According to consultancy StewartBrown, a new set of financial and prudential standards proposed by the Aged Care Quality and Safety Commission (ACQSC) could restrict investment and expansion in the aged care sector.
In a submission responding to the Aged Care Financial and Prudential Standards 2025, StewartBrown raised concerns about strict new liquidity requirements that could force aged care providers to hold onto significantly more cash, limiting funds available for new developments.
The reforms are part of the federal government’s response to the Royal Commission into Aged Care Quality and Safety, which found weaknesses in financial oversight. The new standards aim to strengthen liquidity, prudential regulation, and capital adequacy, ensuring providers can refund deposits and remain financially sustainable.
However, StewartBrown argues the proposed liquidity formula could do more harm than good.
A sector under pressure
The aged care sector has faced years of financial stress, exacerbated by the COVID-19 pandemic, chronic staffing shortages, and rising operational costs. Many providers have reduced expansion plans, focusing instead on cost control.
Despite this, net cash inflows from resident loans (Refundable Accommodation Deposits or RADs) remain strong, supporting ongoing operations. The Department of Health and Aged Care estimates that demand for residential aged care will surge, requiring 250,000 places by 2030 and 360,000 by 2040.
But with strict new liquidity rules, StewartBrown warns that providers may struggle to build new facilities, potentially leading to a shortfall in aged care places at a time of increasing demand.
What’s changing
Currently, aged care providers determine how much cash they need to hold based on individual risk assessments. Under the new formula, providers must set aside at least 58% of liquid assets—a dramatic increase from the current 24% requirement.
For larger providers, who play a key role in developing new facilities, the required reserve could jump from 25% to 77%, effectively locking away millions of dollars that could otherwise be used for investment.
StewartBrown says this “one-size-fits-all” approach is too rigid and does not account for factors like credit availability, net assets, or capital work in progress.
The risk of a “Capital Strike”
The sector has already been experiencing a “capital strike”, where providers delay investment due to uncertainty and financial strain.
“After five years of operating deficits, providers have been forced to hoard cash rather than invest in growth.”
StewartBrown’s submission
The consultancy warns that higher liquidity requirements will only worsen this trend, making it harder for providers to expand or renovate facilities, which could impact the quality and availability of aged care services.
While supporting strong financial oversight, StewartBrown suggests a more balanced approach, recommending that liquidity levels be set at:
• 25% of quarterly cash expenses
• 5% of RAD liabilities
• 2% of Independent Living Unit (ILU) liabilities
The consultancy also suggests that providers who cannot meet these thresholds should be allowed to submit alternative liquidity management strategies, rather than being forced to comply with a rigid formula.
Additionally, StewartBrown recommends that net assets, access to credit, and future capital investments be factored into liquidity calculations, rather than relying solely on cash reserves.
The Quality Commission has so far maintained that the reforms will provide clarity and consistency, ensuring aged care providers remain financially stable.
However, StewartBrown’s financial modelling shows that over 80% of providers already meet existing liquidity requirements and that the proposed rules would unnecessarily restrict investment.
With Australia’s ageing population growing rapidly, many in the sector argue that now is not the time to limit investment in new aged care facilities.
The government faces a difficult balancing act—ensuring financial sustainability while avoiding policies that limit access to aged care.
