About 1.4 million seniors will receive greater support to live independently at home before going into aged care after the federal government and the opposition struck a deal to get a long-awaited $5.6 billion package through parliament.
To help fully fund the growing cost of care, new entrants will have to shoulder increased means-tested contributions.
The lifetime contribution cap will be raised from around $76,000 to $130,000, saving the taxpayer $12.6 billion over 11 years after an initial increase of $930 million over the first four.
The changes will go some way to rebalance intergenerational unfairness, said Melinda Cilento, chief executive of economic development non-profit CEDA.
"Older Australians are generally wealthier than in previous generations, while the taxpayer base - which relies too heavily on working-age Australians - is shrinking," she said.
"Australians are increasingly entering into care at an older age and with higher, more complex care requirements."But the changes announced today acknowledge that those who can afford it should pay for daily living costs."
The aged care sector welcomed the changes, though some residents will pay higher contributions. (Jane Dempster/AAP PHOTOS)
Only people not already in aged care or receiving home care and who exceed a wealth or income threshold will have to pay higher contributions.
The government ruled out changes to the treatment of the family home, but Ms Cilento said it should consider lifting the means-test threshold to reflect the significant rise in home values over the last decade.
"Some Australians have accumulated a substantial amount of wealth, including increasing superannuation balances, supported by tax concessions," she said.
The government would remain the prime funder of aged care.
For every $1 a person in aged care contributes, the federal government will chip in $3.30 on average to residential care and $7.80 for home supports.
The reforms will bring financial sustainability to the sector, with many home and community care providers only just keeping their heads above water, said Aged and Community Care Providers Association chief executive Tom Symondson.
"Australia can build an aged care system that's the envy of the world, but we need help to do it," he said.
"Today, older people won a great victory."
Older Persons Advocacy Network chief executive Craig Gear said he was disappointed criminal penalties for serious harm and neglect were omitted from the final legislation, after a royal commission revealed appalling conditions in the sector.
"Older people have waited far too long for their rights to be upheld and for this life-changing piece of legislation," Mr Gear said.
"Its passage must now be facilitated without further delay."
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