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Scott Morrison to consider new aged care tax

Prime Minister Scott Morrison will give thought to a potential new aged care levy through the tax system, following recommendations from the aged care royal commission.

Tax&Compliance Jotham Lian 01 March 2021
— 2 minute read

Released on Monday, the aged care royal commission final report contained 148 recommendations aimed at bringing about a “paradigm shift” within the sector.

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To achieve the vision of high-quality aged care, both commissioners Tony Pagone and Lynelle Briggs believe some form of aged care levy should be introduced.

Mr Pagone, a taxation lawyer who was the national co-ordinating judge of the Federal Court’s Taxation National Practice Area, believes there is merit in introducing an additional tax similar to the current Medicare levy.

“One way in which this mechanism could work would be to require the payment of an additional percentage of each personal taxpayer’s income tax,” Mr Pagone said.

“The additional percentage rate could be uniform (a flat levy, like the Medicare levy) or there could be graduated rates for different taxable income brackets (a progressive levy).”

Should Australia go down the path of a flat-rate levy, modelling based on current aged care services would mean a levy of 2.61 per cent.

Alternatively, a progressive levy could be applied to current tax brackets, starting at 2.1 per cent for those earning up to $37,000 and rising to 5.1 per cent to those earning more than $180,000.

Mr Pagone said that while nobody would enjoy paying extra taxes, an aged care levy would be the best way to “engender stability and confidence in the future of aged care financing”.

“I also consider it likely to change the way the community perceives aged care for the better, towards it being seen as something valuable in which we all have stake, and that it will lead to greater scrutiny and accountability in the way money is raised and spent on aged care into the future,” he said.

Commissioner Briggs, however, believes there shouldn’t be a hypothecated levy towards aged care, arguing that it would be a “tax on frailty” and has instead urged the government to restore funding that has led to the current poor state of care. She also considers that a Medicare-style “aged care improvement levy” could help raise revenue to fund the commission’s recommendations.

Mr Morrison said the report would “test my government, the budget and test the Parliament”, while agreeing to contemplate the proposed new tax.

“We’ll consider those things,” Mr Morrison said. “You know our government’s disposition when it comes to increased levies and taxes. It is not something we lean in to.

“As Treasurer, I once sought to increase the Medicare levy by 0.5 [of a percentage point] to support the National Disability Insurance Scheme and I wasn’t supported in that by the Labor Party or the Greens, for that matter.

“So, that’s something that I’ve seen in other contexts that the Parliament hasn’t supported before. So, you’d forgive me for being a little wary at this point.”

CPA Australia general manager of external affairs Dr Jane Rennie said it was more important to understand how any increased revenues raised through a levy would be used.

“Throwing more money at the problem won’t address the root causes,” Dr Rennie said. “We need to make the funding system simpler and easier to use.”

Scott Morrison to consider new aged care tax
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Jotham Lian

Jotham Lian

Jotham Lian is the editor of Accountants Daily, the leading source of breaking news, analysis and insight for Australian accounting professionals.

Before joining the team in 2017, Jotham wrote for a range of national mastheads including the Sydney Morning Herald, and Channel NewsAsia.

You can email Jotham at: This email address is being protected from spambots. You need JavaScript enabled to view it. 

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