Australia’s seniors could be forced to pay for more of their aged care costs out of their estate under a range of suggestions put forward by experts and politicians in recent days.
The Royal Commission into Aged Care is currently considering the funding arrangements for the $20 billion sector as a tidal wave of Baby Boomers threatens to overwhelm the system.
Speaking to the inquiry, the former chair of the Aged Care Financing Authority Mike Callaghan said there has been a large growth in inheritances, with there being only feeble incentives for Australians to use their superannuation and other assets in retirement.
“We have a situation now where most people don’t spend their money that they have in retirement. When they die they haven’t dipped into them,” he said.
In a submission to the inquiry, Callaghan also said that a situation where taxpayers cover 75 per cent of aged care funding is “unsustainable”.
HECS for aged care
Callaghan’s statements come after former prime minister and one of the founders of superannuation, Paul Keating, said the Government should consider HECS-style funding for aged care, which would see those entering aged care extended a loan to cover costs with that later recovered from their estate once they’ve passed.
"We're not forcing anyone out of their home, we're not obliging aged persons to negatively mortgage their home, you're not asking families to chip in and pay for their relatives in their accommodation or their care, and so I think such a system has a lot of advantages," Keating suggested to the Commission.
"If there's not assets there, then the Commonwealth pays, but it's a very nice way of working out what the Commonwealth should really pay vis-a-vis the residual assets of an aged person in superannuation or bricks and mortar assets etc,” he added, arguing that this did not constitute a death tax.
Australia has not imposed death taxes for 40 years since then-Queensland premier Sir John Bjelke-Petersen abolished them in 1970s, triggering the other states and territories to ditch the controversial levy. However, finance experts have in recent predicted inheritance taxes were an inevitability.
Professor John Mangan from the Australian Institute for Business and Economics last year also suggested inheritance taxes could be the key to making housing more affordable.
Responding to Keating’s proposal this week, Callaghan said the Government should consider loan-style funding arrangements.
“Many jurisdictions, in fact most jurisdictions have estate taxes that essentially are a tax on the estate when you die,’’ he said.
“Propositions have come out more recently about having assets tax, death taxes, for example, to be able to be part of the reform of the tax system to try and have a more efficient approach to it. These are all considerations that have had to be looked at.”
Former treasurer Peter Costello has also backed similar ideas, calling for an expanded pensioner loans scheme which would see seniors take out loans against their property.
“This is a classic area where those people that do use residential care and do have assets should be asked to make a contribution and guaranteed a return of their deaths,” he said.
“I think people should do it knowingly and in advance and there should be products that allow them to do that during their lifetime. If you come around and try to take their assets after they’ve died, I think you can expect to run into a lot of opposition there.”
The Australian Council on the Ageing (COTA) has given tentative support for the ideas, in its submission saying it accepts that consumers need to make a greater financial contribution to their care.
“Most older Australians generally accept that, to fund a high-quality aged care system, they will need to make a greater contribution towards the cost of their care, as long as the contribution is transparent and fair, and they get better aged care in exchange. There is recognition that the levels of taxpayer support required for the quality of aged care they want are likely to be unsustainable,” COTA’s submission read.
The submissions come amid University of Queensland research claiming the sector needs an extra $621 million a year, just to meet basic standards.