Morrison fattens pensioners, starves unemployed

The Coalition has moved to ensure that part pensioners are not adversely affected by the rise in the cash rate by freezing the ‘deeming rate’ on savings at current levels for two years.

The Morrison Government had reduced the deeming rate twice in response to the COVID-19 pandemic. Now the deeming rate for low savings balances will remain at 0.25%, below the new official cash rate of 0.35%, while the upper deeming rate is just 2.25%.

From The AFR:

[Morrison] moved to offset any electoral damage the 0.25 percentage point rise may cause among mortgagees, by extending more concessions to 900,000 pensioners, enabling them to lock in the benefits of rate rises via a bigger return on their investments.

Days after expanding eligibility for the Commonwealth seniors health card to an additional 50,000 people by significantly loosening the income test threshold, Prime Minister Scott Morrison pledged to lock in for two more years the cuts to the pensioner deeming rate the government made during the pandemic.

“This is another shield to help protect Australians from the cost of living pressures people could feel from an increase in interest rates”…

Deeming rates estimate the income earned on part pensioners’ financial assets, which then determines how much they receive as a pension payment.

Deeming rates have to provide a simple benchmark that takes account of cash returns, dividends and other equity returns. That’s why there are two deeming rates – a lower one biased to cash (0.25% on the first $53,600 of investment assets for a single), and a higher one biased to equities (2.25% on investment assets over the amount of $53,600 for a single).

If anything, the upper deeming rate is far too generous, since actual earnings on equities (dividends) are typically much higher than 2.25%.

For this reason, Council on the Ageing Australia CEO, Ian Yates, noted that most pensioners earn significantly more than the deeming rate on their investment earnings:

“Those calling for the full cut in the cash rate to be applied to deeming need to be honest about how many pensioners are affected, and about the fact that if the Government replaced the deeming rate with actual earnings the majority of part pensioners would be worse off”.

Thus, the Morrison Government has thrown another budget bone at retirees while it keeps those on JobSeeker payments surviving on $46 a day starvation payments:

JobSeeker versus poverty line

If economic outcomes are the goal, then the government should instead lift Australia’s unemployment benefit, which is the second lowest in the developed world.

The unemployed are among Australia’s poorest and every extra dollar they receive in government support would be spent rather than saved. Lifting JobSeeker would also put a floor under real wages.

Unconventional Economist

Comments

    • Strange EconomicsMEMBER

      Except working people.

      The unemployed and underemployed and gig workers are not seen as swinging voters to the LNP or part of the base. Its a simple political calculus.

      So you can be well off have your own house and $ 1 million of investments and still by deeming get the pension. (Let alone superannuation breaks)

      Well off Age Pensioners and self funded retirees with their own house and investments win big in Australia this election, those renting not so lucky,

        • Grand Funk RailroadMEMBER

          Exactly….

          Australia sugar coats those with assets living in houses they own, and there is an entire industry devoted to ‘advising’ them on how best to maintain the pension dollars they believe are their ‘entitlement’ – everything from placing assets in trusts, borrowing from SMSF’s, taking annuities from a fund to place in another, offloading assets from one name to another, and straight out bullshitting (often seen in those claiming ‘divorced’ or ‘separated’ rates of pension while living in the same abode), to go with the widespread use of disability payments.

          At the same time we hammer kids (in particular) and those with genuine disadvantage in a way no comparable nation does. It is an utter disgrace

          • everything from placing assets in trusts

            There’s an attribution test and a control test

            If you don’t disclose either, it’s fraud.

          • Grand Funk RailroadMEMBER

            I am fully aware of the control tests and the attribution requirements

            Let us just say there is a whole industry allowing those with the means to explore the need to go within feeler gauge of fraud while still getting the ‘entitlements’ they feel they deserve

  1. They are now moving to a scorched Earth policy.

    Making promises for their constituents and then daring the ALP not to match them. It worked with the seniors card expansion, it will probably work here.

      • happy valleyMEMBER

        Because pensioners (at least those with a truckload of franking credit refunds) had a go and got a go, whereas the unemployed didn’t even have a go, so they didn’t get a go.

