Comment: Are deeming rates the ultimate retiree tax?

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Today, seniors around Australia woke up to the awful truth about their retirement income.

Not only are they expected to largely fund themselves, but there is little hope they will get a fair slice of the pie under current arrangements.

On Sunday, the long-awaited adjustment to deeming rates was announced by Social Services Minister Anne Ruston.

There are many problems with this change, but here are my top five.

1. Deeming rates changes are arbitrary
Changes to deeming rates are made on the whim of the minister. Seriously. Where is the independent and transparent process that takes into account the way such income is earned and the appropriate rate to reflect increases or falls? Under the Howard Government, the rate remained below the Reserve Bank cash rate. For years now, it has been many percentage points above. Why? There is no science to this and no explanation. This needs to change.

2. The cut is too low
The cut to rates is from 1.75 to one per cent for less than $51,800 (singles) or $86,200 (couples), and from 3.25 to three per cent as an upper deeming rate for money invested above those limits. Given how likely it is that the Reserve Bank will cut rates by 0.25 percentage points in the near future, this makes a mockery of this long-needed cut for those with higher investments. Within a couple of months, it will have simply disappeared.

3. An increase to the base rate is long overdue
What is really needed is an increase in the base rate of the Age Pension. YourLifeChoices has called for this for a long time and continues to believe this is critical to ensure many age pensioners do not live in poverty, particularly those who are renting. The base rate of the pension has not increased since 2008. By any indication, Australian pension rates are the meanest in the developed world, so it is critical that the base rate be reviewed. This then takes away the arbitrary nature of deeming increases and gives those with the least a real and lasting boost in their income.

4. The Newstart allowance is an insult
It is not just age pensioners who are suffering. Those who don’t have a job are worse off. The Government’s response to calls for an increase is that such people are on Newstart for a short time while they find another job. That would be laughable if it wasn’t so dangerously misleading. Young and old alike can be on Newstart allowances for months and years. Those aged over 55 typically spend more than 12 months seeking a new job. The $40 a day allowance is simply not enough to pay for board and food while trying to present at interviews to secure ongoing employment. The measure of employment is more than one hour a fortnight. So even if you do get a job, who is to say you will earn enough to cover your costs anyway? This is the situation for many Australians who continue to eke out a massively constrained existence under the radar of politicians and the media.

5. Actual benefits are far lower than quoted
The numbers shared by the Government of amounts that might flow back are misleading. In the first instance, as noted by Senator Ruston, “75 per cent of aged pensioners are not affected by deeming”. Additionally, while the highest amounts likely to be received are quoted as $1053 for couples and $804 for singles, per year, this is for those with the most invested. The regular Johns and Joans will have far less invested and may receive about $200 or $120 per annum. The vast majority of retirees are sitting well below the quoted ‘headline’ amounts.

In summary…
There is no security of retirement income for pensioners affected by these deeming rate cuts. There was a huge scare campaign by the Morrison Government warning pensioners that Labor would introduce a retiree tax by removing cash rebates for dividend imputation. And because this affected the retirees with the most, this campaign bit hard, and was amplified. The real retiree tax has been bubbling along nicely with no cuts to deeming rates since 2015 – and now we have a cut that promises a lot, delivers little and will soon be wiped out by another Reserve Bank decision. Many retirees are saying they will remember this at the next election.

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Learn more about travelling, including effects on Age Pension payment rates.

Written by Kaye Fallick



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