Treasurer Josh Frydenberg has warned aged pensioners not to expect the Morrison government will slash the deeming rate as low as offical interest rates.
But he has confirmed the Prime Minister is preparing to take action amid claims the government’s income test rules are ripping off seniors by $1 billion.
Mr Frydenberg confirmed on Tuesday that changes to the deeming rate were imminent, as he also urged workers to hit the shops and spend their $1080 tax cuts to stimulate the economy.
The deeming rate is part of the income test for the pension and part-pension.
Currently, it assumes pensioners are securing an investment return of 3.25 per cent, a rate that has remained unchanged for several years. Under the rules, when seniors hit the income test, their pension payments are reduced.
Continuing falls in offical interest rates have highlighted the gap between what pensioners are deemed to be securing from bank deposits and what they are actually getting.
But Mr Frydenberg said the deeming rate also needed to reflect that some aged pensioners got higher rates of returns on investments.
“It’s not a straight line equation. It’s not about looking at what the interest rates have done and then reducing the deeming rate by the same amount,” he said.
They’re not necessarily exactly the same, because it applies to a broader suite of assets.
“We are looking at it very closely and we are looking at it soon,” he said.
National Seniors advocate Ian Henschke, who wants the process for setting deeming rates taken away from politicians and given to an independent umpire, was unimpressed with Mr Frydenberg’s announcement.
“This deeming rate issue will become the Coalition equivalent of what it called Labor’s unfair retiree tax,” he said.
“It’s not a proper process at all. Quite the opposite. It’s an improper process with the rate set at the whim of government and allowed to drift now to 2.25 per cent per cent above the RBA cash rate.
“During the entire Howard era, the deeming rate tracked alongside the RBA cash rate and was either the same or lower than the RBA cash rate.
Mr Frydenberg said the government was not considering the idea of an independent umpire to set deeming rates.
“We believe we have a proper process in place,” he said.
At a media conference with Australian Tax Office commissioner Chris Jordan, the Treasurer also urged 10 million workers who are about to secure tax cuts of up to $1080 to hit the shops.
“It’s not up to the government to tell Australians how to spend their money, but I am confident this money will be used at the local shop,” Mr Frydenberg said.
But as Labor continues to urge the government to bring forward tax cuts and spend more on infrastructure, Mr Frydenberg said he wasn’t about to jeopardise the surplus.
“It’s important to understand that if it wasn’t for the Howard-Costello government’s success in paying down Labor’s debt, Australia wouldn’t have had the flexibility to spend through that economic downturn when it hit in the GFC,” Mr Frydenberg said.
“What we need to do is pay down that debt, as appropriate and as we’re able to do
“We believe in that fundamental value that the next generation should not pick up the tab for the current generation.”