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Does Australia need an aged care tax?

  • March 03 2021
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Does Australia need an aged care tax?

By Cameron Micallef
March 03 2021

The aged care royal commission has given the country a once in a generation opportunity to fix the aged care sector by increasing the tax rate, an industry expert has revealed.

aged care tax

Does Australia need an aged care tax?

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  • March 03 2021
  • Share

The aged care royal commission has given the country a once in a generation opportunity to fix the aged care sector by increasing the tax rate, an industry expert has revealed.

aged care tax

Released on Monday, the aged care royal commission final report contained 148 recommendations aimed at bringing about a “paradigm shift” within the sector.

While the government has pledged nearly half a billion dollars in immediate relief to the sector, to achieve the vision of high-quality aged care, both commissioners Tony Pagone and Lynelle Briggs believe some form of aged care levy should be introduced.

The Australia Institute believes a new Medicare-style aged care levy, which could be applied on a progressive income basis, should be introduced to help Australia’s ageing population.

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According to the researchers, decades of tax cuts have seen more inequality and an underfunding of the aged care system which has contributed to a sector in crisis. 

“If we are to take what the Prime Minister calls this ‘once in a generation opportunity’ to address the aged care crisis seriously, we should also use it to make a generational shift in political attitudes to taxation in Australia,” The Australia Institute said. 

The researchers pointed out that while the commission disagrees on various aspects of reforms that are needed, they were united on the need to increase government revenue. 

“Increasing the Medicare levy by at least 1 per cent, or a new progressive aged care levy, is a rare opportunity to shore up Australia’s dwindling revenue base,” said Ben Oquist, executive director of the Australia Institute.

“The shocking findings of the royal commission have highlighted the urgent need for additional funding for Australia’s aged care sector.

The research institution highlights Australia is a relatively low-tax country compared with most OECD countries, with a Medicare levy rise of 1 per cent small in comparison to the size and scale of the recent income tax cuts. 

“It is never politically easy to increase taxes, that is why it is crucial our Parliament does not miss this opportunity to permanently increase Australia’s revenue base,” Mr Oquist said. 

“Collecting more revenue via a very modest permanent increase in the Medicare levy or a new progressive aged care levy will help ensure this opportunity is not lost, helping protect aged care funding into the future.”

Should Australia go down the path of a flat-rate levy, modelling based on current aged care services would mean a levy of 2.61 per cent.

Alternatively, a progressive levy could be applied to current tax brackets, starting at 2.1 per cent for those earning up to $37,000 and rising to 5.1 per cent to those earning more than $180,000.

Mr Pagone said that while nobody would enjoy paying extra taxes, an aged care levy would be the best way to “engender stability and confidence in the future of aged care financing”.

“I also consider it likely to change the way the community perceives aged care for the better, towards it being seen as something valuable in which we all have stake, and that it will lead to greater scrutiny and accountability in the way money is raised and spent on aged care into the future,” he said.

Does Australia need an aged care tax?
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About the author

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Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

About the author

author image
Cameron Micallef

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

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