Former Treasurer Peter Costello tells Royal Commission a new aged care tax could “inhibit flexibility”

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Australia’s longest service Treasurer was among the witnesses as the Royal Commission entered its third day of hearings into the sector’s funding and financial viability.

The now Chairman of Australia’s Future Fund said he was wary of a “hypothecated levy” where funds were collected from taxpayers specifically for aged care and argued ear marking funding for specific issues, “doesn’t leave much for all the things we don’t like”.

“More hypothecated funds have failed than have succeeded. Even with the best intention, your hypothecation can be undone by subsequent governments. These things are only creatures of statute and statutes can be changed,” he said.

“The money from the Building Australia Fund found its way into the Drought Fund. The money in the Higher Education Endowment Fund has found its way into the Emergency Response Fund,” Mr Costello said.

The Future Fund as an avenue?

Mr Costello also poured cold water on the suggestion from the Commission that the nation’s Future Fund could be an avenue for aged care financing.

“It wouldn’t be the time to do it now (taking out funds to finance aged care) and by having this fund, of course, it is on the balance sheet. This is where it adds real value. This would be (the Commonwealth’s) biggest financial asset. It strengthens the credit rating,” he said.

“At the moment the government can fund itself very cheaply by borrowing. Sure, we have a massive federal deficit, sure we have a big debt. The Commonwealth is out there borrowing 10-year money at 1 per cent. That is very cheap money.”

Means tests difficult in practice

Mr Costello also said while he supported means testing for aged care in theory, paperwork was often so complicated, especially when people assessing the test require more information.

Referencing the RAC Home & Asset test page, he said “We’re having trouble filling it in. They’re having trouble reading and understanding it, let me tell you. And, you know, even if you managed to get 100 out of 100 on this income and assets test, somebody’s still got to assess it and make a decision.”

Hypothecated levy would require financial transparency and accountability by Government – Dr Ken Henry

Former Secretary of the Department of the Treasury Dr Ken Henry also appeared at the hearing, contrasting Mr Costello in saying his original 2010 Tax Review recommendation for a compulsory levy to pay for aged care still holds true.

The implementation would require Government leadership from the top down, says Dr Henry, but there would be benefits for consumers and providers.

“They would have sufficient confidence to be able to take long-term investment decisions to plan for the future,” he said.

“It would be true of individuals in clients in about going into the system at some point but it’s also true for providers. Providers would have greater confidence in respect of investment decision making.”

Our editor Lauren Broomham has provided a full summary of the hearing in The Daily COMMISSION, for more information or to organise a subscription for your organisation contact DCM here.

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