National Seniors and Paul Keating at the Royal Commission

Our CEO, Professor John McCallum and the former Prime Minister both had their say on improvements to financing aged care.

Image: Sydney Morning Herald

National Seniors Australia CEO, Professor John McCallum took to the witness stand at the Royal Commission into Aged Care Quality and Safety by video, to respond to proposed improvements in financing aged care. 

Professor McCallum told the Commission that when it comes to funding, it should not lose sight of the fact that the overwhelming preference of older Australians is to be cared for in their own home, as opposed to an aged care facility. 


The test ‘trap’ 

The Royal Commission discussed the transparency and complexity of the means and income tests thresholds for subsidised age care. 

For example, someone with a retirement income over $27,736.50 loses 50% of their income supplement for care.  

Someone who has both an income above that amount and assets worth more than $50,500 will pay a basic daily fee for their aged care and an accommodation contribution. 

Professor McCallum told the Commission that research with members found that these tests caused significant distress among self-funded retirees. 

In a proposition paper, the Commission put forward an alternative on arrangements on daily care fees and accommodation charges which:  

“should be recalibrated to achieve progressively greater contributions from people who have greater levels of certain assets and income without imposing hardship, or arbitrary outcomes on people in certain asset or income brackets.” 

It’s a proposal National Seniors, along with other consumer organisations strongly endorse. 

Keating’s ‘Longevity Levy’

Professor McCallum’s appearance immediately followed that of former Prime Minister Paul Keating, who told the Royal Commission if he had won the 1996 election and stayed in power, he would have introduced a longevity levy which would act as an income supplement for those over 80 or 85.  The levy could be used to supplement the Age Pension, superannuation returns or aged care. 

He still believes in the idea and said if introduced today it could be funded by a HECS type scheme in which the supplement is advanced like a loan and settled up on a deceased estate, even for those who with very little or no assets at all.   

“The Commonwealth would advance money to a wealth account to pay for your home care or aged accommodation and then upon your death there would be a credit to that loan account from the estate of the deceased person,” he told the Commission. 

Professor McCallum told the Commission he thought it would be a hard policy to sell to consumers.   

“Most view their home as a place to live, not an asset... something they want to pass on to their children even though they may have already paid for their education and helped them buy their first home.” 

Nonetheless he says it’s is an option that should be considered among the other ideas put forward.  

Costello not to be outdone

Later in the week, former Howard Government Treasurer and head of the Future Fund, Peter Costello, told the commission it should address the complexity of income and assets tests for older Australians.

He also took aim at the complexity of navigating the aged care system and admitted he had trouble filling in the required forms.

The former Treasurer favours expanding the Pension Loans Scheme to help fund their care. Under the proposal seniors would be given the option of taking out a loan secured against the family home, which would be sold when they died.

National Seniors supports expanding the scheme and has called on the federal government to make it more available by lowering current interest rates, especially for those needing care.

Former Treasury secretary Ken Henry joined with Mr Costello in telling the commission the current system needed simplifying. Mr Henry said Baby Boomers would not put up with the current system as is.

Henry and Costello agree to disagree about funding models

Mr Henry favoured the establishment of a dedicated levy or fund built on taxpayer contributions, similar to what Keating had earlier supported. According to Ken Henry:

"It's rare for the public to see the social benefit from their taxes … But here's a case where the government could demonstrate very clearly the connection between what people are providing by way of tax revenue and the enormous social benefit that come from the aged-care system that they're supporting."

Mr Costello did not agree.

He claimed these types of levies either collected far too little or too much and were open to being changed or adjusted at the behest of government. To illustrate this, he gave the example of the Medicare levy, which only accounts for about 15 per cent of spending on health and the petrol tax, which collects more than intended for its purpose of paying for roads.

For more on this topic, listen to the ABC's interview with Professor John McCallum and Matt Linden: How will we pay for our later years?