      • strange economicsMEMBER

        So if Labor get in, they will find the cookie jar completely empty for any other policies. Or is a poisoned chalice cookie jar.

        • Labor will come in with a plastic straw and a tin of sardines thinking they’ve got all the ingredients necessary to bake cookies.

  2. reusachtigeMEMBER

    I don’t understand your problem with this. Most pensioners have given their all to make this nation great. Most dole blushers have leeched off the success of the rest of us. Sometimes people starve.

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      The crime rate’s gone, feel free again
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      Convinced the liberals it’s okay
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  3. If anything, the upper deeming rate is far too generous, since actual earnings on equities (dividends) are typically much higher than 2.25%.

    It’s rare a portfolio for a retiree will be 100% shares. I cannot recall the last time I’ve seen a retiree who receives a pension with a risk profile higher than 50% / 50%.

    It is more accurate to say that the weighted dividend yield, being 50% of their portfolio at most… would be around 3-3.25%…

    If a 30/70 portfolio, we’re looking at 2-2.25%.

    However, as the means testing is both assets and income, picking the lower of the two, unless they are continuing to do part time work, virtually all recipients get adjusted by the assets test rather than the income test, which this applies.

    To me, this is such a hollow adjustment of virtually no consequence.

    The CSHCC card amendments however…

    • PlanetraderMEMBER

      To your point RP the CSHC for a lot of people I understand is based on deeming their assets
      So they get suppressed income assessment and higher thresholds
      Is a big win for wealthy boomers and the rest of us get screwed once again

  4. Jumping jack flash

    I heard somewhere that the average voting age is around 50 so it makes sense to promote policies that favour that age bracket.

    • Hmmm… you realise contradictions in your comment?
      An “average voting age” of 50 is irrelevant here since one doesn’t normally qualify for a pension at that age.
      But it’s very easy to get unemployed at ~50, which often leads to a permanent unemployment (due to ageism) and pauper lifestyle on $45/day (if they can qualify for any benefits).

  5. kiwikarynMEMBER

    Perhaps its better to look into how, with record unemployment lows, there is anyone still left on Jobseeker. Its not like it takes skill to wash dishes or scrub hotel toilets. Now we know for sure that its laziness that the unemployed suffer from, not lack of job opportunities.

    • If the unemployment rate accurately reflected full-time employment, you might have a point.

      But since the underemployed are counted as “employed”, I don’t think your thesis stands up.

    • That has pretty much never been the case. We had prolonged unemployment rates of 1% when we had full employment policies, and that was virtually all seasonal.

      NAIRU, by definition, consigns an economy to have a certain percentage of the population unemployed, against their will… by means of being the criteria which adjusts monetary policy.

      It’s like picking on the guy for being the shortest guy on the basketball court (even if they’re 6’5″)….

      Someone has to be the shortest…

      With NAIRU, someone has to be unemployed.

    • KK, the definition of employment for measurement purposes is more than one hour worked per week. The unemployment rate is a number completely unhinged from the realities of living and associated costs.

    • I'll have anotherMEMBER

      There are infinite reasons someone may be unemployed. I have never taken the dole but I can see why some might.

      DV issues, mental health issues, lack of regional opportunities, being a few years away from the pension and loosing a well paid job, having your career taken over by automation, needing to stay with I’ll family but not qualify as a carer because unfair policies, having a drug or alcohol abuse problem, not having means of transportation, being between jobs, accepting a role that didn’t come through whilst having left another, natural disaster such as flooding causing local businesses to shut up shop…..

      Get a grip mate. There are valid reasons, don’t be so callous.

      Besides, if there are so called “lazy” people out there who would rather live on a few hundred $$$ a week, well below the poverty line than go to work, who gives a toss?

      Do you really want to work with such people? Or have them perform a service for you?

      Why are you so mad at people’s choices that don’t affect you? And it’s not about national budgets, there’s thousands more things the feds waste money on besides unemployment benefits, many of those benifits helping children in those households to eat, have warmth and shelter.