Australia's Future Tax System

Final Report: Detailed Analysis

Chapter F: The transfer system

F7. Funding aged care

Key points

The priorities for governments are to determine what an adequate level of aged care should be to ensure a decent quality of life for older people, the necessary pricing and regulatory arrangements to deliver it, and the most sustainable funding arrangement to ensure access by those who cannot afford it.

Recent reviews of the aged care system have called for increased choice for consumers and reduced regulation on aged care providers. Limiting the number of subsidised aged care places and associated price controls impedes competition between providers, undermining both their capacity to respond to the needs of older people and their incentive and ability to plan for future growth in an industry driven by an increasingly ageing population.

Responsive and sustainable aged care services are particularly important because many people requiring the services are vulnerable, and the fiscal costs to the economy are increasing.

The Australian Government has announced a Productivity Commission inquiry into aged care to be conducted in 2010. This inquiry will examine all aspects of aged care and make recommendations on options for redesigning Australia's aged care system to ensure it can meet the challenges facing it in coming decades.

Australia's aged care sector is complex in both its regulatory system and its funding arrangements. It is beyond the scope of this Review to examine aged care in detail and, given the Productivity Commission inquiry, it would clearly be premature. However, a range of issues related to the tax and transfer system should be considered alongside the Productivity Commission's recommendations, including changes to the current funding arrangements to improve equity across aged care programs and support for structural reforms aimed at improving consumer choice in aged care services.