Will Government finally act on deeming if cash rate cut?

Reserve Bank set to announce whether interest rates will be cut again.

cash rates

While Australians in the mortgage belt rub their hands together with glee at the prospect of further cuts in the official cash rate, older Australians with funds in the bank are watching term deposit offerings plummet while deeming rates remain unchanged.

And at 2.30 this afternoon, the Reserve Bank of Australia (RBA) may deliver the first back-to-back interest rate cuts since 2012 and take cash rates to a record low of one per cent.

Markets believe there is a 70 per cent chance of a cut and are not ruling out a further cut later this year. The RBA’s aim is to boost a sluggish economy.

Bank for International Settlements general manager Agustin Carstens has warned that low interest rates might boost an economy in the short term, but could increase debt levels at both government and household levels in the longer term.

“Very easy financial conditions may boost growth in the near term,” he said, “but may further build up vulnerabilities. And persistently low interest rates may undermine efficient resource allocation and productivity.”

AMP Capital chief economist Shane Oliver believes it is “a close call” as to whether the RBA cuts rates on Tuesday or waits until August. “But rate moves usually come in at least twos,” he told The Age, “and the risks to the economic outlook have increased, so it’s probably best to get another cut out of the way and then the RBA can sit back a bit and see whether it’s working.”

However, with falling interest rates comes a growing roar to revisit deeming rates.

An increasing number of YourLifeChoices members are demanding quick action on deeming rates, which have not been changed since 2015.

A Fairfax report estimates that about one million Australian retirees are effectively being short-changed by the Morrison Government as a result of the unchanged deeming rates.

A single age pensioner can receive up to $174 a fortnight in income from investments, and a couple $308 a fortnight before pension payments are reduced.

The Government assesses income with deeming rates. Currently, the deeming rate for singles is 3.25 per cent for assets over $51,200 and 1.75 per cent for those under that level.

Comparison site Canstar reports that the average rate on a 12-month term deposit dropped to a low of 2.17 per cent per annum in the week after the June rate cut. In August 2008, when the official cash rate was 7.25 per cent, the average return on term deposits was 7.62 per cent per annum.

Social Services Minister Anne Ruston, who is responsible for deeming rates, said early last month that she had sought advice on whether any changes were necessary as a result of the interest rate drop.

She told YourLifeChoices: “As is usual practice, I have already asked my department to provide advice on the current deeming rate settings, following the Reserve Bank's decision [in June] to reduce the official cash rate.”

The Federal Opposition has been lobbying for a review. Labor's social services spokeswoman, Linda Burney, says deeming rates are not keeping up with what pensioners are earning.

“The Treasurer demanded banks pass on (last month’s) Reserve Bank's rate cut to home loan customers in full,” she said in a statement last month. “Why won't he do the same for pensioners? It's hypocrisy.”

Have you appealed to your local member for a review of deeming rates? Should deeming rates be reviewed at least annually?

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    COMMENTS

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    Chris B T
    2nd Jul 2019
    9:58am
    Deeming Rates should be Revised Down with at Least The First $50000 @ ZERO % then % added to Incremental Stages Relative to Bank Term Deposit Rates or Government Bond Rates.
    Dave R
    2nd Jul 2019
    10:12am
    Or perhaps 1% on the first $50,000 and 2% on amounts above that.
    GeorgeM
    3rd Jul 2019
    12:23am
    Retirees are too soft. We should all be demanding Universal Age Pension with NO tests except Age (65 years) and Residency (say 15 years).
    If at all the present system is to continue, Deeming Rates should be directly linked to RBA rates, say 0.5% above that (with all Banks forced to offer such rates to all Retirees), with no further Govt interference thereafter. Also, the Assets Test changes of Jan 2017 must be reversed as there was no Budget Emergency, and this reversal should be the FIRST priority before any Tax Cuts.

    However, in the real world of our politicians / self-serving leeches, their First priority is to get the 3rd stage Tax Cuts of $11,640 locked in from 2024 for themselves, as ALL of them qualify for that full amount having over 200K Base Salary. MASSIVE SELF-INTEREST there and you can see how hard they are working at it. Centre Alliance have all but agreed for it in the Senate (just making a few noises about Gas prices), so all they need now is either Jackie Lambie or Pauline to go for it and the deal is done! Even Labor can't help but keep smiling while they pretend to not support it (same as they lied and did for the Asset Test changes), the hypocrites.

