Why the government got deeming rate changes wrong - expert
THE Coalition may be celebrating its decision to cut tax on income from retirement investments as a win for older Australians but a leading Sunshine Coast financial advisor has deemed it a missed opportunity that would leave the poorest effectively subsidising the comparatively better off.
The Federal Government has chopped the level of tax it deems single retirees have earned on their investments from 1.75 per cent to one per cent for the first $51,800 and $86,200 for pensioner couples.
The result it claimed would deliver couples $1053 extra and singles $804.
It's a move Fisher MP Andrew Wallace has declared would benefit 8720 older people in his electorate.
"The Government has taken a sensible approach to supporting older Australians because we understand that pensioners have finely balanced finances,” Mr Wallace said.
"It will mean more money in the pockets of older people on the Sunshine Coast. Under the new rates age pensioners whose income is assessed using deeming will receive up to $40.50 a fortnight for couples, $1053 extra a year, and $31 a fortnight for singles, $804 a year.”
Minister for Families and Social Services, Senator Anne Rushton said the upper deeming rate would also be cut from 3.25 per cent to 3.0 per cent for balances over the initial thresholds.
She said the changes would benefit about 628,000 age pensioners nationwide and more than 455,000 people receiving other payments.
John McIntosh, of McIntosh Financial, said the deeming rates treated all classes of investments as if they delivered similar rates of return when that was far from the case.
The 35-year industry veteran said cash and term deposit investments typically held by the poorest of retirees returned significantly less than investments in shares and property.
Deeming rates for shares and property investment were now at three per cent when they should be at five per cent.
Mr McIntosh said rather than lowering the deeming rates, the government may have been better to increase the first threshold to $100,000 and the second to $150,000.
That, he said, would get closer to only taxing retirement income earned through physically working.
Mr McIntosh said those who failed to seek advice and instead kept their wealth in fixed interest rate accounts had been left to pick up the tab.
The new government approach will take effect from September in line with the regular indexation of the pension and will be backdated to July 1.
Mr Wallace said while 75 per cent of aged pensioners were not affected by deeming, the decision recognised that it was an important issue for those who were.