Tag Archives: Aged care

Privatisation – who is it good for?

Privatisation is one of those terms which politicians avoid using. That is because the public does not like the idea, or its outcomes. It can be used in a number of ways, but most of us regard it as meaning “selling off a publicly owned asset, usually to the detriment of good government”. In other words, selling off the silver.

Most politicians are unable to explain the benefits of privatisation, either because they are illusory, or because they know there are seldom any benefits. Privatisation is usually marketed as “increasing consumers’ competition and choice”. 

The stated reasons for the sale of a public asset are usually ‘increased productivity’, or ‘enhanced efficiency’, or some such other unquantifiable benefit, which might happen, in the near future. Generally it is the product of neoliberal ideology, which pushes the belief that the market will fix any problem, even when there is no problem. It also relies on the myth that private companies are more efficient than any public service. 

Although the idea of privatisation has been around for a long time, it was only when Mrs Thatcher and Ronald Reagan actually went through with it in their own countries, that the trend took off. As with most fashions, it has outstayed its welcome, but not before Australia got in on the act. 

Privatisation is unpopular

In 2016, before Scott Morrison became Prime Minister, Treasurer Morrison instructed the Productivity Commission to begin an inquiry into extending ‘competition and choice’ in the human services sector. Of course that was code for “let us privatise more of the Government’s services”.

The People’s Inquiry  People’s Inquiry into Privatisation ran parallel to the Productivity Commission Inquiry, but instead of looking into ways to further marketise and privatise public services for the benefit of business, it asked how privatisation had impacted people, their lives, and the common good.

The report concluded, from public submissions, that there were multiple faults in the process, and that the outcome was negative in most areas, and that the public did not like the idea, nor its implementation.

 Some of the findings are below, but the full report is readily available. Peoples Inquiry Report.indd

In the electricity sector there were: 

  • job losses in the electricity sector
  • increased costs for consumers
  • service disconnections  
  • profits from assets going overseas instead of going back to the public  
  • reduction in research, development and maintenance of these assets  
  • reduced investment in apprenticeships and training  
  • loss of accountability, transparency and control 

This sector, amongst many others, has been privatised to within an inch of its life. These results are of particular interest now, because the electricity sector’s problems are a large part of the reason that Angus Taylor has continued to peddle the line that high energy prices are the fault of renewables, and that taking no action to mitigate climate change will keep energy prices low. This is obviously untrue, and the privatisation of the sector is a Government own goal. There seems no way to get them out of the mess, short of admitting they were wrong. I cannot see that happening.

In the Aged Care sector the following was observed:

  • reduction in care hours  
  • reduction of staffing and skill mix 
  • profit motive outweighing delivery of quality care 
  • erosion of pay and conditions for staff 

The case of the Aged Care sector is similarly topical. It outlines, and indeed anticipates, the difficulties in the sector, post John Howard’s opportunistic ‘selling off’ of the sector in 1997. It is all there – opportunism and staff cutting, profit-taking instead of caring. The industrial relations disaster which exacerbated the second wave of Covid-19 in Victoria, has its roots here.   

The reasons why privatisation fails to deliver

Most targets of privatisation have been in the area of utilities. These can be gas, electricity, water, telephony and communications. Recently the education, health, aged care, child care, prisons, welfare and really any government function have been included. 

With such a diverse range of services targeted, it is compelling to note that the reasons for failure are common to many of them.

  1. The public utilities were nationalised originally to serve the public interest. The utilities are products and services that are essential to all members of the public. A private company, motivated by profit, is likely to close down unprofitable operations. This means that services will inevitably be cut. (Telstra removing call boxes.)
  2. Most public utilities were natural monopolies. If you, for instance, sell the water supply industry, the new suppliers will not need to compete, as each is the monopoly supplier in its area. So the quickest and easiest way to maximise profit is to shed staff. Efficiency gains will be minimal, while maintenance suffers.
  3. Governments regulate public utilities. Pollution and environmental issues are more difficult to police, as the companies operate at arm’s length.  
  4. The 1980s saw a rise in income and social inequality. This was often blamed on privatisation. The transfer of assets owned by the many (public utilities) to a small group of wealthy investors (the few) made the gap greater than it had been.
  5. One major advantage of nationalised utilities is that their size permits them to take advantage of economies of scale. Privatisation usually involves the break-up of a large entity into many smaller ones. This is not conducive to financial success, although there is a case for an agility dividend. 

