They've cut deeming rates, but what are they?
- Written by Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University
Treasurer Josh Frydenberg has cut deeming rate for large investments from 3.25% to 3%, and for smaller ones from 1.75% all the way down to 1%, backdated to the start of July.
But exactly is a deeming rate, and why does it matter so much to about one million Australians on benefits, among them around about 630,000 age pensioners?
It’s a topic I covered in The Conversation mid last week in an explainer that went all the way back to the beginning, or at least the most recent beginning, when treasurer Paul Keating brought deeming rates back to Australia’s benefits system in 1991.
Read more: Deeming rates explained. What is deeming, how does it cut pensions, and why do we have it?
Before that, applicants for the pension were able to pass income tests by ensuring that their assets didn’t earn much income, a service banks and other institutions were happy to provide for them.
From 1991, on applicants for the age pension (and later other benefits) were “deemed” to have earned from their financial assets amounts set by the government, whatever they actually earned.
For most of the past two decades both the high deeming rate (which at the moment applies to financial assets in excess of A$51,800 for singles and $86,200 for couples) and also the low deeming rate (for lesser assets) have been below the Reserve Bank’s cash rate, benefiting applicants who could earn more than those low rates while continuing to get benefits.
Deeming rates versus RBA cash rate, July 1996 - July 2019, per cent
Authors: Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University
Read more http://theconversation.com/theyve-cut-deeming-rates-but-what-are-they-120333