A budget for the ages

Elections stall reform. Two years ago Treasurer Peter Costello released the Intergenerational Report outlining the costs of an ageing Australia and calling for a funding shift away from the public purse. This year he delivered an aged care budget focused on the bread and butter costs of delivering services through public subsidies. Almost as an aside the government published the findings of a $7 million inquiry into the pricing of residential aged care services. In a far reaching analysis it calls for greater deregulation, stronger market forces and increased user charges. Such mixed signals lead one to wonder whether the Commonwealth is pulling back from shouldering its share of the cost of aged care.

The Federal Budget response to the aged care crisis was driven primarily by the proximity of the election. It became imperative for the Howard Government to fund its way back into the hearts of older Australians. With a departure from its previous ‘slow drip’ formula, the government delivered a funding package of $2.2 billion over five years. It concentrated on the two hot political issues—the construction and running costs of aged care homes. In both instances public investment is substantial and the politics savvy.

The government went into this year’s budget preparation hounded by all quarters over the erosion of its care funding subsidy, its lack of action on capital funding and the declining prospects of the aged care workforce. Research indicated that the running costs of homes outstripped the subsidy by around $250 million a year. The homes protested that they lacked an ongoing capital funding stream. Nurses complained of inadequate wages and strained working conditions. In all a recipe for a crisis and fertile ground on which the Opposition could capitalise. The pressure to invest more public money was overwhelming.

With one eye to its future outlays, the government spent to alleviate the short term angst whilst safeguarding any exposure to long term entitlements. The upshot is an immediate capital injection of $636 million for the next two years. This should stimulate investment and kick start stalled construction. It does not, however, provide an ongoing adequate capital stream for the medium term. By implication the government retains the option of extending user fees and lump sum payments to cover accommodation costs.

This uncertainty will need deft political management. The aged care industry is serious business. Significant commercial risk is borne across the sector. Church and corporate organisations alike cautiously view investment decisions. Their tolerance for policy uncertainty is almost tested. Whichever major political party can explicitly outline the medium term financing and viability strategies for the industry will go a long way towards winning confidence and probably compliance.

On the more contentious issue of running costs, the Budget adds a further $877 million over four years to supplement its inadequate daily care subsidies. This brings the funding close to the real costs of care but only releases the majority of the funds by 2006. The government must reallocate this funding for the homes to meet  increases in nurses’ wages, the costs of workers compensation and retain trained staff. Again it is vital that the government construct a more appropriate indexation of its subsidies to accurately reflect industry based costs otherwise future budgets will need to make up the shortfall.

Already the aged care program is a combination of public subsidies and individual contributions. Consumers pay up to 30 per cent of the cost of care. Most residents in aged care homes are pensioners. Over half are aged 85 or over. Of these 90 per cent have no other assets apart from their home. However, by 2042 the proportion of the population over 85 years will triple to 4.3 per cent. It is estimated that costs will grow from the present $7.8 billion to $107 billion. Obviously the Commonwealth will endeavour to shift more of the cost burden onto individuals. But the political decision to secure the family home as a major financing asset seems too fraught for either major party to embrace. Consequently future governments will probably attempt to raise user fees and encourage innovative loan and insurance schemes to fund user contributions. But this Budget failed to instigate any specific savings vehicle that will enable future aged care users to save now if higher fees are to follow.

For some time commentators have called for a dedicated savings plan to meet the rising costs of health and aged care. Many have noted that superannuation alone will not suffice. If it is inevitable that user charges will further creep into essential services, prudent savings schemes are crucial.

If nothing else the 2004 Federal Budget demonstrates that communities can draw governments back to the fold or send them packing! At such times governments lose the zeal for reform and rediscover the passion of listening.  

Francis Sullivan is the CEO of Catholic Health Australia.



submit a comment

Similar Articles

Capital investment

  • Andy Blunden
  • 14 May 2006

Andy Blunden examines proposals to target poverty and exclusion.


Don’t fence me in

  • Mark Wakely
  • 14 May 2006

Mark Wakely looks at our instinct to build fences



Subscribe for more stories like this.

Free sign-up