The Economic Case for Aged Care Reform

21 April 2021







So often, the case for aged care reform is put in welfare terms. It’s the politics of the heart.

Frail older Australians, whose hard work created the country we love, are being treated inhumanely by our government. 

They’re made to wait years for services they desperately need, malnourished at a widespread scale.

Our aged care workforce is underpaid and disrespected, while doing some of the most important work in our communities. 

These things are unjust. They are socially inexcusable. They are contrary to the views and values of Australians. And so, change is needed. 

These arguments are highly persuasive, to me and to many others. But focusing on them alone is not getting us where we need to be.

In this framing, our ageing population is viewed as a costly burden – and aged care a dead weight on the federal budget that we fund only out of the goodness of our hearts. 

For the last five budget cycles or so, older Australians have gone to government, cap in hand, and come back empty handed – or worse.

Today I want to talk about a different set of arguments. The politics of the head.

Today I want show why it is uneconomic, irresponsible and just plain wrong to see aged care as a money pit, and no serious economist should do so. 

And, that real aged care reform would help us tackle some of the biggest economic challenges we face as a country.

First, let’s put this in the broader frame of the national economic discussion. 

We’re used to hearing about the economic decisions that shape our nation as big macroeconomic change. Floating the dollar, opening up tariff walls. But most Australian economists agree that the low hanging fruit of macro reforms – the fast decisions with big payoffs – have largely been done. 

For economic reformers, the big job ahead is microeconomic reform. Instead of seeking one-off economy-wide decisions that produce immediate impact, policymakers need to do the harder graft of asking how change in specific sectors could improve the economic position of Australians.

Today I want to ask what microeconomic reform looks like in aged care.

And how good reform will not only create an aged care system which provides services that the millions of older Australians who do and will rely on this system deserve. 

Aged care reform will create a better economic future for millions of Australians.

And for those of us active in politics – that’s what we’re all here for – right? 

So today, we’re not talking about maggots in wounds, or the fact that older Australians are being made to wait years for services they desperately need – as critical as these issues are. 

Today, we’re making arguments not for the bleeding hearts, but for the pointy heads.

Aged care – and sectors like it – are the infrastructure of the 21st Century 

We are very accustomed to talking about infrastructure in terms of concrete and steel. The Snowy Mountains Scheme. Highways. Railways. Power stations. 

There is a global shift in thinking underway: why don’t we see big systems, that deliver huge social value such as aged care, as infrastructure?  

At the beginning of April, President Biden released his American Jobs Plan, a massive investment in building the infrastructure that will support job creation for post-COVID America. 

The biggest single part of that plan is not a water project, or a new highway.

It is an investment of US$400b dollars in care for elderly and disabled Americans. 

Not long ago President Biden made the point that the middle class built his country, and the that the unions built the middle class.

We should think about that here in The Lucky Country.

One hundred years ago Ford’s Model T motorcar was in the midst of its best days.  

It changes peoples lives because it was the first affordable car.

But it also changed lives because Ford’s huge production line workforce – and other workers like them – were, because of the hard work of the union movement, recognised as skilled workers who deserved decent remuneration.  

The benefits of this weren’t just felt by workers in the car industry. The way manufacturing was treated had spillover effects across the economy.  

A stronger manufacturing sector, higher consumption for millions of Americans which in turn supported businesses across the economy. The effects rippled across the entire labour market in the form of better wages and conditions.

100 years on I want us as a country to think deeply about how, like manufacturing in the last century, changing how we see and value care work could have profound and widespread benefits. 

Not just because it’s the right thing to do. But because this is the right thing for the economy.

Aged care jobs, and care jobs, should be good jobs.

They should be properly paid. Their conditions should be decent and desirable.

These jobs should give workers in these sectors independence and economic power. And those workers should be able to consume, and contribute to the prosperity of their households and neighbourhoods.  

One of the greatest influences government has over the labour market is as an employer and purchaser of services.

Care work – our health system, aged care, social assistance – is a unique part of the economy because it is mostly a creation of public policy. Australian citizens are in control. 

The Morrison Government has chosen to starve aged care of funds. We know where that has led. To a Royal Commission Interim Report entitled ‘Neglect’. To poor job quality, to low wages across the sector and across the economy.

It has contributed to widespread underemployment. And, this false economy approach has pushed expensive costs onto our healthcare system.  

I want to discuss today how we use aged care to do the opposite – how aged care reform could be a tool to help us tackle Australia’s big economic challenges in five ways: 

  • by driving the creation of hundreds of thousands of quality jobs,
  • by helping us tackle underemployment amongst the group of Australians worst affected by this problem, and giving more economic power to people who are very likely to invest it in their communities and families,
  • by helping us tackle the problem of low wages growth across the economy,
  • by supporting Australian women to increase their participation in paid work,
  • and by providing quality care that is efficient – which doesn’t push costs onto more expensive areas of government. 

