Aussie gov't offers large tax breaks to 1st-home buyers

The Australian government has revealed a new plan it would offer prospective first-home buyers tax breaks worth thousands of dollars.

Just nine days before Prime Minister Malcolm Turnbull and Treasurer Scott Morrison release the federal budget, the pair have approved the plan that would allow buyers to direct some of their pre-tax income into a savings account.

Housing affordability is expected to be a key feature of the budget with the country embroiled in an affordability crisis.

A report released in April found that the median house price in Melbourne had more than doubled in the last 10 years.

The proposal would significantly cut the time it takes to save to buy a house by slashing the amount of income tax prospective buyers are paying.

A similar system introduced by former Prim Minister Kevin Rudd was abolished by the current government in 2015 due to a lack of participation.

An anonymous government source told News Limited on Sunday that the new scheme would be "more generous and less complicated" than Rudd's system with annual and overall caps introduced to avoid flooding the market with new buyers.

However, John Daley from the Grattan Institute warned against introducing any savings scheme.

"The fundamental problem is that the scheme would either be small and have an irrelevant impact or be too large and counter-productive," Daley told News Limited on Sunday.

The proposal has been supported by advocacy group Home Buyers Australia, which has been campaigning for a similar scheme whereby buyers could salary-sacrifice income for a deposit.

The group said creating a more flexible version of Rudd's system would make it more attractive to buyers. Endit