    Serves all Retirees right for voting in this self-serving mob, although Labor is no different and was correctly kept out.
    Farside
    3rd Jul 2019
    1:17am
    GeorgeM said "the Assets Test changes of Jan 2017 must be reversed as there was no Budget Emergency, and this reversal should be the FIRST priority before any Tax Cuts." ... I agree, but it's not going to happen any time in the next three years, if at all.

    Retirees chose to let this action slide at the last election when they could have made it a defining issue. Somehow the ALP also did not consider leveraging this issue to compensate for the franking credit refunds largesse. Retirees deserve whatever the next whack the government has in store for them.
    Anonymous
    5th Jul 2019
    8:48am
    Retirees had no choices, Farside. It was either accept the 2017 changes, which were patently unfair, and vote LNP anyway, or accept the further demolition - loss of another up to 30% as punishment for having copped a massive loss already because you saved and lived responsibly. Labor made it clear they would not reverse the assets test change, so why would anyone vote for a party that was going to make a bad situation much, much worse?
    Farside
    5th Jul 2019
    11:52am
    WG, that was the choice and they made it. The retirees represent close to a fifth of voters and could influence the argument if they really wanted. They don't even need to do it nationally, just a few marginal seats with incumbents who wish to be reelected and sufficient like minded retirees willing to vote as a bloc.
    Anonymous
    7th Jul 2019
    9:03am
    Good luck with that rubbish suggestions, Farside. It's clear from the comments on YLC that retirees aren't capable of forming a bloc. Too busy sniping at each other, with pensioners displaying impassioned envy of the self-funded and wanting their lifestyle demolished and the savings stolen, and the well off denigrating pensioners and accusing poor folk of thinking they are entitled just because they are alive.

    GeorgeM has repeated urged unity to lobby for a universal pension, but those who don't need it refuse to support the campaign and those who already get a pension can't tolerate the idea that those who currently don't might actually enjoy life a little more.

    And as for voting as a block to oust the incumbent, I honestly thought that would happen in our electorate. It should have, given the demographics. But the stupid Greenies got the incumbent back in. And nothing persuades the idiot Greenies to wake up to reality. They had no hope of getting their own in, and even they agreed the incumbent was a lazy no-hoper. Yet they swung the votes. Go figure!
    Karl Marx
    2nd Jul 2019
    10:21am
    Movement in deeming rates will not affect a lot of OAP who have a substantial asset portfolio as most will be assessed on their assets as that will pay less than the deeming calculation & centrelink will ALWAYS pay the least.
    The pensioners it will affect are those with little in assets but money in the bank.
    Most OAP's I know & speak to have all been assessed under the assets calculations as this paid them less or even wiped out the OAP
    Would be interesting to see what percentage of OAP are actually assessed under the deeming rate & those under the asset testing for calculating their final OAP if any.
    WindyGap
    2nd Jul 2019
    10:47am
    ING is now paying 1.5% on balances OVER $50,000
    TREBOR
    2nd Jul 2019
    12:01pm
    Remind me to thank them personally next time we're all invited to the Palace for dinner...
    casey
    2nd Jul 2019
    2:49pm
    Commonwealth bank is offering 2% for 5mths at the moment
    Cowboy Jim
    2nd Jul 2019
    3:31pm
    Just wondering why my credit card still charges 20% - mind you I do not pay them as I make sure there are no outstanding payments due. Still there must be some people paying 20% - go figure.
    WindyGap
    2nd Jul 2019
    4:52pm
    Also when we were paying a mortgage the rate was over 17%- must have been born in the wrong era?
    Farside
    3rd Jul 2019
    1:24am
    Windy, it's unfair to make a simplistic compare between then and now - swings and roundabouts - we paid 17% but houses were relatively cheaper in terms of average earnings, earnings increased faster, interest rates fell quickly, loans were paid off quicker. The end result being that mortgage stress was less overall.
    Anonymous
    4th Jul 2019
    11:18am
    Really, Farside? In what world did that happen? I paid 150% more, measured in terms of years of average wage earning, than any equivalent house would cost today. Most homes of similar quality and size are far cheaper in terms of years of average wage earning. Furniture, appliances, cars, clothing and household needs were all far, far, far more expensive. I didn't know anyone who paid off their home in less than 25 years, and even that was a struggle. Mortgage stress was less because our generation didn't expect to breakfast in coffee shops, eat dinner in posh restaurants and holiday overseas.
    Farside
    4th Jul 2019
    12:02pm
    whinging grandma, I don't know what generation you represent but bad luck that you paid 150% more in relatives terms back in the day than you would today, you chose poorly.