Aged Care Reform could create quality jobs for hundreds of thousands of Australians 

Let me start with the most direct and obvious economic impacts of aged care reform.

It’s a highly efficient way for us to create hundreds of thousands of quality Australian jobs.

Australians are rightly asking their government to be more active in creating and securing good work for Australians. 

When you watch the Morrison Government, you could be forgiven for thinking that the only real workers in this country are people who wear high vis and hard hats. 

Jobs in manufacturing, construction and related industries are crucially, crucially important. That’s why alongside my colleagues I have railed furiously against the shutdown of the car industry, of the gutting of skills and apprenticeships in these sectors.

They are not the only industries that matter.

Aged care is a bigger employer than mining.  Aged care is a bigger employer than arts and recreation, than real estate and rental. 

And when we put aged care in with health, disability and social assistance, this is the biggest employing sector in Australia – by far, without question. 

Over the last 20-years, health and social services is where the strong jobs growth has been, adding not far off a million additional workers since 2001.

And when we look to the future, by 2050, it’s estimated that a million Australians will work in aged care alone.

If we accept that one of the core tasks of Australian governments today is to create quality jobs for Australians, what’s the fastest and cheapest way? It’s by kicking with the wind.  

I am hugely supportive of the discussions about growing manufacturing. We should support construction through hard infrastructure spend and new housing stimulus. 

What I am asking for – what Labor, and the union movement are asking for – is equal enthusiasm for a serious policy conversation about how we can create quality jobs in female dominated industries. 

Because it would be the case, without question, that a dollar spent turning hundreds of thousands of jobs that are going to get created anyway from highly-casualised, under-paid positions without a clear career structure, into quality jobs which will provide economic security for Australian families  – will go further. 

I can’t be more direct about this: the fastest and most efficient way for government to ensure that Australians have plenty of good jobs of the future is to use it’s unique power over the sector to make care jobs, quality jobs. 

Investing in aged care will help us tackle the scourge of underemployment 

One of the most pressing problems facing Australians in work today is the scourge of underemployment.

Underemployment is when you have some work, but not enough. On the national numbers, about 7.9% of workers are underemployed – which is problematically high.  

But it’s not a problem that affects Australians equally. Some regions and groups of Australians have extremely high underemployment rates, and others have very low ones.  

The Australians worst affected by underemployment in our country today are young women, who didn’t get much of a chance to study beyond high school. 

And we find these women in huge clumps around the country, especially in the outer suburbs and regions. 

These women are likely to work in hospitality and sales, and as cleaners and laundry workers. And their largest area of employment is as carers, aides and community services workers. 

Let’s look at some numbers, because I really want you to understand just how dire this problem is. 

Before coronavirus, in the North Coast of NSW, the underutilisation of young women in or seeking jobs they wouldn’t need significant qualifications for was more than 40 percent.  

In Tasmania it was above 35 percent. In Greater Perth and South Eastern Queensland almost 30 percent.

We’re not talking about a handful of women here.

The share of women of working age who have a Certificate III or less is 2.8 million Australian women. Of those women, almost 600,000 were either underemployed or unemployed before COVID. 

This not only has terrible consequences for these women, and their families.

The Reserve Bank has noted that underemployment is a key driver of low wages growth – which I will get to in more detail in a moment. 

The Australian Bureau of Statistics tells us that the average underemployed Australia is seeking an additional 14 hours of work a week. 

We’re not talking here about women who want a bit of extra cash for disposable income.

We are talking about households falling hundreds of dollars short a week. Money that’s needed for bills, for groceries, for school shoes and school books.  

Think of the dire local economic effects. Consider a region like the Central Coast of NSW. More than 40% of the young women in that community who did not get to study much beyond high school are either unemployed or underemployed.

At rates like this, underemployment dampens every part of the local economy: the supermarket, the mechanic, the pizza shop, the newsagency, the chemist.  

Underemployment is an economic tragedy because of the catastrophic waste of untapped human potential. Each of these young women is capable of so much, but they’re not getting the start they deserve.  

And of course, for the individual there can be lifelong consequences. You can’t borrow for a home, invest in your own skills, and when things go wrong – like the breakdown of a long-term relationship – many women find themselves on a fast-track to poverty.

If we take aged care work seriously, if we use the opportunity the Royal Commission is offering to make aged care jobs, quality jobs - more of these women could have secure work, training opportunities, and an economic livelihood that will lift up the people around them.

Their families, their kids, their communities. 

