The "deeming rate" decision – a competition between politics and economics
A Federal Budget is due to be announced next Tuesday, (March 25, 2025) and part of the Budget will include an announcement regarding the "deeming rate". This is the return the government deems that retirees make on their investments in terms of determining eligibility for pensions. In principle, the deeming rate should broadly match the cash rate, which is 4.15% - see the chart below. Current deeming rates provide that assets over $62,600 and $103,800 for single and couple pensioners respectively are deemed to earn 2.25%
From a purely economic perspective, the deeming rate should be increased to broadly match the cash rate - to do otherwise effectively maintains a subsidy to pensioners. However, we have a Federal election pending, and it's likely that politics will trump economics, yet again. We hope this is not the case, but it has been a clear trend evident for the last 10 to 15 years - with "small target politics' resulting in an economic malaise for Australia.
Urgent reform is now needed across the entire economic spectrum in Australia, including tax, superannuation, pensions and aged care, immigration and competition policy. Instead we have important economic decisions overwhelmed by "marginal" politics, with politicians weighed down by considerations about how pensioners will vote in response to any (negative) pension reforms, how migrants in marginal inner western electorates in Sydney will respond to migration restrictions, how electorates in WA will respond to (negative) GST changes.
Most retirees understand that any system that is not maintained properly will eventually fail - the lack of any appetite for reform, or the ability to sell and manage reform, substantially increases the risks of later economic shock. Reform driven by a crisis is always possible, but it is not desirable.