Proposal to make boomers pay a 'death tax'
Baby Boomers could be asked to sell the family home when they die to pay for aged care costs under a new plan to slap an effective death tax on seniors to fund care.
Former Treasurer Peter Costello has urged the Morrison Government to consider an expanded pensioner loans scheme during his appearance today at the Royal Commission into Aged Care.
Under the proposal, seniors would be given the option of taking out a loan secured against the family home, that would then be sold when they died or other assets liquidated.
While some banks already offer reverse home loans, Mr Costello has called for debate on expanding a pensions loans scheme to use the family home as an asset that could be sold when a retiree dies to recover costs.
"I mean, financial products that can allow people to raise accommodation bonds against the family home, which is generally their greatest asset, I think there's a much more scope for them and I think the Government could assist there," Mr Costello said.
"The Government has a thing called the Pension Loan Scheme which it says is available. The private sector has what is called a reversible mortgage or equity drawdown mortgages.
"But I do think, you know, this is a classic area where those people that do use residential care and do have assets should be asked to make a contribution and guaranteed a return of their deaths."
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But Mr Costello stressed that informed consent was the key to the proposal so that family members understood the cost would ultimately come out of the estate.
"Even today, if you're asked to put up an accommodation bond, you can raise that bond with your own house as security," he said.
"I mean, the point I'd make is that I think people should do it knowingly and in advance and there should be products that allow them to do that during their lifetime. If you come around and try to take their assets after they've died, I think you can expect to run into a lot of opposition there."
Mr Costello urged debate on the option as an extension of reforms he introduced during the Howard Government.
"I felt you were never going to be able to run residential aged care with the ageing of the population off the taxpayer alone and you had to get private money and we introduced what we then called accommodation bonds," Mr Costello said.
But Australia's longest serving Treasurer also raised the alarm that the red tape and forms to enter aged care were so complex that even he struggled with them.
"Now, the members of my family I have attempted to fill in these income and assets tests. You all ought to do them," he said.
"I'm reasonably financially literate. I had a lot of trouble filling it in. I don't know how a person going into a nursing home would ever be able to fill it in.
"We're talking about people who might be 80 or 90 years of age. How do they do this? My suspicion is that a lot of them just don't."
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Former Treasury secretary Ken Henry told the inquiry he still believed that a compulsory tax levy to fund aged care was necessary.
But he echoed Mr Costello's concern about the complexity of the system.
"My principal source of discomfort is that the system overall is horribly complex and it contains a very high level of uncertainty for people," Dr Henry said.
"People who are elderly, people who are vulnerable, people who are suffering emotional and psychological stress, many, of course, unfortunately are mentally impaired to some extent, too many have little or inadequate family support and they confront the aged care system knowing nothing about it, knowing that they have no real option but to throw themselves into the system because it's quite simply impossible for them to continue to look after themselves.
"And they're bewildered. This system is unsustainable. It's underfunded, it's under resourced and it will not be tolerated. In particular, it will not be tolerated by the Baby Boomers themselves when they find themselves in this system."
Originally published as Boomers to be slapped with death tax