    I bought my first house in suburban Perth for $46,500 in 1981, which was about 3x average annual earnings (and almost 4x my earnings). That same home is now valued at around $445,000, which is more than 5x average earnings. The gap between earnings and housing prices is even wider if using median earnings; that same house is valued at 8x median earnings.

    My circumstances were not unusual to those of my friends bought our first homes in the early 80s on 25 year mortgages; it was just the done thing to marry younger and buy a house. We went to coffee shops, ate in restaurants and went overseas but we lived simpler day to day. During the 80s wages increased at a faster rate than housing prices and with high mortgage rates you paid were motivated to reduce the mortgage ASAP. Also promotions provided more opportunities to increase wages faster than CPI. Most of us paid those loans off in less than half the time but then borrowed more to go onto subsequent homes.

    Since the 90s the rate of increase in house prices has significantly outpaced growth in wages. The end result is that house prices have increased around 300% since 1970 while wages have increased less than 100%. This reflects my experience.

    https://www.businessinsider.com.au/chart-australian-wages-house-prices-2018-3
    Anonymous
    5th Jul 2019
    8:45am
    Lucky you, Farside. I bought in the mid-70s when house prices were at an all-time high. I also paid a year's wages for my first car - a very modest 1 yr old sedan. And I recently bought a new sofa and fridge for less - in actual dollar terms - than the cost of the first ones I bought in the early 70s (which were, back then, among the cheapest available). I remember saving for months for a pair of blankets.

    In the 80s, when you bought, most folk I know were in danger of losing their homes due to skyrocketing interest rates. Personally, I never saw rates below 7%, but they rose to over 18%. And wages certainly weren't increasing fast in the 80s in the industries I worked in - at least not nearly fast enough to cover rapid cost of living increases. But then, I never entered a coffee shop or restaurant and I didn't even have holidays near home let alone abroad. Could never afford those luxuries. So clearly you were privileged to live in a different world. I do know that WA was far more prosperous in the late 70s and 80s than the eastern states, and housing there was a lot cheaper. Several of my friends retired there for precisely that reason.

    I don't put much store by these articles because they never mention the lower cost of everything else but houses - including interest rates, which make the lifetime cost of housing very low. And they never note that they are comparing a 2 bedroom 30-year-old worker's cottage in dire need of repair with a 4 bed/2 bath/3 living room new brick and tile with attached double garage and professionally landscaped gardens. You can make numbers paint any picture you like, and the popular picture today is 'young folk are struggling - the aging are too well off'. It's NOT accurate, but it appeals, so journalists stick with it.

    Like for like, housing is no more costly today than in most years of my lifetime. I can buy a decent 3-bed timber house today in a prosperous country town for well under $400,000, which is well under 7 years' average earnings. Prices have risen and fallen over the years, but mostly it required about 7x average earnings to buy a house of that quality. And with interest rates as they are today, nobody should struggle to buy a $400,000 house. The problem is that they want inner city mansions, not country cottages.
    Anonymous
    5th Jul 2019
    8:50am
    And BTW. stop with the offensive and inaccurate assumptions please Farside. I most certainly DID NOT choose poorly. You clearly have no idea what the conditions were in the eastern states at the time I purchased.
    casey
    5th Jul 2019
    9:54am
    There are still places in country Victoria where you can buy a reasonable 3 bed weatherboard house for under $12000-00. Just don't expect to find any employment. Mind you thats not applicable to most of us, we just need shops and services.
    Farside
    5th Jul 2019
    12:32pm
    WG, you are right that I have no idea of the circumstances of your purchase however you should understand that your experience is very much an outlier if on average house prices increased around 300% in real terms since 1970, while yours decreased 60% or more. It is hard to argue you chose well if your house is currently valued at 40% of its original price but you must have your reasons. Clearly the median house prices in your locality buck the national trend. The median house prices for Melbourne in 1975 may have been an all time high at that time however research shows that median house prices in Melbourne increased every year since 1970 ($12,800) until 1989 ($132,000). http://www.econ.mq.edu.au/Econ_docs/research_papers2/2004_research_papers/Abelson_9_04.pdf

