Treasury's 2026 Intergenerational Report projects Commonwealth aged care spending will rise from 1.5% of GDP in 2025–26 to 2.3% by 2065–66, while the population aged 85 and over triples to 1.9 million.

The headline figures point to substantial growth in aged care spending and demand. But they leave two important questions unanswered: how much funding will be available per person receiving care, and how many older Australians will receive the care they need?

For providers, the immediate concern is whether government funding will keep pace with the cost of delivering care. Our analysis suggests a growing gap over the next decade, with significant implications for pricing, workforce and long-term financial planning.

What the projections tell us

1. Demand will increase significantly

Treasury projects the population aged 85 and over will grow from 625,000 to 1.1 million by 2035–36, an increase of 76% in ten years. Annual growth in this age group is expected to peak near 8% around 2030.

This is a relatively reliable projection. Everyone who will be aged 85 or older in 2035–36 is already at least 75 today.

2. Government funding is projected to grow with CPI

Treasury's aged care projections use the cost of care by age and gender, population, care usage rates and CPI. For residential care, additional cost growth above CPI is assumed to begin only in 2037–38.

Until then, the projections effectively hold the real price of care per person constant.

3. Total funding will grow, but more slowly than the 85+ population

Real Commonwealth aged care spending is projected to increase from approximately $44 billion to $57 billion by 2035–36, a 30% increase in 2025–26 dollars, based on Pride Aged Living calculations from Treasury's data.

Treasury also identifies several reforms supporting its projections, including higher means-tested contributions, higher maximum room prices, providers retaining a share of refundable accommodation deposits, and more care delivered at home.

Source: IGR 2026, Table A2.1, Chart 4.6, Appendix A3, Table A2.4 and p.240. Spending figures calculated by Pride Aged Living.

The growing gap between funding and costs

For providers, total sector funding matters less than the margin available for each resident.

Under Treasury's projection method, government funding per person effectively keeps pace with CPI until 2037–38. However, wages, which account for most residential aged care costs, are likely to grow faster.

Treasury projects real income per person to increase by 9.8% over the next decade. We have used this as a proxy for wage growth, reflecting the continued competition for care workers and the pressure on providers to attract and retain staff.

Using this assumption, we modelled two scenarios.

By 2035–36, government funding would cover approximately $91 to $94 of every $100 of care costs it covers today, depending on the proportion of costs attributable to staffing.

The per-resident funding gap in 2035–36

2025–26 dollars · Illustrative Pride Aged Living calculations

Measure	70% staff costs	100% staff costs
Government funding covers per $100 of current cost	$94	$91
Annual gap per resident, assuming $300/day government funding	$7,500	$10,800
Annual gap for an 80-bed home at 95% occupancy	$570,000	$820,000
Real private revenue increase required, assuming 70% government revenue	23%	33%

Source: IGR 2026, Table A2.2 and Appendix A3; Pride Aged Living calculations. The $300 daily funding amount and staff cost shares are illustrative assumptions, not Treasury figures.

What this means for provider strategy

Treasury's projections point towards residents funding a greater share of aged care costs through higher contributions, accommodation pricing and providers retaining a share of refundable accommodation deposits.

The capacity to contribute is also changing. Treasury projects median superannuation balances for people aged 65 to 69 will approach $450,000 in nominal terms by the end of the medium term, compared with $204,000 in 2024. However, median balances do not reflect every resident's financial circumstances.

For residential providers, this places greater importance on revenue from Higher Everyday Living Fees (HELF) and accommodation.

Most providers will need to consider both revenue sources rather than relying on one to offset rising costs. Recovering the gap through only one mechanism could require substantially higher prices and disadvantage residents who prefer different combinations of daily service and accommodation payments.

Timing is important. New prices generally apply to new residents, meaning changes take two to three years to flow through the resident population.

A pricing decision made in 2027 may not reach its full effect until around 2030, when growth in the population aged 85 and over is expected to peak.

Workforce pressures add to the challenge

Treasury reports that employment in health care and social assistance has grown 13% since 2023 and projects a further 23% increase by 2035.

This growth coincides with the period of strongest growth in the population aged 85 and over.

Aged care providers will compete with hospitals, disability services and primary care for workers, while government funding is projected to increase only with CPI.

A home that cannot staff its beds cannot fill them.

These workforce pressures support our decision to use growth in worker incomes, rather than CPI, as the main proxy for wage growth in our calculations.

Can productivity close the gap?

The Productivity Commission estimates that better integration of digital health technology could save more than $5 billion annually across health care and automate up to 30% of healthcare tasks.