There is a good reason why the public has never warmed to privatisation. It is sold as a matter of competition and or choice, which it seldom is.

It rarely delivers a dividend, because it is a figment of neoliberals’ imagination. It is not the case that the market delivers. We all know that governments need to regulate the market when it fails, because markets do fail.

As Nancy Pelosi said this week, we can’t treat the U.S. Postal Service as a business which is failing. It is a service. We as a society need services, so don’t take our services away. They are sometimes too important to lose. 

John Howard destroyed Aged Care in Australia

There is a definite turning point in the quality and the humanity of Australia’s care for the elderly. The Aged Care Bill 1997 (Cth). was introduced as part of the new Howard Government’s 1996 Budget measures. It was to prove a huge gamble, which still wreaks havoc in the Aged Care sector. And it created a distinctly new group of players in our economy. It showed a government naively putting its faith in the market.

It started with John Howard

It was a curiously shallow and unsophisticated Bill, which did not even bother to hide its malicious intent. Each of the recommendations was ‘loaded’ against the elderly, and the Opposition of the time was ineffective in their efforts to mitigate the harm of the Bill, even if they had wanted to. It was led by Kim Beazley, and he was powerless at the best of times, let alone when he faced Howard’s massive majority.

The private (for profit) sector has six big players, who do what ‘for profits’ do; they maximise profits, usually at the expense of their customers – tick. They feed on their smaller competitors – tick. They amass market power – tick. They become too big to fail – tick. They refuse even basic accountability, although they are massively subsidised by taxpayers – tick. That subsidy currently sits at over 70% of revenue.

The worst part is that the governments of the day, (and both sides have been at fault) continue to believe that corporates are better at delivering value for money. This belief endures, even though successive Governments have watched as their performance declined, while their revenues increased. So there is no recognisable corporate ‘efficiency’ being exercised; there are only tax avoidance measures, increased fees and reduced costs, which apparently can include starving their residents. And they continue to sting the Government.

What did the Act change?

The proposed changes in the 1997 Act were to consolidate funding arrangements for the then separate nursing home and hostel sectors, and provide for a single residential care system to
determine the level of Australian Government subsidy for each resident.

They outlined a greater reliance on resident contributions to the cost of care, including through a system of accommodation bonds, and residential care benefits subject to income testing. They also proposed a relaxation of previous regulatory requirements, such as tight financial acquittal requirements, and their replacement by a ‘lighter-touch’ accreditation approach. https://agedcare.royalcommission.gov.au/sites/default/files/2019-12/background-paper-8.pdf

This grab-bag of ‘nothing regulation’ was the jackpot. It satisfied the neo-liberals, by making the system essentially ‘user-pays’; it consolidated the two areas of accommodations into one bite-sized chunk for the private equity groups, waiting on the sidelines; and best of all it really did use the term “lighter touch accreditation approach”, which just really means no oversight. (You have to love the euphemism team who drafted this Bill. Fun fact: euphemism: a mild or indirect word or expression substituted for one considered to be too harsh or blunt when referring to something unpleasant or embarrassing.)

What did the Royal Commission find?

There are so many issues which affect the Aged Care system that we needed another Royal Commission. That is because although we have had several in the last twenty plus years, no government has felt constrained to follow their recommendations, and so we are stuck with the ideologically driven mismatch of profit-takers and neglected frail clients.

The latest, which produced the Interim Report of the Royal Commission into Aged Care Quality and Safety was tabled on 31 October 2019. It stated that:

“the aged care system fails to meet the needs of its older, vulnerable, citizens. It does not deliver uniformly safe and quality care, is unkind and uncaring towards older people and, in too many instances, it neglects them.”

Commissioners Richard Tracey AM, RFD, QC and Lynelle Briggs’s AO investigation into Australia’s aged care system led them to describe the aged care system as “a shocking tale of neglect”.

