Is the government considering a new tax to fund aged care?

If we learnt anything in the short time since the monumental aged care royal commission report was released last week, it’s that a lot is needed to fix a system termed a “national disgrace”.

The least of which is money.

And a whole lot of it.

While the aged care royal commissioners agreed on most points, two they could not come to terms with were how much it was going to cost (and who would fund it), and who would be responsible for overseeing this renovated system.

In some way shape or form, it will be the taxpayer, who foots the bill, and it may be as soon as May that we find that out.

One suggestion on the table is a special levy, such as the one that funds Medicare, which currently stands at 2 per cent of taxable income.

Read more: Government releases five-year road map to fix a ‘national disgrace’

According to a New Daily report, the government is considering a 0.5 per cent or 1 per cent levy to fund the necessary aged care changes.

While we’ll all be on the hook for funding a system very much in need of a cash boost, it will be younger people who’ll pay the most in the long run.

Then again, they’ll be needing it one day too.

Quote YourLifeChoices podcast host, John Deeks: “the only difference between us and them is that we’ll get there first”.

So, how much will this levy set back the average income earner with weekly earnings of $1280.30? Between $332.87 and $665.75 a year, depending on the chosen rate.

A 1 per cent levy would raise $8 billion a year, which is what the Grattan Institute estimates necessary aged care funding would cost.

Currently, our government spends around $19.9 billion per year on aged care. Sounds like a lot, but in terms of government spending, Denmark and Sweden spend more than 4 per cent of Gross Domestic Product (GDP) on long-term care, while Australia, with a similar demographic profile and GDP per capita to Sweden and Denmark spends 1.2 per cent of GDP.

Australia also spends less than Japan (3.6 per cent) and the Netherlands (3.4 per cent) and slightly less than England (1.5 per cent) and Canada (1.3 per cent).

The $19.9 billion the government spends on aged care only accounts for 1 per cent of the economy.

“Australia is at the bottom of the barrel when it comes to GDP spending on aged care,” said Aged and Community Services Australia CEO Patricia Sparrow.

“That’s not just embarrassing, it should also be an urgent wake up call for the economy and for people entering retirement who may need aged care within the next 20 years.”

Ms Sparrow believes Australia is falling behind because older Australians are undervalued.

“There is a fundamental mismatch here, that at its core is an undervaluing of the contribution older people deliver for the community and the economy.

“Not only is the aged care sector underfunded compared to other countries, but Australians who make huge sacrifices to care for elderly relatives don’t get the same level of benefits either.”

Leading Age Services Australia CEO Sean Rooney says chronic underfunding is just part of the cure for aged care in Australia.

“With findings that Australia spends around 1.2 per cent of GDP on aged care, well below the OECD [Organisation for Economic Co-operation and Development] average of around 1.5 per cent and much lower than some European countries, it is vital our residential and home care programs receive a long-term funding increase,” Mr Rooney told Australian Ageing Agenda.

“The care of senior Australians is at risk, as residential homes suffer extreme financial stress and thousands of people are dying before receiving their approved home care packages.

“Australians want and deserve a world-class aged care system and a critical part of achieving this is world-class funding.”

Regardless of how it’s funded, the royal commission’s final report “is a crucial guide for our nation’s desire and obligation to do the right thing for older Australians, ensuring they have the care, choice and respect they need and deserve,” says Mr Rooney.

Read more: Australia’s aged care compares poorly to global benchmark

Monash University professor Joseph Ibrahim said the royal commission has highlighted how governance arrangements in aged care have failed us, and that there is no excuse why we spend so little on aged care.

“If you had to double the spending in aged care, you’d shift from 1 per cent to 2 per cent,” said Prof. Ibrahim.

“So the preoccupation with money is a distraction as we’re in the top five wealthiest countries in the world. We could afford it.”

In 2018, when Prime Minister Scott Morrison was treasurer, he tried to pass a 0.5 per cent levy to fund the National Disability Insurance Scheme. That idea was not well received.

That may have more to do with the fact that the NDIS won’t affect all Australians, whereas the Medicare levy will be more likely to apply to all. So too, in theory, could an aged care levy.

The Coalition has signed off on tax cuts to cost around $137 billion by 2030, so adding a new tax may not be the answer the PM is looking for.

So how will he fund the $452 billion he’s already promised to put towards his aged care fix?

Council on the Ageing chief Ian Yates says, “people with the capacity to pay” should be responsible, but “that involves some political risk”.

Is the government prepared to take that risk?

One area in dire need of funding is home care, says Mr Yates adding that, currently, the government provides up to 80 per cent of home care funding, yet providers only provide the bit the government funds.

Read more: Aged care sector unites to target marginal seats at next election

“Home care is what everybody wants to have, but there is a negligible consumer contribution aided and abetted by private providers,” he said.

“The morality of that escapes me, frankly.

“We need to tighten that and have a regime that sticks.”

Mr Yates suggests a means-tested home care scheme, but even with that “there is still going to be a very big bill for the government”, he said.

“The assets test for residential care only takes into account $270,000 of value for the family home. That means if you’re in rural Tasmania, almost the whole of your house is included, but if you are on the North Shore in Sydney, it’s a small portion,” said Mr Yates.

“It would be better to include 50 per cent of the value of your home for the assets test regardless of value.”

That may be all well and good for those who haven’t prepared financially for aged care but, in the interests of equity, this still may not be an ideal solution.

“What about people who have provided for their retirement and aged care? Do you want to charge them a levy as well?” said University of Canberra economics professor, Phil Lewis.

“If you had a scheme where there was a levy and if you could show that you’ve got private age insurance then you would be exempt from the levy.”

As we have all seen suggested lately, funding the third phase of retirement may end up being solely your responsibility.

Read more: ‘Secret plan’ to force retirees to use their home to fund retirement

The government has already intimated retirees use the equity in the family home to fund retirement. That suggestion may carry right through to funding aged care.

“It seems clear there will be a greater expectation that in the future people will need to fund more of their own aged care from private savings,” said Industry Super Australia chief Bernie Dean.

“Super will form a role in that, so it is vitally important the government does not chip away at super now and saddle the next generation with an even greater debt.”

How would you feel about a 0.5 per cent levy applied to fund aged care? Do you think this is fair? How would you propose to fund the aged care system?

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Written by Leon Della Bosca

Leon Della Bosca has worked in publishing and media in one form or another for around 25 years. He's a voracious reader, word spinner and art, writing, design, painting, drawing, travel and photography enthusiast. You'll often find him roaming through galleries or exploring the streets of his beloved Melbourne and surrounding suburbs, sketchpad or notebook in hand, smiling.