However, the experience of the 25 years under the 1997 Aged Care Act suggests productivity gains are more difficult for aged care providers to realise than in other parts of the health sector.

Care minute requirements limit providers' ability to translate productivity improvements into lower staffing costs. Even where a provider improves productivity, prescribed staffing inputs can prevent it from retaining those gains.

Productivity improvements will have greater financial value to providers if regulatory measures move from prescribed inputs towards outcomes.

Source: IGR 2026, pp.79, 92–93; Pride Aged Living analysis.

What the projections cannot tell providers

Several important factors could change the outcome:

Actual funding decisions: Treasury assumes CPI indexation, but IHACPA and government determine prices annually. The 2.55% AN-ACC price increase from 1 October 2026 is a recent example.
Funding beyond 2037–38: Treasury assumes additional residential care cost growth above CPI from that year but does not publish the rate.
Home care pricing: The IGR projects total home care spending but does not publish a projected price per package holder.
Wage outcomes: Future Fair Work decisions and care minute requirements will influence costs. If care wages fall behind broader wage growth, the modelled gap narrows, but the workforce shortages those wage decisions sought to address may return.
Residents' capacity to contribute: Higher median superannuation balances do not necessarily translate into greater capacity to pay across all residents. Means-testing arrangements may also change.

These uncertainties reinforce the importance of testing different funding, wage and pricing assumptions rather than relying on a single long-term forecast.

Will funding keep pace with the need for care?

The second question is how many older Australians will receive funded care, and how much care each person will receive.

Over the decade to 2035–36:

Real Commonwealth aged care funding grows by 30%.
The population aged 65 and over grows by 25%.
The population aged 85 and over grows by 76%.

The need for care does not increase uniformly across these age groups. However, residential care users are predominantly older, and residential care accounts for approximately 71% of Commonwealth aged care spending.

Pride Aged Living's modelling compares projected funding growth against different assumptions about care needs across age groups.

The range may overstate the gap because much of the growth in the 85+ population will come from people aged 85 to 89, who generally use less care than those over 90.

Treasury also identifies higher rates of residential care use among older Australians as a driver of spending.

Across the entire population aged 65 and over, real spending per person increases by 3.5%. Measured against growth in the 85+ population, where residential demand is greatest, it falls.

The projections do not establish how any difference between funding and need will be addressed.

How could the difference be addressed?

The projections allow for four possible outcomes:

Lower care needs: Healthier ageing, changes in the age profile and progress in dementia treatment may reduce demand.
More care delivered at home: A shift away from residential care could change the overall cost of care.
Less funded care per person: Smaller packages or tighter means-tested assessments could reduce expenditure.
Fewer people receiving funded care: Longer waiting times or slower release of places could constrain access.

Treasury models these outcomes through age-based care usage rates but does not publish the underlying rates.

Only the last two scenarios necessarily mean older Australians receive less care than they need.

The IGR provides no basis for determining how much of the projected outcome depends on reduced need, changes in care settings or restricted access to care.

Important limitations in the projections

Several uncertainties affect both providers and older Australians.

No aged-care-specific sensitivity testing

Treasury tests changes in migration, fertility, workforce participation and productivity, but does not publish sensitivity testing for aged care usage rates or care pricing.

The productivity assumption

Under Treasury's higher-productivity scenario, aged care spending reaches 2.0% of GDP in 2065–66, compared with 2.6% under lower productivity.

This produces an interesting result: a wealthier Australia with higher wages can spend a smaller share of GDP on aged care because Treasury's projections price care using CPI rather than wages.

Rounding affects precision

Treasury rounds population and spending projections. Across the rounding range for 2035–36, calculated spending per person aged 85 and over can vary by approximately six percentage points.

Some calculated changes may therefore appear more sudden than they would in practice.

Projections are not budgets

The IGR assumes no future policy changes, but aged care policy and pricing arrangements change regularly.

Boards should treat these projections as a planning input rather than a commitment to future funding.

Source: IGR 2026, Tables A4.1 and A4.2; Pride Aged Living analysis.

Six questions for Boards and CEOs

Does your ten-year financial plan assume government revenue per resident grows faster than CPI? What evidence supports that assumption?
What proportion of revenue is currently within the board's pricing control, and what proportion will be needed by 2030?
Which wage increases in your financial plan are funded, and by whom?
How would your plan respond if annual government price increases fall below CPI, or if the additional cost growth Treasury expects from 2037–38 does not eventuate?
Have you modelled demand from people aged 80 and over or 85 and over in your catchment through to 2035–36? How would you fund the capital required?
How much would your combined HELF and accommodation margins need to increase to offset a potential gap between government funding and rising costs?