    And as for having no idea of prices in the eastern states, you probably did not know I was living in regional Victoria and SE Queensland in the early to mid 70s before moving to Perth, and continued to be a regular visitor to Melbourne during the early to mid 80s.
    Anonymous
    7th Jul 2019
    8:57am
    There you go again with dumb assumptions, Farside. They make you an ass, you know?
    Firstly, I don't still own that original house. I sold it only a few years after buying it. And I chose very well. It was the cheapest house available in the town I lived in at the time, very solid and well-built but run-down and in need of renovation, and our renovations enabled sale at a good profit. But the price data on housing is very unreliable. It's mostly based on cities, for a start, and not the outer suburbs either - which is where most of my generation had to live. The structure of suburbs changes radically over time too. Prices in West End, Brisbane, for example, were very low as it was a slum in the 70s. Now it's one of the elite suburbs and prices are sky high. The same is true of suburbs around Parramatta in Sydney.

    You quoted prices in Perth and they were VERY low compared to other states in the 70s and early 80s, but I believe now they are comparable.

    But the big factor is what is classed as a 'median' house. Today, it's at a minimum twice the size of the average house in the 70s and early 80s, far newer, in much better overall condition. And with rock bottom interest rates, much higher junior and female wages, subsidized child care allowing mothers to work, and furniture, appliances, cars, clothing and household needs far, far far, cheaper, it's very much easier to buy a home than it was for my generation. But of course vested interests will distort the data to suit their purposes. They always do.

    The data, when I bought my home, suggested that people in my class had no hope of ever owning a home. In fact, economists said we were better off not trying. I simply looked at the rent that was claiming 30% of our total income, to live in sub-standard accommodation, worked out that it would continue to increase with every pay increase, remaining the same or even increasing in percentage terms, and figured that paying 30% of our income on a mortgage was much better value as the repayment stayed static as wages went up. And in the mid 70s, inflation was driving wages up fast - not that it was a good thing, because prices were rising much, much faster.

    I do agree that low inflation now reduces the benefit of a mortgage over rent and means repayments are a higher percentage of income for longer, but that's more than balanced out by low interest rates.

    Introduce me to any couple who subscribe to the BS about prices being unaffordable due to 'median prices' and I'll show they how to afford a much better house than my first using far less than 20% of their income, as opposed to the more than 35% I had to allocate to housing costs for the first 5 years of home ownership. (And yes, back then there was a limit of 25% you could commit to repayments or the loan would be refused, but I got around that with undeclared private borrowing. That's how tough it was back then. MUCH harder than today for the real battlers, of which you clearly were not one.
    Jim
    2nd Jul 2019
    11:06am
    I don’t know how much interest is being earned in superannuation funds, but it’s probably a lot more than you can get in term deposits, there is a lot more risk in superannuation investments depending which options you go with, I don’t have superannuation so obviously I am affected by the drop in returns, why can’t the two forms of investment be treated differently, or is there an argument for the deeming rate to be an actual earning rate, I guess it would be a lot more work for all concerned, although I admit to being quite happy when the deeming rate was 3.75% and I was earning 6.7% in term deposits and a lot more when I did have superannuation.
    older&wiser
    2nd Jul 2019
    12:24pm
    Agree Jim - my small amount of super earned 9.6% for past 12 months. Does depend on your chosen investment strategy within super also.
    alpal
    2nd Jul 2019
    11:17am
    Would not expect the federal government to do anything in a hurry.
    Intellego
    2nd Jul 2019
    11:26am
    Particularly THIS federal government!
    TREBOR
    2nd Jul 2019
    12:01pm
    Would not expect the federal government (of Two Parties in Tag Team Mode) to do anything truly positive...
    cupoftea
    2nd Jul 2019
    12:31pm
    alpal how right you are
    cupoftea
    2nd Jul 2019
    12:31pm
    alpal how right you are
    john
    2nd Jul 2019
    11:24am
    I went to find information on reverse mortgage and it was an ad? I thought it may have had information , but when clicking on different questions it just went to Heartland ?
    VICMT
    2nd Jul 2019
    11:30am
    I feel sure that many OAP's who have been retired for a number of years are starting to run low on their savings. Also, as savings run low, they feel less inclined to risk what they have in the stock markets and other higher risk investments, so their funds are retreated to the safety of banks.
    A more logical approach, it seems to me, would be to have a wider range of deeming rates.
    For example, for savings in brackets of:
    Up to $50,000 - zero
    $50,001 to $200,000 at the RBA cash Rate plus 0.5%
    Over $200,000 at some nominally higher rate such as the average of the big 4 12 month term deposit rate, say up to $300,000 or, say at the RBA cash rate plus 1%
    beyond that, at some other deemed rate to be independently assessed.
    These rates really need to be reassessed following each RBA change or every 6 months, whichever comes first.

