, so you can pick and choose your states. Several US states dont have income tax (Fl, NH, NM etc). There isnt that diversity in Australia as the federal government is the dominant taxing authority.

Property taxes where I am are leveraged by the county and town. County takes about 1% for real estate, while town takes about 0.2% for real estate. There are also a million and one fees, like what the Australian states do.

The real estate property taxes differ drastically from place to place too. In West Virginia they complain about paying $200 a year, while in New Jersey the same property has to pay $8,000. Counties pay for schools in the US, so having schools being built locally means property taxes go up quickly.

The main advantage of the US is the diversity of the states because of the federalist system. You can pick and choose which state, or city you want to live in by balancing jobs, lifestyle, remuneration, cost of living and taxes. There isnt that diversity in Australia because Canberra is anti-federalist.

But I understand Nick’s argument to be along the lines that people won’t adjust their current expenditure patterns to increase their super (or, even, take steps to increase their super), but probably are likely to adjust their expenditure patterns if you reduce their take home pay automatically. Its a pretty standard savings tip to take the amount you want to save out of your day to day bank account on pay day and put it into another account that is hard to access.

In other words, most people have a level of discretionary expenditure that can relatively easily be adjusted. For those that don’t, then they can opt out (or, possibly, the scheme could have a minimum income threshold).

I don’t see how tax is relevant to this issue, although I can appreciate that the people who will benefit from lower taxes (if the demand for pensions drops) are the people paying income tax in 20+yrs time rather than the people sacrificing their current expenditure.

As to the culture of expectation re pensions – does that really still exist amongst younger people (I am in my 30s?) I am of the ‘have always had compulusory super’ generation, so its fairly well entrenched that retirement income is substantially my obligation. Not to mention that lifestyles are now such that the expectations of retirement involves travel etc, and not the (traditional – or at least my grandparent’s) view that after retirement you stay at home, play bowls and eat out only when the club has pensioner special day. The pension won’t fund what I want/hope to do (having said that – confess to being a higher income earner, so can appreciate my attitudes on this may significantly differ from a lower income earner).

change the taxation structure so it is only on benefits and it is at the person’s MTR thus it is aligned with the tax system.
Make it 15% and suddenly most of the problem dissapears particularly when voluntary super has no tax.

you not only have money for retirment but also for health purposes.

This is what Keating and then Howard should have done.

I could make a long post here about why compulsory super reduces social welfare. Some hints: taking money from punters when they need it most – raising a family, buying a home – and giving it back (minus taxes, reduction in pension and management fees) when the home is bought and the kids have left it aint always sensible. And to the extent you do it, said punters will compensate by taking a bigger mortgage and more credit cards, knowing they’ll get the money back to pay them off.

But you really should have pointed out the conflicts of interest here. Increasing flows into funds and the market for advice will benefit what is already a very influential (because well funded – funny about that) lobby.

But it’s a column . Conflicts of interest in giving advice are an entirely different subject to what I was on about.

Likewise Cameron and others, the points you make about tax are valid. But the gentle nudging of people towards better savings habits by setting defaults to rise is doing people a favour and if they don’t like it for whatever reason, they need only fill in the form.