Noel Whittaker has done a good job dissecting the Aged Care Royal Commission’s (RC) findings, which seeks to dramatically increase taxes of the working-aged population to fund an additional $10 billion of aged care.
According to Whittaker, there are two main funding proposals put forward by the (RC):
- Commissioner Lynelle Briggs wants everybody to pay 1% of their income as as an Aged Care Improvement Levy, similar to how the Medicare Levy works.
- Commissioner Tony Pagone QC wants the Aged Care Improvement Levy to be proportional, with the rate increasing by income and age. Under this approach, a person aged 45 earning $100,000 a year would pay a 6.8% levy on income, costing that person $6800 a year or $131 a week.
Noel Whittaker rightly notes that taxing working-aged people while leaving retirees’ tax lurks in place is “manifestly unfair”:
For starters, it is manifestly unfair that the income tax you pay should depend on your age… while retirees continue to enjoy holding their superannuation in a tax-free environment…
Whittaker also notes that such tax increases would be detrimental to the economy and could result in working-aged people failing to meet mortgage repayments:
Imagine the effects on the Australian economy of this major decrease in disposable income across most of the working population. It would seriously dent consumer spending could bring economic growth to a shuddering halt.
Many people could even lose their homes because they may be unable to make their mortgage payments on significantly lower incomes…
The whole thing would be a total disaster.
I staunchly oppose the funding reforms of the following grounds:
- Older Australians are the wealthiest cohort in Australia, with around 80% owning their homes, whereas home ownership has crashed for younger Australians.
- Older Australians have experienced by far the biggest increases in wealth over the past 20 years, whereas younger working Australians’ wealth has stalled.
- Older Australians are paying far less tax today than they did 20 years ago.
- Raising income taxes via the Aged Care Improvement Levy would worsen the inter-generational divide by penalising the working-aged population for the benefit of the wealthy elderly population.
The Grattan Institute noted similar concerns last week.
There are much fairer and more efficient ways to fund aged care.
One option is to implement a HECS-style subsidy that would pay for aged care upfront and then recover the cost from the person’s estate when they die.
Another option is to raise the required funds by winding back generous tax concessions for older Australians.
Everyone agrees that aged care funding needs to be lifted. However, taxing younger working Australians, who are far less likely to own their home and are in a much worse financial position than older Australians, is the wrong solution and is manifestly unfair.