“The neglect that we have found in this Royal Commission, to date, is far from the best that can be done. Rather, it is a sad and shocking system that diminishes Australia as a nation.”

We wonder why the sector refuses to countenance proper, honest auditing of their work, or their costs. We must wonder anew as to why the stewards of our taxpayer dollars do not insist. It is our parents’, and our grandparents’, lives at stake here.

According to Professor Joe Ibrahim, Head of Monash University’s Health Law and Ageing Research Unit, residential aged care facilities (RACFs) are currently not required to disclose how many staff they have, nor how they spend government funding.

It is hard to understand how a responsible Government can sit idly by and allow itself to be rorted so spectacularly. Matthias Cormann, Scott Morrison and Josh Frydenburg have all been robbed blind, even as they were apparently ‘on duty’, protecting the revenue. Perhaps their attention wandered, as they had to keep watch on the unemployed, who are always plotting some form of chicanery.

How much are we paying for the system?

Australian Government expenditure for aged care throughout 2018–19 totalled
$19.9 billion, an increase of 10 per cent from the previous year.

In 2018–19, over 1.3 million people received some form of aged care. The great
majority received home-based care and support, and relatively few lived in
residential care:
• 840,984 people received home support through the CHSP
• 133,439 people received care through a home care package
• 65,523 people received residential respite care, of whom 34,984 (approximately
53 per cent) were later admitted to permanent care
• 242,612 people received permanent residential aged care.

The sector, notwithstanding its perceived inadequacies, is expected to continue to grow its revenue by an annual rate of 5.4%. Its profit is expected to grow by an annual rate of 4.4%. When asked about the finding that up to 50% of Aged Care residents were malnourished, Sean Rooney responded that the daily allowance for food per resident was $6, however that was at wholesale prices, and there were possibly supplements added, for some residents, and really that aged residents should not be compared to prisoners because they needed less calories. He leads the peak body, Leading Aged Services Australia.

The sector appears to be hugely profitable, and to pay very little tax. Although how would we know? They keep their operating costs secret, so we know their revenue, but we do not know their operating costs, so their profit remains a mystery. According to the ATO, the total combined income of all for-profit aged care providers was just over $5 billion in 2015–16, with a total profit of $529.3 million and after tax profit of $402 million.

Companies can use various accounting methods to avoid paying tax. One method is when a company links (staples) two or more businesses (securities) they own together, each security is treated separately for tax purposes to reduce the amount of tax the company has to pay. Aged care companies are known to use this method as well as other tax avoiding practices.

Another practice is by ‘renting’ their aged care homes from themselves (one security rents to another) or by providing loans between securities and shareholders. Tax Avoidance by For Profit Aged Care Companies Australia Report 2018

The big players

Bupa, Australia’s largest for-profit aged care provider made over AU$ 663m in 2017. Over 70% (AU$ 468m) of this was from government funding.

Opal, the second largest for-profit company had a total income of AU$ 527.2m in 2015-16 (76% Government funding).

Allity had total income of $315.6 million, 67% of which came from government funding

Japara had a total revenue of AU$ 275.5m in 2018, 72% (AU$ 198.7m) of which came from government funding.

In FY2018, Estia had a total revenue of AU$ 266.8m, 74% (AU$197.3m) of which came from government funding.

In 2018, Regis had total revenues of AU$ 280.5m, 71% (AU$ 198.2m) of which came from government funding.

As a basic principle, companies that receive millions of government subsidies must be held to a higher standard of transparency and must be publicly accountable. The fiasco which is the Aged Care sector has been sold off to profiteers, and we get what you would expect. If you don’t pay attention, they exploit the system, and the aged suffer.

The system is way too important to leave in the hands of companies whose first allegiance is to their shareholders. We need to re-build a strong public sector, augmented by not for profits. Throw away the neo-liberal playbook. Sink some money into aged care, because the community wants it. Our politicians have probably got a cosy little retirement haven set up for themselves, and probably paid for by us. The rest of the community should not dread old age, because our government of the day is too miserable to provide for ALL of its citizens.