The tax-free solution for funding health & aged care

Article by Ian Henschke courtesy of National Seniors.


How can the government pay for aged care reform without higher taxes? There is a way, explains National Seniors Chief Advocate Ian Henschke.

During the election, both Labor and the Coalition claimed they would not increase taxes.

Yet, when you compare tax systems around the world our tax to GDP ratio is very low. We are ranked 30th on the OECD ladder, just above Turkey. The average is 33.8%, a whole 10 percent higher than Australia!

So, what do low tax promises like these mean for health and aged care, that require significant new investment?

Spending on aged care is growing year-on-year because of the number of baby boomers coming through the system. Added to this, most analysts say $10 billion a year more is needed, on top of this, to fix the problems in the system.

Interestingly, the NSW Ageing and Disability Commissioner recently cast doubt on the ability of public servants to deliver and implement aged care reforms because the government has already reduced the capacity and competence of the public sector.

There is clearly a need for more funding for aged care to get the job done properly, but how?

How will we pay for aged care and other reforms?

Recognising this, both Aged Care Royal Commissioners recommended a levy to pay for aged care reform. But both Labor and the Coalition rejected this.

Under a no levy, no increase in tax scenario, there are only three ways a new government could find the money – by going into debt, by cutting spending in other budget areas, or by growing GDP and with it, the overall tax take.

The third option, which no one’s talking about, is raising GDP to raise the tax take. But if we look at GDP over the past 10 years, it’s been stagnant.

A 2012 report “The Grey Army Advances” written for the Age Discrimination Commissioner by Deloitte Access Economics offered a solution to stagnant GDP – increase the number of older people working. A five percent increase among those 55 and over, would see $48 million added to GDP or a 2.4% lift in national income.

This increase “would rank with the gains that Australia has achieved from some of the major economic reforms of times past.”

The report says:

“Future developments in participation among older workers will be particularly important to Australia’s overall economic future, as these older age groups will be growing fast at a time when population growth in younger age groups is predicted to slow.”

If Deloitte is right and boosting workforce participation results in greater GDP and tax dollars, this gives government more money to pay for better health and aged care.

The prediction of a $48 billion GDP boost (using the tax to GDP ratio of 23.9%) means an additional $11.4 billion p.a. in revenue. More than ample to pay for aged care reform with some spare to improve the health system.

Overcoming resistance to change

It’s clear our low rate of older age workforce participation undermines any optimism of a seniors lead economic recovery.

Only 14.2% of all over 65s are in the workforce compared with 24.8% in New Zealand, and just 2.9% of Australian pensioners engage in paid work.

We’re not suggesting older people be forced to stay in or get back into the workforce. They tried that in 2014, announcing a shift in the pension age from 67 to 70, which was roundly defeated.

As we know, ill health is the primary reason for early retirement, so we must make sure the pension is adequate for those who can’t work.

But for those who can and do want to work, and work more, we must stop using a stick, and start using a carrot and get rid of the pensioner work tax.

Imagine if we saw the pension through the same prism as superannuation concessions. Those tax concessions are defended as necessary to increase self-reliance in retirement and lower government spending.

What if we saw the pension, not as welfare, but as the means to boost income, GDP and tax dollars? Yet, under the current system we punish those who don’t have much super or savings when they work. Remember, 30% of women reach pension age with no super and 10% of men and they lose 50c in the dollar and pay income tax for every dollar earned past one day’s work.

If we give those who need it an exemption from the income test, they’d be better off, government would be better off because GDP would increase, and the tax base would increase to pay for health and aged care. They will also fill the job vacancies in those crucial areas.

If the new Labor government is looking for a way to pump extra billions into health and aged care without adding to the deficit, why not try the Deloitte option.

Let pensioners work and just pay income tax. It works in New Zealand, why not here?

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