    MT
    Jim
    2nd Jul 2019
    6:17pm
    Well put, and sensible, probably why neither side of government will do anything about it.
    TREBOR
    2nd Jul 2019
    12:00pm
    One rule for the government ... one rule for the rich ... another rule for the majority...... proof positive, if you ever needed it, of the entrenched class structured and 'layered' society in which we live in reality....

    Truly all animals are equal in Auschtrawitz - but certainly some are more equal than others....

    For those who do not yet realise it - Orwell's 1984 and Animal Farm were about the then current England etc - not some far-off dictatored Commun-Fascist culture...

    The essence of writing for revelation is to take an ordinary reality and expand it into an extreme - to make the point about that reality in the here and now...

    Refer to The Addams Family - Charles Addams wrote that original story about his own family and their odd quirks - but simply expanded those quirks to the extreme.....

    Good Morning, and Welcome to Around The World With Trebor (I should maybe do a Marlon Brando and buy a fishing boat, convert it into a pirate radio station, park it in international waters, and beam Radio Free Australia to Australia....)
    Cowboy Jim
    2nd Jul 2019
    3:15pm
    Most Aussies do no longer have shortwave receivers, Trebor. I remember Free Europe well as I lived near the border of East Germany I could get it in reverse on a little trannie. Maybe you could use the internet. LOL
    KSS
    2nd Jul 2019
    12:16pm
    "While Australians in the mortgage belt rub their hands together with glee at the prospect of further cuts in the official cash rate....."

