The Australian Council of Social Service (ACOSS) believes that security in retirement is about more than having a decent income. A secure and dignified retirement rests on three pillars: an adequate income, affordable housing and quality, affordable health and aged care.
The best health and aged-care systems are universal (available to all) and require little or no out-of-pocket contributions.
This principle was undermined by the 2014 Federal Budget decision to withdraw $10 billion a year from future hospitals funding to the states, continuing the freeze on Medicare rebates for doctors’ appointments and cuts to community-based health services.
The Government has since partially restored these funding cuts, but major shortfalls in health funding remain, including gap fees for specialist appointments, a future budget crunch for public hospitals and long-standing deficiencies in dental and mental health care. People with low incomes are still having teeth pulled instead of filled because they have to wait months for public dental services.
All wealthy nations are increasing public health spending, so that the whole population, and not only the well-off, benefits from advances in medical treatments and drugs. This is an investment in our health and wellbeing, not a ‘drain’ on public budgets.
The alternatives are that people have to queue longer for essential healthcare or that we pay more in user charges. Already, one-sixth of all health spending is private (out-of-pocket) spending, one of the highest levels in the OECD. The average out-of-pocket expense (excluding health insurance premiums) in 2012 was $1200.
It’s vital that we avoid a two-tier health-care system – one for the top half of the population and another for the bottom half, of the kind that has long existed in the United States and still exists in dental care in Australia.
The compact between governments and taxpayers
Australia has strong public institutions and programs to share the risks associated with old age, poor health and disability across the community. They include universal access to publicly supported healthcare (Medicare, hospitals and the Pharmaceutical Benefits Scheme), a national aged-care program and, more recently, the National Disability Insurance Scheme (NDIS).
A key strength of these programs is that they are mainly funded from general taxation, including the Medicare levy. The compact between taxpayers and governments is that our essential healthcare needs will be met if, and when, they arise. In return, people are taxed according to their ability to pay.
Sharing risk across the community is not necessarily more costly for governments. Public healthcare systems based on the principle of universal access, such as those in Australia and the United Kingdom, cost governments much less than the mainly private (but publicly subsidised) health care system in the US.
Closing the gaps
The challenge for governments is how to pay for the inevitable increases in the future costs of existing healthcare programs, while closing the worst gaps in services (including dental and mental health services and the expansion of the NDIS).
The Parliamentary Budget Office estimates that to maintain existing commitments in health, aged care and the NDIS, governments will need to spend an extra $21 billion a year by 2027.
Yet the Government has just committed to $18 billion in annual income tax cuts and another $14 billion per year in company tax cuts that will hit the Budget hardest in the mid-2020s, at exactly the time that funding for essential services will need a boost. In ACOSS’s view, committing to large tax cuts this far in advance, when we have little sense of how the Budget and the economy will be travelling, is not responsible budgeting.
We should be strengthening public revenue to meet these future spending commitments, not legislating in advance to cut it by more than $30 billion a year.
Raising the Medicare levy is one option. ACOSS argued for an extension of the Medicare levy surcharge for high income-earners to those with private health insurance, and the removal of opportunities for people to use tax shelters to avoid paying the levy. Nevertheless, we were disappointed the Medicare levy option was abandoned in the 2018 Budget.
It doesn’t follow that personal tax rates have to increase. Tax breaks that are poorly targeted, not fit for purpose or exploited by people with ‘smart’ lawyers and accountants, should be reviewed. They include tax breaks for capital gains, negatively geared property investments, income diverted into private trusts and companies, tax avoidance by multinational corporations and over-claiming of work-related deductions.
An alternative option that is sometimes raised – increasing the GST – would raise taxes regardless of people’s ability to pay. For example, an increase in the GST from 10 per cent to 15 per cent would cost households in the lowest 20 per cent by income an extra $34 a week in tax (seven per cent of their average income). Middle-income households would pay an extra four per cent of their income and the highest 20 per cent would pay an extra three per cent. That’s the opposite of progressive taxation.
A new compact for security in retirement?
Despite years of tinkering, tax breaks for superannuation and age-based rebates such as the Senior Australians and Pensioners Tax Offset (SAPTO) are still poorly designed and targeted. Only one in seven people aged over 64 pays any income tax. Superannuation fund earnings and benefits are generally tax-free after retirement, and any other income is untaxed as long as a couple earns less than around $60,000.
It’s reasonable that everyone, regardless of age, who is able to do so, contributes to the costs of universal essential services. That’s not happening now.
While tax-free superannuation benefits can be justified on the grounds of simplicity, and the fact that contributions and fund earnings have already been taxed, the case for not taxing fund earnings in the retirement phase (once a superannuation pension is paid) is weak. Most other investment income – including bank interest and dividends – is taxed, along with wages.
One option is for the Government to establish a new compact with older people: to remove or reduce the value of these tax shelters (the tax-free treatment of some fund earnings and generosity of the SAPTO) and use the extra revenue to remove or reduce user charges for essential health services, including aged care.
This may reduce retirement incomes for those aiming for the so-called ‘comfortable’ retirement living standard advocated by the Association of Superannuation Funds of Australia (ASFA), including overseas holidays every two years, but it would relieve one of the greatest anxieties of retired people – whether they will be able to afford the health and aged care they need when they are older.
The money (and the holidays) or the health care – that’s a choice we need to make.
Are you comfortable with your standard of healthcare? Is aged-care planning part of your financial strategy?