Now of course, I am not arguing that all underemployed Australian women should work in aged care.

Being a good aged care worker – and I have many in the audience today – is very difficult. This work is not for everyone.

You have to have the right temperament, the right aptitude, the right skills and a passion for this area of work. 

But you’d also have to be wilfully blind to miss the fact that we have a need to quickly grow our aged care workforce – the Productivity Commission has told us we will need roughly an additional 700,000 people in this sector in the next 30 years – most of whom are likely to be female workers.

And, that we have a vast swathe of underemployed women across the country, many of whom are desperate to find an employer to back them, invest in their skills and respect their hard work. Indeed, many of these women are already working in aged care, but can’t find the hours they need to survive.

The aged care workforce report of March 2017 showed that 30 per cent of residential aged care workers want to work more, but can’t get the hours. How ridiculous – in an industry that supposedly faces skills shortages. 

I spoke to a high quality aged care employer last week who has just advertised for 20 aged care traineeships in Lismore. They had 100 applicants. That is the demand where an employer says, I’ll invest in you, I’ll back you, I will help you get on your way.

Investing in aged care will see government doing something decisive about one of our biggest economic challenges: low wages growth 

Prior to COVID, Australia was going through the slowest period of wages growth in history. 

What is really astounding is the fact that through this period, our economy was growing, but ordinary Australians weren’t getting better off through higher wages and an improved standard of living.  

In August 2019, RBA Governor Phillip Lowe told the House Economics Committee that government wages policies are a core part of this problem: that state and federal wages caps of 2 to 2.5 percent across the country were setting an economy-wide standard of low wages that the private sector was following. 

As Phillip Lowe acknowledged at the time, public sector wages are a balancing act for governments. High wages growth in the public sector is paid for by the taxpayer. So no one is suggesting – least of all me – that these trade offs are simple.

But Governor Lowe also said that - and this is a direct quote –the decisions being made to suppress public sector wages are today “a trade-off that our society is making with its governments…to entrench low wage norms in our country.”

If we were to cast around the country and look for a group of underpaid workers who are directly or indirectly paid by government, the answer is simple and obvious. 

It’s aged care workers. 

Aged care workers are some of the worst paid people in the Australian workforce. It is impossible to argue that the work being done – of caring for the most vulnerable, the highly physical tasks of bathing, of assisting with movement, of personal hygiene, of caring for challenging dementia patients – is even remotely commensurate with the wage being paid.

And entry level aged care worker is paid $21.09 an hour under the award - less than someone stacking shelves in a supermarket. But the real outrage is actually further up the skill level. 

If we look at aged care workers who have reached classification four, the award provides roughly $15 an hour less than their equivalent in disability. And disability workers are not exactly on the best wicket. 

Even a nurse with the exact same qualifications is paid less to work in aged care than he or she would be in a medical setting. 

And I would say to those of you who work in aged care who are here today – you are entitled to be angry about that. 

Especially because this is a choice made by governments. 

So I make the simple point: government can do something about low wages growth in Australia, by setting a different standard.

I believe that the obvious place to start is with aged care workers. 

We also get a better economic benefit out of raising wages for people who are not very well paid. 

As the aged care workers here know, you are not using your wages to squirrel away hundreds of thousands in super, or buy investment properties, or invest in Bitcoin. It’s money desperately needed by workers and their families, which they are likely to spend relatively quickly – helping us continue to grow the economy and deliver economic benefits for every other Australian. 

Investing in aged care will help lift female workforce participation 

I mentioned upfront that the big ticket items on Australia’s economic reform agenda have been tackled. But there is an exception, and that is female workforce participation.  

Melbourne’s Grattan Institute has estimated that if women in Australia had the same participation as women in Canada our GDP would be about $25 billion higher. This is greater than the potential impact of health-system reform, industry policy and business deregulation put together.

And we see the big opportunity when we look at the the participation of women across different age groups. For young Australian women just starting out in work, Australia has one of the highest female workforce participation rates in the world.

But for women aged 25-54 – prime working years, but also the years where child care and aged care responsibilities become a really significant parts of our lives – we are the 28th highest in the OECD.   

The most important reason why women are not working at the same rates of men is because the strong majority of unpaid care work in Australia is done by women. Australian women spend about two thirds of their working day on unpaid care work and on third in paid work; for men, it is approximately the opposite. 

Many Australians would prefer to undertake care work over paid work – this isn’t about forcing people to work when they have other, more important responsibilities. But almost one million Australians say they would like to work more, but cannot due to care responsibilities. 

The top priority here is affordable, flexible childcare – and I know you are aware of the terrific work done by Labor Leader Anthony Albanese and Shadow Minister for Early Childhood Education and Development Amanda Rishworth on what such a system would look like. 

