The holiday or healthcare – a choice we have to make

Why universal access to basic health and aged care is pivotal to a secure retirement.

The holiday or healthcare?

Peter Davidson

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?



    To make a comment, please register or login
    9th Aug 2018
    I have private health cover. However every year as sure as Christmas comes around one of my teeth will fly the red flag and the lovely plans to relax somewhere exciting gets the flick.
    Health is more important than holidays but I would really love to be able to plan one holiday without Murphy's Law coming into play.
    9th Aug 2018
    There are many loopholes in the taxation system with the end result being that many people are not paying their fair share of tax. For older people it may be living in a large house so that they are asset rich but cash flow poor with the end result being that they receive the old age pension and the health perks that go with being a pensioner. I have no problems with people needing the pension because of both low income and relatively low assets. I am of pension age and do not get a pension because I refuse to buy a McMansion and become asset rich and cash flow poor. There needs to be a consistent approach to taxation of superannuation investments. There is encouragement to invest in super and that is right because decreases the amount spent on pensions; however steps should be taken to stop people having expensive holidays and effectively cashing in their super and getting a pension. Maybe investing in super (a form of savings) should be tax free but the proceeds taxed at normal marginal tax rates. It would certainly mean that people like me would have to pay more tax. As the system currently stands despite having a good income I pay very little tax and my wife none. We have merely acted, completely within the system to rationally minimise the amount of tax that we pay.
    9th Aug 2018
    Alan what about those who never saved and spent everything? How would you penalise them. Like you, they have acted completely within the system. Some expensive homes are not McMansions but modest except that 40 years later they are in sought after suburbs. However maybe people need to either pay off a mortgage or take Super as a pension.
    9th Aug 2018
    I am just on the verge of cancelling my Private Health Insurance. Over the past 2 years, I have watched many of my elderly neighbors use the public system and I am becoming more convinced every day that PHI is a rort.
    One neighbor - has had a hip replacement, triple bypass, pacemaker inserted, cochlear implant, half his foot amputated and an eye operation. ALL through Public Health system, and the longest he had to wait was 6 weeks.
    Other neighbor - hip replacement, eye operation. Waited 6 months for hip operation.
    Other neighbor - has spent all but 5 weeks of the past 8 months in hospital due to mental problems. Mind you, the main problem is that she cannot monitor her medication. Almost treats it like a resort - she boasts 'I don't have to cook my meals and I get my bed made for me'... Is now a permanent resident in a hospital facility mental care ward (3/4 of her pension paying for it).
    Other neighbor - got infected foot whilst gardening. Spent nearly 3 weeks in hospital, mostly in a private room.
    Seriously beginning to wonder if I am the big idiot....I'm spending nearly $3,000 a year on Health Insurance, yet they get the exact same treatment fro totally free.
    9th Aug 2018
    I’m in the same boat. A friend with breast cancer had the best surgeon and oncologist through the public system. Another with private cover was significantly out of pocket. The main reason stay with private health is to avoid waitng lists but it’s expensive especially as we are very healthy
    9th Aug 2018
    Unfortunately if we all relied on the public system the waiting lists would explode, and our rate of taxation would have to rise significantly. More likely, the public health system would collapse. I have private insurance, only for hospital (top level a necessity ) and extras come out of pocket or I do without.
    9th Aug 2018
    Jenny so true, the private health insurance companies need to stop being so greedy and get the costs down. But I think it is part of the plan of the Government to eventually get rid of public health, once it collapses under the weight. Thousands each year a ditching private health care because of rising costs. Just can't afford to be sick anymore, I take care of my own health, prevention is better than cure.
    9th Aug 2018
    We are paying $4800 between the 2 of us per year. I think it as a lottery we do not want to win. At our age I do not want to let it go as it does not give me any bonus in the bank and C/Link does the deeming so I might as well spend the money on private health. Though with less money I would be tempted to opt out and I do not blame anyone who does.
    Jenny is right though about all of us relying on the public system would blow Medicare apart. Maybe some of the pokie money turnover should be used for medical purposes.

    9th Aug 2018
    I think these ACOSS views have been aired before in the Retirement report recently, and we don't need these Communist-type views (evidenced by statements such as "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") being repeated.
    We do want CHOICE, hence Private Health Insurance has an important role.

    The problems are however that:
    a. We don't have a real Private Health INSURANCE system which should cover ALL Gap costs, instead we have a stupid system in which certain level of costs can be claimed back thus risk residing with the patient rather than with the Insurance company, and

    b. We have a broken Tax system which does not collect fair and reasonable taxes from both large companies and the wealthy (some areas are noted in the article). Besides removing some of those loopholes, a Minimum Tax system is essential to ensure all pay fair and reasonable taxes. Then, we would not have a funding issue either for Health or for Universal Pensions.
    15th Aug 2018
    "Little or no out of pocket expenses" - WT*!!?? Farce - don't get sick if have Private Health Insurance, costs heaps...if don't have that Insurance, just keep waiting for many mths/sometimes yrs unless emergency. We had Private Health Insurance for decades, still cost us $15,000+/yr for the 9yrs hubby battled cancer (including the Top Insurance). Yes, he did get the very best treatment, only blessing after 5 major ops/fortnightly either Chief Oncologist/Surgeon/GP consultations/expensive continuing medications (neither of us could work for most of those yrs...hubby often unwell & me caring for him. Our health system is a shamble.
    31st Aug 2018
    Our Heath Care System is a farce.....altho' I'm stupid enough to continue paying my Private Health Insurance??

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