Reflections of a former Chief Economist on the past 25 years of Australian Government aged care policy

Old age, as Trotsky famously remarked in his Diary from Exile, may be for each person the most unexpected of all events – but if becoming old catches each of us by surprise, ageing is one of the most predictable of all social phenomena, with far-reaching implications for our social and economic future. We therefore can have no excuse if our aged care system fails. And yet failing it is. As the Aged Care Royal Commission found: too many older people are not getting the aged care they need at the time and level they need it; and the quality of the care provided is often appalling.¹

Why is it so?

The key to any lasting reform is understanding why the aged care system has failed. There have, of course, been incidents of knowing neglect and wilful failure to do the right thing by aged care providers and workers; but that does not explain the problem.

The history of aged care policy is a history of decisions by politicians about how much taxpayers are willing to spend on older people. As a result, Australian Government expenditure on aged care has not kept pace with demand since at least 1984–85. This has been driven by two main factors. First, the growth in number of aged care places was linked to the 70+ population, whereas demand for aged care was more closely correlated to the 80+ population. Second, an annual efficiency dividend has been imposed on aged care providers since 1996–97 through the Commonwealth Own Purpose Outlays/Expense arrangements.

But these errors were not mistakes. They were deliberate choices. When the 1997 Aged Care Reforms were considered by Government, the Cabinet was told by the Department of Health that it did not need to be worried about the cost of the proposed reforms because ‘Government has total control over all of its parameters’, including ‘applying quotas to numbers of people at various care levels’, ‘an efficiency dividend or other adjustment to funding structures’ and the ability to make ‘changes to service provision benchmarks’.

In brief, the aged care system and the weak and ineffective regulatory arrangements that were examined by the Royal Commission did not arise by accident. The move to ritualistic regulation was a natural consequence of the Government’s desire to restrain expenditure in aged care. In essence, having not provided enough funding for good quality care the regulatory arrangements could only pay lip service to the requirement that the care that was provided be of high quality.

Unfortunately, the much-vaunted new Aged Care Act (Cth) which commences on 1 November 2025 will do nothing to address these issues. Indeed, the new Act crystallises many of the deficiencies of the current system. Much has been written about the human rights focus of the new Act but two simple sections of the Act give the lie to these claims. First, the Statement of Rights in the new Act (Section 23) does not guarantee older people access to the care that they need, or that they have been assessed as needing. Rather, it gives them the right to ‘equitable access’ (whatever that means) to have their ‘need for funded aged care services assessed’ (emphasis added). Moreover, as Section 24(3) of the new Act makes clear, nothing in the Statement of Rights ‘creates rights or duties that are enforceable by proceedings in a court or tribunal’.

The Act also legislates what was only previously practice – that the number of places that will be subsidised by the Government will be determined by economic considerations and not by the need for care. Before determining how many people will receive subsidised care each year. the Minister for Aged Care is now required (section 91) to ‘consult with the Finance Minister’. Indeed, nothing in the Act prevents the Minister for Aged Care from reducing the number of people who will be eligible to be funded for aged care in a given year below the level of the number of people already receiving subsidised aged care. And this Ministerial Determination is not disallowable by the Parliament.

What is to be done?

The point, of course, is not to understand the world, but rather to change it.

Mere adjustments and improvements to the current system will not achieve what is required to provide high quality care that is predictable, reliable and delivered through a system that is sustainable. A profound shift is required in which the people receiving care are placed at the centre of a new aged care system. Aged care does not need renovations, it needs a rebuild.

There are two key building blocks to aged care reform: independence from Government and a secure source of funding. It is telling that both the current Labour and the previous Coalition Government rejected each of these in their response to the Royal Commission.

The problems in the aged care system are neither new nor unknown. There have been more than 20 substantial official inquiries into aspects of the aged care system over the past 20 years. The responses by successive governments have failed to tackle the underlying problems. There is little point in repeating the same process again by asking the same Department that has overseen the current failings to build and run the new aged care system. This is why the governance and financing arrangements for the aged care system need to be independent of Ministerial direction.

A recommendation for a dedicated, separate and independent agency to manage aged care was first made by the Productivity Commission in its 2011 report Caring for Older Australians.² It was rejected then by the Australian Government and the problems of aged care have deepened. The rationale for the rejection of the proposal – that similar outcomes could be achieved at lower cost by modifying the current arrangements – has not been vindicated. The recommendation ought to have been accepted in 2011 and it ought to have been accepted in 2022 when it was made by the Chair of the Royal Commission.

As well as independent governance, the aged care system needs a financing source that is as predictable, reliable, objective, and economically sound as possible, without compromising on the quality and safety of aged care, or the equity of financing arrangements. It also needs to be accountable and transparent.

The funding arrangements should ensure that people receive high quality aged care when they are assessed as needing it. Funding for aged care should not be subject to the fiscal priorities of the government of the day. The arrangements should ensure that there will be sufficient funds raised to meet expected expenditure. They should also be publicly visible and accountable so that the Australian community can see the connection between their contributions and the effective operation of the aged care system. Finally, the financing arrangements should maintain the general progressivity in the current taxation system.

Piecemeal adjustments and improvements are unlikely to achieve what is required. It is an important task because the challenges are very great. The challenges are great because they arise in all sorts of ways that are sometimes difficult to deal with. We have seen many failures and many shortfalls. But the ones that are most difficult to overcome are the failures that occur when the things are working as you would expect them to be working.

Good people, well intentioned, doing the best they can, may unwittingly cause the biggest problems. Such people cannot fix the system without a complete overhaul of its structure.

A philosophical shift is required that places the people receiving care at the centre of quality and safety regulation. This means a new system empowering them and respecting their rights. An independent Aged Care Commission with guaranteed funding though a hypothecated Aged Care Levy would, in my view, create the substrate upon which this change in philosophy can flourish.