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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