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What is an aged care levy?

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A taskforce led by Federal Aged Care Minister Anika Wells will consider ways to pay for the growing cost of aged care, including an aged care levy, or tax.
aged care levy

A taskforce led by Federal Aged Care Minister Anika Wells will consider ways to pay for the growing cost of aged care, including an aged care levy, or tax.

The taskforce will also consider whether aged care users should pay more.

Wells has not ruled out any options but has confirmed taxes and individual contributions are both on the table.

Here’s the background.

Aged care in Australia

The Federal Government spends over $30 billion a year on aged care.

Most of this funding goes to residential facilities (or ‘aged care homes’), which provide care for about 200,000 people.

There is also funding to support older Australians in their own homes. About 800,000 people receive some basic assistance (e.g. cleaning) and about 200,000 receive more intensive care.

Who pays for aged care in Australia?

As well as government funding, people who receive care sometimes contribute out of their own pockets. However, it is not mandatory for providers to charge fees, and they only represent a small portion of total costs.

In 2018-19, only one in five dollars spent on aged care was paid by care recipients, with the rest paid by the government.

Those with financial means can be asked to pay more, but this is limited. The value of a care recipient’s home is mostly ignored in deciding whether they have capacity to pay, and there is a lifetime cap of $76,000 on total fees.

Royal Commission into Aged Care

In 2018, after reports of severe neglect in aged care homes, the government set up a Royal Commission into aged care. Royal Commissions are independent inquiries which make recommendations to government.

The Aged Care Royal Commission was asked to consider a range of issues. One was how to pay for the growing cost of providing care.

The growing costs of aged care in Australia

Aged care is one of the fastest-growing areas of government spending.

A key reason for the growing cost is because Australians are living longer and requiring care for longer. This trend will continue as the large Baby Boomer generation reaches aged care age.

At the same time, lower birth rates mean there will be fewer working-age people to fund care via their taxes.

Recommendations

The two Royal Commissioners, Tony Pagone and Lynelle Briggs, could not agree on how funding arrangements should adapt to meet this cost and made separate recommendations.

Briggs recommended an aged care ‘levy’ – a 1% tax for all taxpayers, paid in addition to regular income tax and set aside for aged care.

Pagone did not rule out an aged care levy, but emphasised that older Australians with the financial means to pay should contribute more to the cost of their own care.

The taskforce

A new taskforce announced by Wells this week will inform the Government’s response to the Royal Commission. It will be chaired by Wells and consider a range of issues including cost, quality and workforce needs.

At the National Press Club last week, Wells said she would not pre-empt the taskforce’s findings. However, she said she would keep an “open mind” on funding options and accepted arrangements needed to change.

“The Baby Boomers are coming… we need a funding model that is sustainable… Plenty of people have said I am willing to pay for [high-quality] care,” Wells said.

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