Wealthier older Australians should pay more for aged care, Peter Costello says
Elderly people should face tougher means-testing and potentially pay more for aged care, the former federal treasurer, Peter Costello, has said, while arguing the assessment process needs to be simplified and begin long before residents move into a nursing home.
Costello served as John Howard’s treasurer from 1996 to 2007 and is now chair of the $160bn Future Fund. Over the past few days, the aged care royal commission has been asking economic experts how aged care could be funded given the ageing population and increasing costs.
Costello on Wednesday was asked by the counsel assisting the commission, Peter Gray QC, whether funds could be raised by a so-called hypothecated levy and set aside solely for aged care.
Costello wasn’t a fan of the idea, arguing such funds could generate revenue “massively over or under” what was needed and failed to account for changes in demand.
He noted that the national welfare fund, a trust established by the Chifley government intended to fund pensions, was eventually rolled back into consolidated revenue due to discontent.
Costello cited other examples, stating “the money that was in the Building Australia fund found its way into the drought fund [and] the money that was in the higher education endowment fund has found its way into the emergency response fund”.
The Future Fund, which he chairs, had been successful because it had an independent board and a clear mandate. The $60bn originally invested was “locked up” not to be touched until 2020, the ex-treasurer said.
The commissioner, Lynelle Briggs, asked Costello whether the money in the Future Fund should be directed towards aged care, but Costello said given the government could currently fund itself through borrowing – which he described as “cheap money” – it was not the time to run down the fund.
The former federal Treasury secretary, Ken Henry, told the commission on Wednesday that a levy directed toward a hypothecated fund was needed to pay for aged care. There would be no risk that funds raised would be excessive or allocated elsewhere because it was clear the costs were increasing and would continue to do so, he said.
“If aged care is being adequately funded, then every year the proportion of government spending would have to increase,” Henry told the commission. “Having a hypothecated levy just means you understand that’s the case, and you go to parliament and the population and say ‘This is how much we’re spending on aged care and this is how we are going to raise it’.”
He said the levy would need to be increased over time “because aged care expenditure is the fastest-growing component of government spending”.
The royal commission has previously heard that people’s homes were largely protected from aged care means-testing with a cap on how much of a property’s value could be considered. There are now calls for people’s homes and other assets to be used to a greater extent to fund their aged care.
Costello said while the proposals were “fair” the current means-testing system was confusing. It needed to be simplified, he said, adding his own attempt to fill out asset test forms had left him confused.
“I don’t know how a person going into a nursing home would ever be able to fill it in, obviously they’ve got to get someone to do it for them because of the complexities,” Costello said. “You’d have to go out and get an army of really good financial advisors.”
The ex-treasurer said there should be financial products available for people allowing them to raise accommodation bonds against the family home. People should begin this process before they become too aged, he added. “If you come after people’s assets after they’ve died I think you’d run into a lot of opposition.”
His comments echoed those of former prime minister Paul Keating, who told the commission on Monday that people with wealth and assets should have to fund more of their own aged care, and that it was not fair that privileged people with access to financial advisors had their wealth protected while “working people” missed out.