Financing aged care: A black hole?


In the next twenty years aged care is likely to be the fastest growing budget item. How we pay for it should be a feature of the upcoming election writes National Seniors Australia CEO, John McCallum.

Key Points


  • New report shows aged care costs rising by an average of 7% a year for the next 20 years.
  • Analysis is needed to map out the most efficient and fair way to pay for aged care reform.
  • National Seniors is calling for bipartisan support for funding at the next election.

Astrophysicists around the world have been looking for black holes since Einstein predicted their existence. A new Green Paper from the Institute of Actuaries has shone light on our very own version of a black hole, which is emerging in aged care funding.

The report should be obligatory reading for both Treasurer, Josh Frydenberg and Shadow Treasurer, Jim Chalmers.

It predicts spending on aged care will double by the end of the decade – and that’s just the beginning. Costs will go up by an average of 7% a year for the next 20 years. Treasury’s 2021 Intergenerational Report only predicted costs would rise by around 4% per year to 2040.

The Morrison government in Budget 2021 committed $17.7 billion to fund the Royal Commission into Aged Care Quality and Safety reforms over what is now four years – but no detailed plan was provided on how to pay for this

In the next twenty years, aged care is likely to be the fastest growing budget item. We’re overdue for a clear financial plan to deal with this, otherwise the aged care Royal Commission will go down in history as a waste of time and money. More significantly, the aged care horrors exposed by the Royal Commission will continue to alarm everyone and haunt us as we all get older.

Time to face the facts


We’re now in election mode, so it’s time both political parties faced up to the reality of long-term funding for the Royal Commission vision of quality aged care. They need to be transparent about how they intend to support and improve aged care. It must be done with sufficient financing for those receiving care now and the baby boomer generation that’s soon to be needing it.

This is by far Australia’s dominant social issue for the next 20 years, after which, the baby boomer demand flattens. There are almost 6 million baby boomers. The oldest are now in their mid-seventies, so we’re looking at millions needing care in the decades to come. We will need a workforce of close to a million by 2050. That’s more than double the workers we have today.

We should note, these actuarial costings do not include the significant contributions of family and friends who supply care. Increasingly older people are opting to stay in their own home, and this is being encouraged by policy makers as a lower cost choice.

We must be mindful of how this change will be funded to ensure quality care at home. It will shift significant burdens onto older children, which women bear more than men.

Since the 1970s, in my working career, it’s been political poison to cut funds to older people and to put the care costs back onto them. One policy that did this artfully was the Residential Aged Care Deposits (RADs), which required a significant deposit to cover care costs with the balance being returned after departure without interest. Similar novel ideas are not yet in public discussion.

So, how do we meet the costs of care?  

What are the options


The latest National Seniors Social Survey of 5,430 people aged over 50 found a majority supported the idea of a levy, however the Prime Minister and Leader of the Opposition have both spoken out against this idea.

There’s a political dilemma. Voters don’t like talk of taxes at election time. So, it’s likely this won’t appear in any election platforms. But we need to be reassured it’s in the line of sight of all parties and we aren’t looking into a black hole.

In the lead up to the last Budget, we argued for robust independent analysis to decide the most efficient and fairest way to fund the Royal Commission reforms. It may be a levy, a small rise in GST, increased user pays, or it may be a combination of all these options.

We have a bipartisan approach to funding disability. We need the same for aged care.

We suggest all parties announce, as part of their election platforms, an agreement to investigate the most efficient, the fairest, and sustainable way to fund the future of aged care. Then accept what is proposed – regardless of which party wins.

If we don’t, the black hole will grow, and it will kill off any chance of real reform.

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