Govt may raise taxes to pay for aged care reform

Prime minister Anthony Albanese has said increased spending on aged care would mean 'some sacrifices need to be made', avoiding the question of whether Labor is planning to raise taxes.

The risk of a tax increase became even more likely after yesterday's Fair Work Commission (FWC) ruling that recreational and personal care staff would receive a 15 per cent wage increase.

Last year, Labor said it would pick up the bill to pay for direct aged care workers' pay rise.

It also promised a $3.9bn injection into aged care in last year's October budget to pay for upcoming reforms, including the new AN-ACC funding model.

Albanese said the umpire's decision would 'add extra pressure to the May budget.'

"That means we won't be able to do everything we would like to do," he said.

"I can think of several measures I would like to take.

"Last budget, let alone next budget, it's just not possible to achieve all of that in a short period of time."

Albanese also named the National Disability Insurance Scheme and higher interest rates on nearly $1 trillion worth of government debt as significant pressure points on the federal budget.

Albanese couldn't say whether Australians would have to pay higher taxes soon as he conceded his government would have to make difficult decisions in the May budget.

Speaking at the National Press Club, the prime minister reiterated that his government was facing a challenge in covering the ballooning costs of essential public services, including aged and healthcare.

Albanese evaded the question of whether Australians needed to accept that the upcoming budget must include some policy decisions to increase tax revenue to make government programs more sustainable.

Nor did he rule out the possibility of tax increases in the future.

"We'll continue to have a conversation with the Australian people about what's needed going forward," he said.

Albanese's appearance at the National Press Club comes as Labor eyes overhauling superannuation tax concessions for wealthy Australians worth $53bn to improve the budget's bottom line.

The government is also planning to make it more difficult for Australians to access their retirement savings early as it revives debate over enshrining an objective for the $3.3 trillion super industry in law.

Labor has also come under pressure to dump the contentious "stage 3" tax cuts to save $254bn over a decade.

The Coalition-era policy, which Labor supported, would mean no one earning up to $200,000 a year would pay more than 30 cents of the dollar in tax once the cuts come into effect in July 2024.

Albanese said Labor was committed to an economic agenda of "relief, repair and restraint" and doing "everything we can" to help Australian families with the cost of living.

"But part of the message is that we are a responsible government when it comes to fiscal policy," he said.

"The third element of our three Rs – restraint – will be there in evidence when Jim brings down his second budget in May."

His comments echoed those Treasurer Jim Chalmers repeatedly made in the lead-up to the October budget last year about the "tough decisions" the government would have to make to pay for vital but expensive government services.

Chalmers said last year's high commodity prices had pushed up profits made from exports, resulting in a boon to Commonwealth revenue that would provide some relief for the budget over the next two years.

But he warned the boost was only temporary and wouldn't keep up with the amount of money the government would need to spend on public services and pay off the rising interest on debt.

The prime minister has shot down claims he broke an election promise after the government left the door open to overhauling a tax concession to encourage Australians to save for retirement.

During the election campaign, Albanese said he had "no intention" of changing the superannuation system.

He was backed by now-Treasurer Jim Chalmers, who said Australians "shouldn't expect major changes" to super.

But now changes to the superannuation tax concession, worth $53bn this financial year, appear to be in the treasurer's sights as he attempts to repair the budget bottom line.

"Right now, we're on track to spend more on super tax concessions than the age pension by around 2050," Chalmers said in a speech in Sydney on Monday.

"I'm not convinced that's a sustainable way to get to our destination – good retirement incomes for more Australians, now and into the future."

A person earning under $250,000 can contribute to their super before tax at a rate of 15 per cent.

That contribution is capped at $27,500 for this financial year.

A recent analysis by the Australia Institute found that tax concessions on super are forecast to cost the budget $52.6bn in 2022-23, bringing it close to the cost of the aged care pension.

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