Centrelink Changes …. Where doing the right thing produces a worse result!

 

If the Minister for Social Services Mr Scott Morrison is to be believed, Tuesday night’s Federal Budget will introduce a raft of changes for those receiving a Centrelink benefit.

 

Centrelink Changes - Proposed

 

 

As illustrated by the table above, asset test free thresholds will rise considerably for those in receipt of a Centrelink entitlement.

Based on the Minister’s forecasts 171,658 pensioners will be $30 better off a fortnight and for many retirees this will represent the largest increase to their pension payment in their lifetime.

Whilst we welcome this change, acknowledging that low income earners have been doing it tough, one can’t help feel that the Minister has made an error at the other end of the scale.

As illustrated by the above table, the asset test cut off threshold will be reduced dramatically thereby forcing 235,756 pensioners who are currently in receipt of a part age pension to receive an even lower pension. Worse still 91,378 pensioners will lose their part pension altogether.

Yes we are strong believers in curtailing middle class welfare but when examine the cut off thresholds, as proposed, it is hard not to feel sorry for those marginally in excess of the allowable limit.

Take for example a single homeowner with $600,000 in assessable investments.

Generally people in this category are conservative by nature relying heavily on bank term deposits to supplement their income stream.

With term deposit rates now at historical lows (3.15%) for 12 months, this means that a single home- owner would earn $18,900 per annum. Yes it would be possible to generate a higher return but this would require a degree of risk, a concept that many in segment are uncomfortable with.

By contrast a single homeowner today with little or no savings would qualify for $22,365 in Centrelink support.

Now let’s extend this to a couple homeowner with $900,000 in assessable investments.

Assuming that this money was invested in the same term deposit as outlined above, this couple would earn $28,350 per annum. If however they had little or no savings their combined Centrelink benefit would be $33,716.

What these examples illustrate is the unfairness of the proposed approach. In both circumstances, the people who did the right thing and put money aside for their future retirement are essentially worse off as opposed to those who did not do anything.

While we openly acknowledge that Centrelink support needs to be viewed as a safety net and not as an entitlement, one can understand why people are disenfranchised with what is being proposed. We forever talk about a fair and just system, and after considering the examples as outlined, one can’t help but feel that fair and just only applies to a particular segment of the community.

From where we sit, we would suggest that Minister Morrison may just have to go back to the drawing board.

Have a great weekend

Innate Wealth