Commonwealth Has Ample Fiscal Capacity to Implement Aged Care Reforms

Implementing the recommendations of the Royal Commission into Aged Care Quality and Safety will require additional Commonwealth funding of at least $10 billion per year, and there are several revenue tools which the government could use to raise those funds.

That is the conclusion of a new report on funding high-quality aged care released today by the Centre for Future Work at the Australia Institute.

 

While the Royal Commission’s 148 recommendations were not explicitly costed, the Centre’s report shows that $10 billion per year (or around 0.5% of Australia’s GDP) would be the minimum required to move forward with the urgent reforms in regulation, employment practices, and quality benchmarks advised by the Commission.

The report notes Australia’s public spending on aged care is much lower than other industrial countries with better records of aged care sservice. It also notes that Australia’s overall tax collections are also much smaller (by about 5% of GDP) than the OECD average, and have declined relative to Australia’s GDP in recent years.

The Centre recommends that initial improvements in aged care funding should proceed immediately, even before new revenue measures are implemented. With the Commonwealth budget projected to incur major deficits for many years (due to the COVVID-19 pandemic and recession), it is neither necessary nor appropriate to fully ‘fund’ incremental aged care spending in the initial years of reform.

Eventually, however, as economic and fiscal conditions stabilise, additional revenue sources will be important in underpinning high-quality aged care. The Centre ’s report highlights five specific options for raising new funds – two of which were proposed by the respective Royal Commissioners:

  • A 1 percentage-point medicare-style flat rate levy (proposed by Royal Commissioner Briggs).
  • A set of modest adjustments to personal income tax rates, preserving the existing progressivity of the system (similar to the proposal of Commissioner Pagone).
  • Cancelling the legislated Stage Three income tax cuts scheduled to begin in 2024 (which deliver most savings to high-income households).
  • Reforms in the treatment of capital gains and dividend income in the personal income tax system.
  • Reforms to company taxes to eliminate loopholes and raise additional revenues.

The government could use any one of these measures (or a combination of them) to support implementation of the Royal Commission’s recommendations.

For more information, please read the full report: Funding High-Quality Aged Care Services, by David Richardson and Jim Stanford.


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