Don’t introduce a levy to fund aged care

Modelling by the University of New South Wales indicates that the annual cost of providing aged-care services is likely to rise significantly in coming decades. The report’s co-author Ellora Shirodkar says the future cost of aged-care services could potentially range from 4% of GDP to 25%.

Shirodkar warns that universal entitlement to aged care is not financially sustainable, and a combination of means testing for people who currently receive aged-care and the introduction of a levy is likely to be necessary.

From The AFR:

Ms Shirodkar said universal entitlement to aged care was not financially sustainable and would require a high fixed rate levy.

“If aged care supply were to be uncapped, current financing is unsustainable,” her presentation said.

“Means testing reduces the pressure on government expenditure and is necessary for a sustainable aged care financing system.

Ms Shirodkar said means testing would lead to older cohorts bearing a higher percentage of total costs, reducing the levy needed and the burden on younger people.

“[A] combination of means testing for current cohorts with a levy is likely to be more equitable.”

I staunchly oppose implementing a levy to fund aged care for the following reasons:

  1. Over-65s are the wealthiest demographic in Australia, with over 80% owning their homes, whereas home ownership has collapsed for younger Australians.
  2. Over-65s have experienced by far the largest increases in wealth over the past 20 years, whereas the wealth of younger working Australians has stalled.
  3. Over-65s are paying far less tax today than they did 20 years ago.
  4. Raising income taxes by lifting the Medicare Levy would worsen the inter-generational divide by punishing younger workers for the benefit of the wealthy elderly population.

Two better options that could adopt are outlined below.

First, policy makers could implement a HECS-style subsidy that would pay for people’s aged care upfront and then recover the cost from their estate when they die.

Under this proposal, every older Australian would receive the aged care they need without slugging younger working Australians with tax increases.

Funding aged care upfront and then clawing back the money from the richest generation in history when they die is much fairer than implementing an aged care levy on working Australians.

Second, Labor could follow the Grattan Institute’s prescription and pay for aged care by winding back  “excessively generous tax breaks” for older Australians.

According to Grattan:

  1. Only one in six people aged over-65 pays any income tax.
  2. Superannuation tax breaks cost around $35 billion a year and are growing rapidly.
  3. Superannuation earnings in retirement are currently untaxed for people with superannuation balances below $1.6 million. They should instead be taxed at 15%, which would save the budget some $4 billion a year in today’s dollars.
  4. Through the Seniors and Pensioners Tax Offset (SAPTO) and a higher Medicare levy income threshold, seniors pay less tax and get a higher rebate on private health insurance than younger people on the same income. These measures are unfair and should be abolished, saving the budget $700 million a year.

Sadly, both sides have expanded taxpayer handouts to retired Australians over the election campaign.

Regardless, simply lifting income taxes via a levy to pay for aged care is lazy and inequitable policy.

Doing so would unfairly impact younger Australians, who are far less likely to own a home and are much worse off financially than retired Australians.

Unconventional Economist


  1. chuckmuscleMEMBER

    You’re on fire today Leith!
    Wonder why it is that every time there’s a desire to raise some money, there are calls for additional income tax levy. Has no one in treasury ever heard of a capital base and even stationary, unproductive capital? Easier just to stick it to the working young I suppose

  2. It is true that the top few percent of elderly have access to various rorts and have been raking it in. It is also true that our superannuation system was designed as a tax shelter for the rich and is grossly unfair, as you have often demonstrated. It would be a bargain if we only had to give the top 10% the full aged pension rather than the superannuation tax concessions.

    All the same, these people are not typical. The various rorts are a class issue rather than an intergenerational issue. Half the over 65 population have so little in the way of assets or income that they qualify for the full pension, and another 20% are on part pensions. Median superannuation balances on retirement last year were only $183,000 for men and $118,600 for women. The average balances are much higher, of course, because they are pulled up by some extremely rich people. Pensioners lose one dollar of pension for every two dollars of income over $180 a fortnight ($300 for taxable income from work). Most old people pay no tax because they are on subsistence level incomes. SAPTO is only available to Centrelink and Veterans affairs pensioners, and the maximum offset is $2,200 for an individual and $1,600 per person for a couple.

    Many (but far from all) have paper wealth in houses, but that just represents inflation in the cost of a basic necessity of life. They still have to live somewhere if they sell and pay inflated prices for it, unless they want to be the “richest person under the bridge”, as another commenter put it. Reverse mortgages have extortionate interest rates, so they would face having everything that they have worked for going to the bank or the government.

    No one with assets gets free aged care, and the government can force the sale of your house unless a protected person (your spouse or an actual dependant) is still living in it. The problem is not that rich people are getting free aged care but that there are so many poor people who genuinely cannot afford to pay.

