Oh man. Politics, huh?

Here in NSW, where I’m based, there’s a state election coming up.

And so, of course, ads and announcements are wall-to-wall in the media.

One such announcement caught my eye this week.

Something that had elements of a plan I think is fantastic.

Not perfect. But it’s not far away from being great.

And it’s an investor’s dream – at least in theory.

Of course, most of the responses thus far have been political, or ideological, or both.

Because that’s what people seem to do these days: barrack for their team, no matter what.

But not here.

When I look at these things, I’m focused on policy, not politics.

So, let’s look at the idea, itself.

NSW Premier Dominic Perrotet has announced that every kid under 10 (and thereafter, every child at birth) will get $400 put away for their higher education or a house purchase.

Then, each year, the government will add $200 for kids whose parents are eligible for family tax benefit payments, or $400 per year for other kids, if those kids’ parents match it.

Parents and grandparents can contribute up to another $600 each year, unmatched.

The kicker is that the government has recognised that, with the power of 18 years of compounding, these amounts will be worth much, much more when the kids are eligible to withdraw it.

That observation (and the function of the plan) is smart.

Very smart.

It takes the idea of compounding – something that we all know, but too few people actually do – and applies it to help give kids a kick start when they turn 18.

And it might be no surprise that I like it – I’ve proposed a similar scheme to fund Superannuation with a small amount at birth, instead of relying on (much, much larger) employer contributions for 40-plus years of our working lives.

So I really like this idea… with two exceptions.

The first is that, as has been widely highlighted, this plan gives more help to those who don’t need as much help (because their families can afford to add between $400 and $1000 each year) and less help to those who actually do need it (and whose families can’t hit those numbers).

And a reminder: all of these numbers are for one child. Imagine a single mother on a modest income with three kids, and compare that to a wealthy double-income family with one child.

In the first example, the kids would get $200 per year saved for them. Which is good.

In the second, the kid gets $1,400 per year. And the government’s contribution to that child is double what each of the single mum’s kids get.

That is… tough to defend.

Some will – insisting that the government should only match what a parent is already sacrificing. I understand that view.

But let’s think about the kid, rather than the parent: if we truly want each child to get a head-start through this program, it makes no sense to penalise them, in a relative sense, based on the fact their parents may not be able to contribute.

Frankly, the solution is very, very easy. And not that expensive.

Just equalise the government contribution for all kids. Add $400, per year, to the account each year between birth and their 18th birthday.

Then let compounding do its thing.

The second concern? This does nothing to address high house prices.

To be fair, that’s not the aim of this policy. The alternative government has no serious policy to deal with it, either. And nor do our federal parliamentarians.

We should fix house prices.

But whether we do, or not, this policy – amended as I suggested – is a very good way to help kids as they reach adulthood.

It gives them a lump sum to kick start the next part of their lives, and – perhaps more importantly – demonstrates the power of compounding.

Now, if only I can convince Treasurer Chalmers to use it for Super, too!

Fool on!

The post So close, Premier. Let me fix it. appeared first on The Motley Fool Australia.

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Motley Fool contributor Scott Phillips has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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