Sources and methodology

This analysis draws on the Australian Treasury's 2026 Intergenerational Report, including:

Table A2.1 and Chart 4.6: Population projections and growth in the population aged 85 and over.
Table A2.2 and Appendix A3: Income growth and aged care expenditure assumptions.
Table A2.4: Commonwealth aged care spending projections.
Chart 12.16 and page 240: Aged care expenditure and policy assumptions.
Tables A4.1 and A4.2: Sensitivity testing and productivity scenarios.

The financial scenarios and comparisons between projected funding and population growth are Pride Aged Living calculations based on Treasury data.

These calculations illustrate potential outcomes under specified assumptions. They are not Treasury forecasts or announced funding changes.

Test the numbers for your organisation

Our aged care funding explorer, published alongside this Insight, allows boards and executives to apply their own staff cost share, government revenue share and bed numbers to the projected funding gap.

It also shows the broader sector projections separately.

Explore the aged care funding model.

Aged care funding explorer

What Treasury's 2026 Intergenerational Report means for two different questions: how your revenue per resident keeps pace with costs, and how many older Australians receive funded care.

1. Your business: revenue per resident against cost

Medium certainty

For provider boards, CEOs and CFOs. Treasury projects the government price for each resident to rise with CPI until 2037–38. Wages, which make up most of your costs, are projected to rise faster. This section shows the gap for a residential care home. It does not depend on how many people receive care nationally.

Your settings

Year

Staff costs as a share of total costs

Staff costs rise with wages. Other costs rise with CPI.

Government share of your revenue

Care subsidies and supplements as a share of total operating revenue.

Government funding per resident per day ($)

Occupied beds

Default: 80 beds at 95 per cent occupancy.

Nothing you enter leaves your browser. We do not collect or store your settings.

Gap per resident

Gap for your home

Private revenue increase needed

Government price and cost per resident

Index, 2025–26 = 100, in today's dollars. Years between 2025–26 and 2035–36 are interpolated.

What this rests on

Known: Treasury projects aged care costs per person at CPI until 2037–38 (IGR 2026, Appendix A3, p. 308).
Known: real income per person grows 9.8 per cent to 2035–36 (Table A2.2). We use it as a proxy for wages.
Not known: actual annual price decisions by IHACPA and government, which need not follow the IGR's CPI assumption.
Not known: the price path after 2037–38, when Treasury adds residential cost growth it does not publish. We stop at 2035–36 for this reason.
Not covered: home care. The IGR does not publish a price per client, only total home care spending growing broadly with the economy.

2. The sector picture: access to care

Low certainty

For policymakers, commentators and older Australians. This section compares growth in Commonwealth funding with growth in the older population. It describes the whole system, not any one provider, and none of the settings above affect it.

Settings

Point in the forecast

Treasury scenario

Advanced setting

Share of need tied to people aged 85+

Default 71 per cent, the residential share of Commonwealth aged care spending. The rest is tied to everyone aged 65+.

People aged 85 and over

Real Commonwealth aged care funding

Aged care share of Commonwealth payments

Older population and real funding

Index, 2025–26 = 100, in today's dollars (CPI terms).

What the projections do not tell us

Lower need. Most growth in the 2030s is people aged 85 to 89, who use less care than people over 90. Treasury also expects healthier ageing and progress on dementia.
Cheaper settings. More people supported at home rather than in residential care. Treasury names this.
Less care per person. Smaller packages or tighter assessment.
Fewer people funded. Longer waits or slower release of places.

Treasury models all four through usage rates by age that it does not publish.

Residential and home care spending

Sources and method

Population, income and spending: IGR 2026 Tables A2.1 to A2.4. Real spending is Treasury's real spending per head multiplied by projected population.
Method: Treasury projects aged care from the cost of care by age and gender, population, usage rates and CPI, adding residential cost growth beyond CPI from 2037–38 (Appendix A3, p. 308).
Scenarios: Table A4.2 productivity sensitivity, published for 2065–66 only.
Residential and home care split: measured from Chart 12.16 (approximate), published for 2025–26 and 2065–66 only.
Pride Aged Living assumptions: real income per person stands in for wages; need is weighted between the 85+ and 65+ populations; years between 2025–26 and 2035–36 in section 1 are interpolated. All dollars are 2025–26 dollars.

Prepared by Pride Aged Living from public data in the 2026 Intergenerational Report (Australian Government, September 2026). Figures are indicative, rest on stated assumptions and are not financial advice. Draft for review.

What the 2026 Intergenerational Report Means for Aged Care Providers and Older Australians