Reading what economists write about population ageing can be a little like falling with Alice into Wonderland. Regressive payments are justified on equity grounds. Something dismissed as entirely manageable suddenly requires significant policy change after it is found to be less of a problem than first thought. This is what you find when you read the Productivity Commission’s recent report into aged care.

This is not to dismiss some very sensible recommendations about making aged care more integrated and easier to access, and increasing funding levels. But when it comes to the source of funding, old economic prejudices overcome sensible economic thinking.

It may surprise many people hearing about population ageing to discover there is no real crisis. How do we know this? The Productivity Commission told us so in 1999 in the conference it held on the issue. Since then, the Treasury’s Intergenerational Reports have consistently shown the “problems” of population ageing to be less significant than first thought. The first report in 2002 estimated a budget deficit of 5% of GDP by 2040, the most recent report last year revised this down to just 1.5%.

In 1999, the Productivity Commission suggested population ageing should not be used as an excuse to do anything the government would not do anyway as part of normal policy revision. So when they argue that we need greater user payments for aged care, you know it’s really because that’s what they wanted anyway, and it has little to do with population ageing. But linking it to a potential “crisis” perhaps makes a very unpopular political issue seem more urgent.

How exactly are payments justified? After all, we know these user payments, like the GST, make the poor pay proportionally more than the rich. In aged care it also makes the sick pay more than the well.

Yet, one of the main justifications is “equity”. In particular, intergenerational equity, making sure younger workers are not forced to pay for older people’s care. On the face of it, that sounds a little heartless. But even if we share the commission’s concern, aged care is not the problem.

For example, the commission suggests that over the next 40 years governments will have to pay slightly less than 1% of GDP extra on aged care. In comparison, tax subsidies for super cost the budget over 2% of GDP a year to help old people save for older age.

Super tax subsidies are grossly inequitable. Someone on the top tax rate gets on average more than $11,000 a year, while someone on the minimum wages gets nothing. It is also grossly inefficient. For every dollar we spend on super concessions, the government only saves 10 cents on future pension payments (i.e. it essentially loses 90% of the cost). We could simply spend this money on the services older people need, rather than subsidising (high income) savings and then clawing it back (from most old people).

Or take the argument that older people should pay because of their housing wealth. It is true that older people are more likely to own their home. That wealth is exaggerated by high housing prices that also make it harder for younger people to buy in.

But the real problem is housing affordability generated by other government policies. The government spends twice as much on housing subsidies as super subsidies, including $5 billion in negative gearing that primarily benefits the richest taxpayers. This inflates housing prices, further contributing to the problem. In other words, there are much more “equitable” ways to address intergenerational equity.

Even the productivity argument is questionable. User charges are said to make markets more efficient because they stop over use. But in aged care, the services we get are based on professional assessments of what we need, not just what we want. In most cases, receiving those services saves the community money by keeping people out of expensive hospital beds. So if anything, the charges may discourage people from using services we want them to use.

Population ageing will mean some changes, but no more than in any other period. There is no crisis. It does not require cuts in services or inequitable fees and charges. Real reform is about looking at the whole picture, the subsidies and the spending, and how to share modest costs equitably.

*Dr Ben Spies-Butcher is a Fellow at the Centre for Policy Development and a lecturer in sociology and a Member of the Centre for Research on Social Inclusion at Macquarie University.