    • I'll have anotherMEMBER

      Leith simply said, if you can afford to pay, you pay.

      If you get a loan, so to speak, when you go into care, the loan is recovered upon death.

      If there’s no money, you don’t pay and you’re dead at that point anyway.

      The whole point is, this money should at first be sourced by the people who use the benifits of its costs.

      You’re saying “oh sure, there’s some rich people, but not all of us are rich!”

      The fact is – boomers are far and away the richest generation when compared to anyone younger and it’s not just some top 10% thing either. Across all brackets of wealth, boomers are richer. Their 20% is richer than millennials 20%, their 30%, their 40%, their 50% and so on. Boomers are also the ones who need aged care. So whilst taxing a poor boomer may be unfair, taxing a poor mellenial is even more so. Mellenials also have a lot further to go in much tougher economic conditions with less cash and less assets and more dependents, other young gen Z’ers who need the millennials to provide them with food and shelter because they have no means to do so for themselves.

      All those boomers on the pension, well guess what, the younger generations don’t even get that! If we loose our jobs we get, after what I imagine is mountains of paperwork, interviews and humiliation the lowest unemployment benefit in the OECD.

      Those with “paper wealth” can borrow against that equity and live comfortably for many years. Guess what we younger people have in terms of housing assets? SFA. Face everything you worked for going to the bank? Everything we worked for is in landlords bank accounts, or in my case already in a mortgage and the bank owns it.

      I can’t see how anyone can argue against what LVO is saying here.

      Typical boomer victim mentality and it makes me a little pissed off to think anyone could read Leith’s article and then go on to defend boomers as being deserving to rob the young even further based on their hard circumstance.

      Boomers have screwed our industrial relations by eliminating unionism, home ownership for many, the cost of education, unfair taxation, failed to achieve inflation for over a decade, unfairly received the lion’s share of welfare and national growth surplus, destroyed social sustainability (no more affording 1 stays home to look after the kids whilst having 2 cars and a mortgage), completely f*+ed the environment which is currently on course to cook us alive and increasing numbers are continuing to work into their 70’s refusing to retire.

      Like come on, I’m more than happy to pay the aged care through tax of those who can’t afford it but that’s not what Leith’s saying.

      As your generation always says: take some personal responsibility and for once, take that giant chip off your shoulder.

      • So far as the luckier elderly are concerned, it is true that someone who has been working for 40 years or more is likely to have more savings than someone who is just starting out, but most still have so little that they qualify for the aged pension, which is heavily means tested. Only the top 20% own even one investment property.

        Our unemployment benefits are the worst in the OECD, no question, but half the unemployed are over 50, and they are more likely to be long-term unemployed. The fastest growing group of homeless is women over 55. Our aged pension is among the least generous in the OECD, although not quite at rock bottom. See for yourself

        I don’t object to money for aged care being recovered from the estate if it is locked up in the family home, or the widow or widower’s estate (unless you want to see couples get divorced, as in the US, if one of them is likely to need aged care). I just think that the government should not make loans that have usurious interest rates. The government can borrow at around 1%. Why should it be able to charge people 4 or 5 times as much for money needed for basic survival?

        Your problem is that you have no understanding of how power works in our society. The real decisions that affect the cost of living and life chances of young people are made by a small coterie of very rich and powerful people, some of whom aren’t even Australian. They own the media, so they can shape public opinion, withhold or downplay damaging information, identify scapegoats, and manufacture consent. All this selfish boomer, feckless millennial nonsense is promulgated by them. They want the peasants blaming each other and fighting among themselves, not going after them.

        These oligarchs also own the politicians (of both major parties) who supposedly represent us, because the politicians depend on them for election funding, favourable coverage in the media, and lucrative careers and investment opportunities after they leave politics. The major parties have two hearts that beat as one on the issues that really matter and only differentiate themselves on symbolic issues. Note that the Labor party will not commit to raising Newstart. Both major parties are quite prepared to ignore overwhelming public opinion, as on excessively high mass migration, if it goes against what the oligarchs want.

        Most of the people who really are responsible for the mess that our society is in aren’t even baby boomers. Cabinet is overwhelmingly Gen X. Younger voters outnumber the baby boomers by more than two to one, and they mostly vote for the major parties. See Figure 4.4

        You voted for this.

  3. bubbah buddhaMEMBER

    Buy one of Philippines big islands and build a giant retirement community facility there to send all old people and retirees requiring aged care sector and pay the locals triple the local going rate.
    Retirement in the sun, decimates costs, saves the Australian agecare sector workforce having to leave their children and families behind, subsidises failing Straya airlines and frees up housing for antiboomers.

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