First Home Buyer Tax Deduction: Coalition’s Bold Plan to Ease Housing Woes

Featured Image Alt Text: First home buyer tax deduction for new homes

Table of Contents

• Introduction to the Housing Policy Battle
• First Home Buyer Tax Deduction: Coalition’s Game-Changing Proposal
• How the Mortgage Deduction Scheme Works
• Impact on First-Time Buyers and Housing Supply
• Comparison with Labor’s Housing Plan
• Potential Risks and Criticisms
• What This Means for Australia’s Housing Crisis
• Conclusion

Introduction to the Housing Policy Battle

First home buyer tax deduction is at the heart of a bold new policy unveiled by Coalition Leader Peter Dutton on April 13, 2025, as part of his campaign for the federal election. With housing affordability a top concern for Australians, Dutton’s promise to allow first-time buyers of newly built homes to deduct mortgage payments from their income taxes aims to outshine Labor’s competing proposals. Announced at the Liberal campaign launch in western Sydney, this policy sets the stage for a fierce electoral contest. This blog explores the details of the Coalition’s plan, its potential impact, and how it stacks up against Labor’s offerings, offering clarity for voters navigating the housing crisis.

First Home Buyer Tax Deduction: Coalition’s Game-Changing Proposal

Dutton’s “first home buyers mortgage deduction scheme” targets those purchasing newly constructed homes, offering a tax break on mortgage payments for up to five years. The policy, limited to the first $650,000 of a mortgage, is means-tested at $175,000 for singles and $250,000 for couples. According to Coalition estimates, a family on average incomes could save about $11,000 annually, totaling $55,000 over the scheme’s duration. By tying the deduction to new builds, the Coalition argues it will boost housing supply—a critical issue in Australia’s overheated market—while easing financial pressure for young buyers.

How the Mortgage Deduction Scheme Works

The mechanics of the plan are straightforward but transformative. Eligible first-time buyers can deduct their mortgage interest payments from their taxable income, reducing their tax liability. For a couple earning $100,000 each with a $650,000 mortgage, the benefit could reach $11,000 per year, though most would receive slightly less, averaging $12,000 for some. The scheme’s cap at $650,000 ensures focus on entry-level homes, while the five-year limit balances cost to the budget—estimated at $1.25 billion over four years by the Parliamentary Budget Office. The means test prevents high earners from exploiting the benefit, targeting middle-income households.

Impact on First-Time Buyers and Housing Supply

For first-time buyers, the tax deduction could be a lifeline. Saving $11,000 a year means more disposable income to cover rising living costs or accelerate mortgage repayments. Shadow Housing Minister Michael Sukkar emphasized that the policy encourages pre-commitment to new dwellings, stating, “In Australia, you only get a new house built if someone is prepared to commit.” By incentivizing new construction, the Coalition aims to unlock supply, addressing the shortfall of 197,847 homes projected by 2027. This could ease price pressures in cities like Sydney and Melbourne, where median home prices hover around $1.5 million and $950,000, respectively.

Comparison with Labor’s Housing Plan

Labor, led by Prime Minister Anthony Albanese, countered with its own housing policy at a Perth campaign launch on the same day. Their plan expands a 5% deposit scheme, eliminating lenders’ mortgage insurance (LMI), which costs buyers about $23,000 on average. It also includes a $10 billion investment to build 100,000 new homes for first-time buyers, with raised price caps to match city averages—$1.5 million in Sydney, $1m in Brisbane. While Labor’s scheme lowers the deposit hurdle, critics argue it does less to boost supply directly. The Coalition’s tax deduction, by contrast, incentivizes new builds but risks inflating demand without guaranteed construction growth.

Potential Risks and Criticisms

Economists have raised red flags about the Coalition’s plan. Independent economist Saul Eslake called it one of the “worst policies this century,” arguing it could drive up house prices by fueling demand without ensuring enough new homes. In countries where mortgage deductions exist, like the U.S., governments often tax capital gains on home sales—a step Australia skips for primary residences, potentially skewing benefits toward wealthier buyers. Labor’s Housing Minister Clare O’Neil dismissed the policy as “public policy on the run,” claiming their 5% deposit plan better addresses deposit barriers. Posts on X echoed skepticism, with some users noting the deduction might subsidize top earners’ mortgages rather than solve affordability.

What This Means for Australia’s Housing Crisis

The housing crisis, with median prices soaring and rents climbing 7.8% in 2024, demands bold solutions. The Coalition’s first home buyer tax deduction could empower young Australians to enter the market, particularly in outer suburbs where new developments are feasible. However, its success hinges on execution—ensuring developers build enough homes to match demand. Labor’s plan, while practical for deposit-strapped buyers, faces scrutiny over its slow delivery, with only 340 homes built under its $33 billion Homes for Australia Plan. Both policies risk inflating prices if supply lags, underscoring the need for broader reforms like zoning changes or migration adjustments. For more on Australia’s housing challenges, visit ABC News, a trusted source for policy updates.

Conclusion

The first home buyer tax deduction proposed by Peter Dutton marks a daring bid to win over voters grappling with Australia’s housing crisis. By offering $11,000 annual savings for new home buyers, the Coalition aims to restore the dream of homeownership while boosting construction. Yet, risks of price inflation and limited supply loom large, as critics warn of unintended consequences. As Labor pushes its 5% deposit alternative, the 2025 election will hinge on which party convinces Australians it can deliver affordable homes. For now, Dutton’s plan offers hope but demands scrutiny—because every dollar saved counts, but only if it leads to a key in hand.