‘ONE GIANT CON JOB’: Australia’s ‘sneaky’ $1b-a-year rort
Hundreds of thousands of Aussies have been "robbed of income" for years on end - and the Federal Government's recent attempt to fix things is little more than a "slap in the face", critics say.
Last week, Treasurer Josh Frydenberg cut the deeming rate for the first time since 2015.
It was a move interest groups had long pushed for - but many people affected by the change claim the Government hasn't gone far enough, and they have also slammed the "unfair" system that allowed the problem to occur in the first place.
But what does it all mean?
WHAT IS A DEEMING RATE?
Deeming is a set of rules that determine the rate of income someone receiving government benefits makes from their assets, such as savings accounts, term deposits, investments and shares.
However, it is an assumed rate of return - not the actual amount a person is earning.
That rate is set by the Government to calculate benefits like the age pension, the disability support pension, the carer and the parenting payment and Newstart.
In the past, the deeming rate was below the Reserve Bank of Australia's official interest rate, but for the past few years it has been left above it.
That means Aussies have been means tested on income they haven't actually made, which has affected pensions.
WHY ARE WE HEARING ABOUT IT NOW?
Last week, Mr Frydenberg bowed to mounting pressure and finally cut the deeming rate for large investments over $51,800 for singles and $86,200 for couples from 3.25 per cent to 3 per cent and for smaller ones from 1.75 per cent to 1 per cent.
The cut was backdated to the start of July, and payments will start from late September.
Around a million Australians will benefit, including roughly 630,000 pensioners, although around three-quarters of the country's pensioners won't be affected by the cut.
It equates to an extra $40.50 a fortnight for couples and $31 for single pensioners or just over $800 a year per person - and it will cost the Government cost about $600 million over four years.
The cut was welcomed as a small step in the right direction by interest groups, although many argued it was a case of too little, too late.
Among the most vocal critics was deputy Labor leader Richard Marles, who said the decision was "a slap in the face" for older Australians.
Labor also claims the failure to slash deeming rates since 2015 has saved the Government more than $1 billion per year in pension payments.
Some have also dubbed the issue "the new retiree tax", pointing out the hypocrisy of the Coalition in attacking Labor's franking credits policy during this year's election campaign while continuing to financially disadvantage seniors themselves.
Matt Grudnoff, a senior economist with influential progressive think tank The Australia Institute, told news.com.au people were right to be concerned by the situation.
"All retired people with investments know they're effectively being robbed of income," he said.
"These kinds of issues are usually taken out of the Government's hands - things like the aged pension and the family tax benefit are all indexed so it happens automatically … and doesn't require the Government or a minister to make a decision.
"But the way they're doing (the deeming rate) is a sneaky revenue-raising exercise. If the Government wants to cut the pension - which is what they've effectively done by not cutting the deeming rate since 2015 - they should be upfront about it rather than freezing it and cutting it by stealth."
Mr Grudnoff said the issue was suddenly under the spotlight due to a "combination of factors", including the RBA's recent double rate cut, with future cuts likely.
"Every time interest rates go down without moving deeming rates, the issue gets bigger and bigger," he said.
"(The current system) enables them to cut (the pension) by stealth when they want to save money or create a surplus."
He said the furore over franking credit refunds during the federal election campaign left no room for other retiree issues to be aired - but ironically, deeming rates actually affect far more people than refundable franking credits, particularly middle-income earners on part-pensioners.
Switzer Financial Group director Paul Rickard said the Government was "screwing senior citizens".
"At the start of 2015, the Reserve Bank's cash rate was 2.5 per cent. (In July) this was lowered to just 1 per cent. Yet over this period, there has been no change to the Government's deeming rate - and this is hurting the real incomes of thousands of aged pensioners," he said in a release.
"Some may be wondering why the Government hasn't changed the deeming rate and here's why. From a treasury perspective, changing the deeming rate costs money. Lots of money. "Hundreds of thousands of aged pensioners would become eligible for higher pensions, and thousands of others, who are currently ineligible, would become eligible for a part pension."
HOW CAN WE FIX IT?
Ian Henschke, the chief advocate of National Seniors Australia, the country's peak advocacy group for older Aussies, told news.com.au it was essential to remove the deeming rate from government control.
He described the current situation as a "rort".
"The Government's election campaign slogan was that it wanted a fair go for people that have a go - but it looks like they're having a go at people who have had a go," Mr Henschke said.
"Where they are making money is that gap between the deeming rate and the cash rate - it's like a giant shark sweeping through pensioners' accounts and taking their money.
"What we want is an independent body to set the deeming rate."
Mr Henschke said the maths didn't add up, and many people would only be better off by a few dollars after the recent cut.
"They're giving $600 million over four years to one million people - that's $150 million a year and an average of $3 per week for pensioners. If you're very lucky and get the full $800 amount you would be $2 a day better off," he said.
"It's patently clear both Labor and the Coalition have been using the deeming rate to fund their budgets.
"I see it as one giant con job if you take money off people for four years and four months and then give them back a fraction of what you took. It is not a good look - it doesn't pass the pub fairness test."