Fix Australia's aged care system before introducing a levy, experts say

The government should tackle the potential for rorting of Australia’s existing aged care system by providers before thinking about introducing a levy to pay for an overhaul of the troubled sector, experts say.

In their final report, released on Monday, the aged care royal commissioners Tony Pagone and Lynelle Briggs said the government should introduce a levy on taxpayers that would be channelled into paying for the aged care system.

The levy was a joint proposal by both commissioners, who in their report found that the system needed fundamental reform to put residents before the financial needs of providers, but disagreed in many areas on what steps should be taken.

Related: From funding to a right to care: the aged care royal commission's key recommendations

Pagone also proposed the sector be governed by a prudential regulator, as banks, insurance companies and superannuation funds are.

This body would set and enforce minimum standards for financial strength and disclosure in the sector, which both commissioners said lacked transparency.

The commission found that large for-profit companies now control about 40% of the aged care market, up from 34% a decade ago.

As Guardian Australia reported last year, for-profit homes were also hit hard by the coronavirus outbreak that killed more than 800 residents in Victoria.

Not-for-profit homes run by charities and churches were also outbreak centres, but those run by the Victorian government largely escaped Covid-19.

Large providers include ASX-listed groups Japara and Estia, which between them have paid shareholders more than $77m in dividends over the past three years.

Between them, for-profit and not-for-profit operators share in $13bn a year in federal government funding.

But despite the large sums already spent on the system, the royal commission found that substandard care was rife, reflecting “both poor quality on the part of some aged care providers and fundamental systemic flaws with the way the Australian aged care system is designed and governed”.

Joseph Ibrahim, the head of the Health Law and Ageing Research Unit at Monash University, said it was more important to fix the system first, before working out the details of how it would be funded.

“I don’t understand why we’re so concerned about the economic modelling when we have a system that doesn’t work,” he said.

“The fact that the two commissioners are split about what should happen is unhelpful in one way, because it demonstrates there is no consensus, but it also highlights that there are several ways to pay.”

He said Australians would pay for the system if it demonstrated its value.

However, he said he was was disappointed that, in a report likely to be the only of its kind in half a century, the commissioners had not painted a picture of what their proposed new system would look like in practice.

“What I’m being asked now is do I want to pay in cash, credit, or by Apple Pay,” he said. “I don’t care because I don’t know what I’m buying.”

The final report was “not even digestible for an academic”, he said. “Two hundred pages for an executive summary – I mean, for God’s sake.”

He said the royal commission also failed to properly investigate claims from industry that it is under financial pressure.

“I still think people use aged care as a loss leader,” he said. “In any other business if you said 70% are going broke, they’d be flooding out and that’s not the case,” he said.

Related: Labor open to aged care levy as part of bipartisan funding agreement

He said not-for-profit operators were no better than their for-profit counterparts.

“Some groups are making money and saying that’s for the greater good, and they’re taking it from the people that can least complain,” he said.

Jason Ward, the principal analyst at the trade union-funded Centre for International Corporate Tax Accountability and Research, said transparency should come before new funding.

“This system doesn’t need more money until the people who are receiving that money are accountable for what they receive,” he said. “The system needs to be cleaned up before you put more money in it.”

He questioned what happened to additional money given to aged care providers to deal with the coronavirus outbreak.

“The extra money that they got from Covid didn’t go into PPE,” he said. “In the wake of additional funding, that’s money not going to care for residents. We don’t know where it’s going.”

He agreed with Ibrahim that problems were not restricted to for-profit operators.

“The same also applies to the not-for-profits too, except that instead of being taken out to pay dividends it’s being used to buy property,” he said.