With or without the reforms suggested above, funding aged care will place a growing burden on the community. Currently, 1.2 per cent of Gross National Income goes on the provision of residential aged-care and community-care packages. Under current policies, public and private expenditure on aged care will more than double, to 2.9 per cent of GNI by 2046–47.^[39]

The National Centre for Social and Economic Modelling has projected that there will be a 160 per cent increase in the number of older people needing care over the 30 years from 2001 to 2031 (National Centre for Social and Economic Modelling 2004). As a result, there will need to be increased investment in the construction of aged-care facilities. Currently, aged care accounts for about 5 per cent of all non-residential construction (Australian Bureau of Statistics 2008b). This share can be expected to increase over the next 40 years. There will also be an increased workforce requirement. Currently, the aged-care sector employs about 2 per cent of the workforce.^[40] This share can be expected to double over the next 40 years. Indeed, by 2050, one in 25 workers will be employed in the provision of aged care.

But in itself, this is hardly a concern. Market economies are always restructuring. Today, the communications industry accounts for 2.7 per cent of Australia’s Gross Domestic Product. Thirty years ago that share was 0.8 per cent. A century ago, it would have been much less than that. So, as far as the Australian economy is concerned, the adjustment required to meet the aged-care needs of the ageing population is no greater than has occurred over the last 30 years to meet the increased demand for communication services.

The issues for Government are how to ensure that the economy is able to make this adjustment efficiently, noting that under current policy settings the share of Commonwealth revenues that may need to be spent on aged care will also increase significantly. Currently, the Commonwealth spends about 3 per cent of its revenues on aged care. By 2050, absent significant policy change, this share can be expected to triple, to about 9 per cent.

At the moment, the bulk of aged-care funding is provided by the Commonwealth Government through consolidated revenue. Funding aged care in this way amounts to requiring current tax-payers, who are mainly in the labour force, to pay for the costs of caring for older Australians. The deadweight losses associated with raising this revenue make it all the more important that service provision be as efficient as possible. Moving towards a system that relied more on competitive forces, albeit within limits set by effective service-quality regulation, would help achieve that objective.