Aged care is a smaller but crucial part of the puzzle. Australian Bureau of Statistics survey work shows that for about 5% percent of women who want to work more, and for 7.6% of men, the main barrier to them doing this is their care responsibilities for an older, ill or disabled person.

For women, when they were asked what would help them get into work more, 25.8% said better access to residential or aged care services, and 32.2% said access to respite or community support at home.  

The National Foundation of Australian Women and the Victoria University Centre of Policy Studies recently released modelling which suggests that if government increased the amount and quality of care by boosting the wages of personal care workers and childcare workers, the additional investment almost pays for itself in the economic benefits of increased workforce participation of people who are able to return to work as a result. 

Quality care can save money – and poorly resourced care is costly 

Since I took on this portfolio, I’ve visited aged care home after aged care home. And one clear message from providers, from workers and residents is that high quality care is efficient care.

Some decision makers perhaps think they are being clever by devising ways to cut funding in aged care.

In reality they are often penny-wise and pound foolish.

Soon after I took the portfolio, the Royal Commission released data which showed for the first time how the Morrison Government’s aged care cuts have driven a massive increase in avoidable hospital admissions. 

The Royal Commission estimated that in 2020, there were 27,569 admissions of people who live in aged care who ended up in hospital unnecessarily. 

That is, when cared for by the right number of experienced aged care staff, with proper support from medical professionals, these older Australians could have been comfortably cared for in place. 

Better care for the resident, a better use of hospital resources, and a more efficient way to provide services. 

Think of the many dementia patients who are being transported, terrified and disoriented, in an ambulance to hospital. And, these residents are often subject to unnecessarily long hospital stays.  

All this when they could be recovering in a familiar, more homely environment around people they know. 

It won’t surprise anyone here to know that the nursing homes with poorest staff to resident ratios have higher rates of hospitalisation.  

The Australian Medical Association estimated that unnecessary admissions from aged care cost $312 million over the last year alone. (It’s so costly because a night spent in aged care costs roughly 12% of a night spent in hospital.) 

But the impacts of poorly-resourced care go well beyond this.

The AMA has estimated that there are savings of $21.2 billion dollars over four years, if proper aged care reforms were implemented. These billions all come from the delivery of medical care within an aged care setting rather than a hospital.

More efficient, and importantly, in most instances a much better outcome for the senior Australian and their family. 

Time for a revaluation of care 

The arguments I am making today are not part of the mainstay of the economic discussion, but they should be. 

Part of the problem is that we do not properly value care work in Australia.

That is a problem that many campaigners - in this room, within the broader labour movement and within the Australian Labor Party - have spent their lives trying to tackle. 

And when I talk to those life-long campaigners, many point to deep perceptions of caring as somehow being seen as an extension of the work that so many Australian women do for free in their personal lives. 

And so it’s never properly valued.

There is an old adage in management: that what gets measured gets managed.

The perception of aged care as a dead weight isn’t an arbitrary or metaphoric thing. How we measure care in economics is fundamentally broken. It’s only recently that serious attempts have been made to map and measure the value of care work being done across the economy. 

Part of the problem is that the unpaid share of care work done in Australia doesn’t get counted as economic activity.

In the formal care sector - our public hospitals, our aged care system - the cost of providing these services is counted, but improvements in value and quality over time aren’t. According to our productivity numbers, when we make these services better for Australians, it literally doesn’t count.

And so we have a problem here. We are measuring the cost of aged care without measuring the benefits of improvement.

Fixing this will help us ensure care is given the respect and value it deserves.

And, it will create the right incentives for governments – not to cut costs because that’s what gets measured, but to push ourselves to deliver better care over time to improve the quality of life of Australians.


For reasons that you can work out for yourself, many economists will take the issues I have discussed today and try to place them in a special, peripheral subcategory called ‘women’s economic security’.

Please don’t. 

The economic gains to be made for us as a nation – for women and for men – could have much bigger economic payoffs than a lot of the mainstays of the economic debate. 

The government has claimed that economic security for women will be a critical part of its upcoming budget. If they are to be taken remotely seriously on this question, in three weeks time, they must deliver a proper, structural reform agenda for aged care. 

The concern I have is that the current government has never philosophically believed in its own enormous economic sway – over what happens in the public sector and beyond. 

Government spending in Australia is a third of our GDP. It’s positively mad not recognise and use the power that comes with that to improve the economic lives of Australians. 

Aged care reform matters not just for welfare reasons.

Transformation of this sector will help Australia tackle the most intractable economic problems we face – with potential benefits for the economic livelihoods of millions of Australians, both men and women, today and in the future.