    Whilst you are getting snippy about those with mortgages, just remember that there are retirees with mortgages too!
    80 plus
    2nd Jul 2019
    12:21pm
    If you voted L.N.P. a few weeks ago, please do not winge about any thing this government does to help pay for the income tax cuts.
    older&wiser
    2nd Jul 2019
    12:27pm
    Has got nothing to do with LNP recent win. I can guarantee all of my miserly super that Labor would not have done more. One of the main reasons voters turned against Labor was their despised targeting of taking from Aged Pensioners, not giving.
    Sen.Cit.90
    2nd Jul 2019
    2:47pm
    I've not forgotten or forgiven that it was the ALP Keating that brought in Deeming plus other attacks on pensioners.
    Cowboy Jim
    2nd Jul 2019
    3:24pm
    I do not believe Keating intended super to become a wealth builder for the next generation; private super in my day 60/70s worked that way. At 65 you could take all in a lump sum, pay off your kids' mortgages and get on the age pension. If you changed it into a life annuity for you and the missus it extinguished with your passing. The percentage payable when Aussie Super started was too little to make a difference for people my age. Most still had the full age pension.
    Farside
    3rd Jul 2019
    1:35am
    Cowboy is right. Fact Check investigated Kelly O'Dwyer's comment that it was intended to build wealth and be an alternative to the pension. Fact Check found it was intended to relieve pressure on the social security system as the population ages. The Keating and Howard governments did not sell the policy as a way to get people off the pension and instead said that most people would still get at least a part pension.
    Old Geezer
    3rd Jul 2019
    7:25pm
    Most people who voted LNP are clapping their hands with the increase in their investments.
    Ardnaher
    4th Jul 2019
    12:23pm
    ...labor had a big spending plan they could not explain where the money would come from..glad they did not get in
    casey
    4th Jul 2019
    3:31pm
    You can say that again Ardnaher. Also Old Geezer yes I am clapping my hands.
    Anonymous
    5th Jul 2019
    8:53am
    80 plus - that's a silly thing to say. Just because someone voted against Labor's stupid and dangerous policies does not mean they endorsed the LNP's tax cuts. It simply means they were presented with two evils and chose the lesser. They are still entitled to be angry at the wrongs.
    Karl Marx
    2nd Jul 2019
    12:37pm
    The only solution to deeming rates & everything under the broken centrelink OAP system is to introduce a universal pension & tax any & all income from interest, investments, super; work etc. 99.9% rort free no more deeming rates no more robo debt & no more stress
    Cowboy Jim
    2nd Jul 2019
    3:28pm
    That is the way it works in Europe but supplementary social benefits are means tested. Should you decide to spend too much on holidays and then claim to be needy you will be denied the benefits. The age pension you can spend any way you like but do not hold out the social payments hat.
    Anonymous
    5th Jul 2019
    8:29am
    Common sense approach. Unfortunately, there's no common sense in Canberra - just greed and self-interest.
    rtrish
    2nd Jul 2019
    12:51pm
    Not only revised but simplified

    2nd Jul 2019
    2:49pm
    Governments accept the rulings of the RBA without question and I believe that the deeming rates should be aligned to the published rates of the RBA. As those rates are for borrowings and investment rates are lower than loan rates there will still be a difference in favour of Centrelink but still a lot better than what is being calculated at present.
    Nanna75
    2nd Jul 2019
    4:24pm
    I agree, the Government says that the banks should copy the RBA rates, but won't do it themselves. I've had a battle recently over an overseas pension which I declared some 20 years ago. Because I cannot find that letter they have sent a bill due to overpayment, so my pension is reduced yet again.
    PlanB
    2nd Jul 2019
    4:11pm
    I am getting the HUGE amount of 0.3% on my bank account went down from0.5% and likely to fall further but still DEEMED to be getting 1.75%
    Tricky
    2nd Jul 2019
    5:08pm
    PM Morrison last night on ABC 7.30 Report told viewers that 'Bracket Creep is a Thief on Taxation', Senioer Citizens believe Deeming Rates set by Government are thieves by fraudulently robbing pensioners, part pensioners and self funded retirees.
    Karl Marx
    2nd Jul 2019
    6:51pm
    Our PM also believes in a fictional Supreme being might as well believe in Noddy for next PM
    Farside
    3rd Jul 2019
    1:41am
    Seems less than 4% of the population earn more than $155,000 per year so you have to wonder why the fuss of reducing rates for those up to $200,000. I doubt very much whether bracket creep is a high priority issue for the top earners.

    https://www.abc.net.au/news/2019-05-21/income-calculator-comparison-australia/9301378
    Tricky
    2nd Jul 2019
    5:14pm
    Thoughts and Prayers in relation to Deeming Rates being reviewed.
    MeC
    2nd Jul 2019
    6:55pm
    Where was all the outrage at election time?
    Tricky
    2nd Jul 2019
    7:19pm
    Outrage was there well before the election and indeed the way we are going along time after. Thoughts and Prayers.
    ozrog
    3rd Jul 2019
    12:26am
    Keep the presure on the government we need the deeming rates to come down inline with the RBA cash rate.
    Farside
    3rd Jul 2019
    1:29am
    Am I the only one that finds it amusing to watch the relish that accompanies a drop in interest rates, while at the same time these are disastrous for risk-averse retirees and investors reliant upon low-risk investments like deposits and bonds?
    Tricky
    3rd Jul 2019
    5:19pm
    At the last prayer meeting the deeming rates were discussed and it was found that there is no mention of them in the scriptures!