New modelling suggested that reform of Australia’s aged care system would require new funding equivalent to a one percentage point increase in income tax rates.

The modelling, prepared by Deloitte Access Economics indicates that reform would cost far less than what Australian taxpayers are willing to pay to improve the system. A study from Flinders University has previously found that the average taxpayer is willing to pay 3.1 percentage points more to ensure that all Australians can access high-quality care.

Deloitte’s report examines the key reforms currently under consideration. The reforms include measures such as:

  • mandatory 4-star staffing levels in aged care homes
  • significant improvements to health services, including access to GPs, psychologists, dentists and rehabilitation
  • new teams of case managers offering support for people who need help to access aged care services
  • workforce improvements such as mandatory Certificate III training for personal care workers and a national personal care worker register.

This reform package would boost the number of available jobs within the sector, resulting in approximately 30,000 additional full-time equivalent jobs by 2030. An additional 50,000 full-time equivalent workers will be needed to cater for population trends, as Australians live longer and the large cohort of Baby Boomers begin to enter aged care.

Those already employed with the sector will see benefits as well. The report predicts an increase in wages for professionals in the aged care industry, to levels aligned with other health care sectors. This is due to workforce pressure as demand for workers grows significantly faster than general employment growth.

Deloitte’s report notes ‘this will induce wages to rise faster in this sector than the broader economy to attract qualified staff.’ Wages for nurses and other skilled staff in aged care are predicted to rise by an average of around 5.5% per year in the next thirty years, more than double the economy-wide average.

Deloitte’s report notes that ‘quality of care is expected to gradually rise over time’. The quality of aged care will continuously improve in line with rising expectations of older Australians. The report states that ‘access to skilled staff is an important enabler of quality care’ and that ‘productivity growth means providers will be able to deliver care with slightly fewer staff in the future.’ These measures will contribute to many of the current challenges in the sector being overcome, such as insufficient staffing and a lack of access to specialist services.

A tax increase is not the only option under consideration to fund improvements in the aged care sector. Deloitte Access Economics considered two options for funding the reform package: an increase to income tax rates, or an increase to the Medicare Levy.

The increases have been modelled as follows:

3 star
reform
4 star
reform
5 star
reform
Medicare levy increase 0.51% 0.89% 1.31%
Income tax increase 0.58% 1.01% 1.48%

 

Both solutions come with benefits and pitfalls, and both have consequences for the broader economy. As noted in the Flinders University study, most Australians would be willing to pay slightly higher taxes to improve the quality of aged care. However, this willingness can only be realised if people are clearly aware of the purpose of the increase, and the results are made available. The Deloitte report concludes that ‘there may be benefits to a funding approach that is transparent and strongly associated with the need to fund aged care expenditure’.

It is evident that Australians want their aged care industry to be improved and most are prepared to pay for this to happen. The Royal Commission’s hearings into funding and financing are occurring in the coming weeks, and will offer further insight into how affordable and achievable the reforms to our aged care sector could be.

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