Parliament is back in session, and that means I have two big Government-related economics stories for you this week.

First up, the expansion of the 5% deposit scheme for first home buyers. Then, I’ll explain what you need to know about last week’s economic reform roundtable.

This week, the Government announced it’s expanding the 5% deposit scheme earlier than originally planned. 

The 5% deposit scheme is a Government initiative aimed at allowing first home buyers to buy property with smaller deposits. The idea is that if buyers need smaller deposits, then they can buy sooner, letting younger renters enter the property market. 

Eligible borrowers save up for 5% of the value of certain property. They ask Housing Australia, a Government agency for a letter of guarantee. They take that letter to a participating lender (e.g. a bank) and ask for a loan of the remaining 95% of the value of the property. They buy the house and move in.

Usually, you need to save about 20% of a home’s value for a deposit. For a $1 million home in Sydney (the national average), the scheme theoretically lowers the required deposit from $200,000 to $50,000.

You can check your eligibility here.

Yep. The scheme already exists in a limited form, but as of 1 October, there will be no limits on the number of places available or on the income you need to apply.

There will also be higher property price caps across the country.

The Government says the expanded scheme will help more people buy their first home. The basic idea is that lowering the barrier of entry into the housing market solves the problem of people being unable to afford buying property. 

The efficacy of first home buyer assistance policies is disputed. Research has found that home buyer schemes tend to accelerate home ownership for those already at the point of  buying property, rather than broadening access. 

Moreover, by increasing the purchasing power of first home owners, such policies tend to further inflate house prices and therefore can be self-defeating.

Experts have already warned that expanding the scheme will increase house prices by more than the Government has forecast. 

As for those struggling to find any place to live, let alone buy property, in 2022 the Productivity Commission suggested redirecting support away from first home owner assistance schemes towards people facing homelessness. 

Good point. One of the big causes of the GFC was the spread of low-deposit loans. In theory, this expanded scheme could create similar risks. 

However, there are important safeguards in the Australian banking system. 

For example, the banking regulator - APRA - has told banks to treat loan approvals under the scheme as though they are a regular loan without a Government guarantee.

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Last week, the Government held its economic reform roundtable.

It was a big-deal three-day meeting where a bunch of policymakers, economists, companies, and union representatives discussed solutions to Australia’s most pressing economic challenges.

Here’s what you should know.

Road-user charge: Treasurer Jim Chalmers said there was a lot of support for bringing in a road user charge (RUC) for electric vehicles (EV). 

Currently, petrol car drivers pay a ‘fuel excise’ (tax) of 51.6 cents per litre.

A similar plan for EV drivers would see them pay a fee each time they register their car, based on how many kilometres they drove in the previous year. It’s meant to offset lost revenue from taxes on petrol as more people switch away from petrol cars. 

General tax reform: Chalmers flagged a possible broader tax reform package that would focus on intergenerational equity, business investment, and simplifying the tax system.

The general idea behind the intergenerational equity focus is that today’s generation of young people are paying a larger share of the tax bill than previous generations of young people, and today’s older generations are wealthier than previous generations of older people. It’s been argued that our current tax settings have not caught up, however - they were designed for richer young people, who are earning more, and poorer old people, relying on superannuation and property. This means we need to redistribute the tax burden. 

What might this look like in practice? Right now, it’s too soon to say that the actual reforms will be. Broadly speaking, though, it could involve any policy that increases taxes on older people and reduces taxes on younger people. That could look like lower income tax, broadening the GST, and reducing tax concessions for some forms of property and superannuation earnings. 

Housing: A number of reforms to boost the housing supply were announced, including pausing changes to the list of requirements for new buildings, faster environmental approvals, and incentives to build more houses. 

AI: The Government will create a strategy for how AI will be adopted in the Australian Public Service (government departments) and a national plan to guide how Australian workers can improve their AI capabilities.

Nothing has happened yet, but the most direct effects will come from tax. If you drive an EV, you may have to start paying a RUC. If income tax is reduced, you may have more money in your pocket each month. I’ll keep you posted.

The Government is already working on implementing some of the easily actionable policy changes, like the RUC. It’s still discussing what some of the other changes might look like, like tax reform.

Pop Mart, the Chinese retail company that makes Labubu dolls, saw its share price surge 12% last week after it announced a new product: a mini Labubu. The smaller version of the viral doll can be hung on your phone. Pop Mart’s stock has risen more than 650% over the past year, and its revenue has nearly quadrupled since 2024.

Mum, Dad, I know you’re reading this. And if you’re not picking up the hint, I would like a Labubu for Christmas.