Paying for the NDIS: what about a levy?

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Paying for the NDIS: what about a levy?

Posted 30/04/2013 by Luke Buckmaster

There is increasing speculation that the Gillard Government is considering introducing a levy to help pay for the National Disability Insurance Scheme (NDIS). The question of how the NDIS would be financed was one of the key issues examined by the Productivity Commission (PC) in its inquiry which lead the Government to introduce the scheme.

This post outlines the importance of the financing issue and what the Productivity Commission recommended as a model for funding the NDIS. It highlights some of the key questions relating to the design of a levy for the NDIS.

Currently, most disability care and support in Australia is funded and provided by the states and territories. The Commonwealth's financial contribution to the $7.1 billion in funding for disability is around 30 per cent. According to the PC, funding for disability under its proposed NDIS (since renamed DisabilityCare by the Government) would need to almost double to $13.6 billion in order to meet the shortfall in support provided under the current system. 

The significance of financing the NDIS goes beyond the issue of where the additional money will come from. As with the health system, funding for disability has long been the subject of debates about cost- and blame-shifting between the Commonwealth and state and territory governments. The need to ensure the security of funding for disability into the future was therefore an important part of the thinking behind the NDIS. As I have suggested elsewhere:
The question of how the NDIS will be funded (will be there be an agreed formula entrenched in legislation?) is crucial in determining whether the longstanding problem of funding shortfalls will be adequately addressed. In the absence of an adequate and secure funding base, the NDIS would, in the long run, provide little advance on current arrangements.
Noting that 'current funding for disability is subject to the vagaries of governments' budget cycles', the Commission proposed that the Commonwealth ‘should finance the entire costs of the NDIS by directing payments from consolidated revenue into a 'National Disability Insurance Premium Fund', using an agreed formula entrenched in legislation’. The formula would need to provide 'stable revenue to meet the independent actuarially-assessed reasonable needs of the NDIS' and include funding for adequate reserves.

The Productivity Commission's proposal that the Commonwealth become single funder of the NDIS was based on the view that: 
 ... this would provide certainty, clear lines of funding responsibility, avoid the inefficiencies of the Commonwealth-State ‘blame game’ that afflicts some shared funding arrangements, and reflect the Australian Government’s unique capacity to raise efficient and sustainable taxes of the magnitude required.
In the event the Government chose not to pay for the NDIS from general revenue, the Productivity Commission suggested it introduce 'a levy on personal income ... with an increment added to the existing marginal income tax rates'. Unlike the Medicare Levy which only pays for about half of the $18 billion annual cost of Medicare, the NDIS levy would be 'hypothecated to the full revenue needs of the NDIS'. The rate of the levy would take 'sufficient account of the pressures of demographic change on the tax base' and create 'a sufficient reserve for prudential reasons'.

The Commission’s preference for payments directed from consolidated revenue rather than a levy or tax was that the latter ‘would lack the flexibility and efficiency’ of the former.

The Government has previously ruled out introducing a levy to fund the NDIS. The idea of a levy is not supported by the Opposition but was reportedly proposed as a funding model by Queensland Premier, Campbell Newman, in July 2012. 

In December 2012, the Prime Minister is reported to have given an assurance that the funding of the NDIS will be ‘inscribed’ in the finances of the nation, though the details of how this would be done had not then been agreed. According to a media report, the Prime Minister indicated that (at least some of) the funds may come from ‘responsible savings’ across government outlays and that more information about financing the NDIS would be made available in the 2013–14 Budget.

The precise form of the levy reportedly being considered by the Government is not yet known. Key questions related to the design of an NDIS levy include:
  • would it be separate to or included as part of an expanded Medicare Levy?
  • would it be expected to cover the full cost of the NDIS or only part of the cost?
  • would it cover the Commonwealth's share only or would the Commonwealth become the single funder for the NDIS? 
  • consequently, what would be the rate of any such levy? (The current Medicare Levy of 1.5 per cent raises around $9 billion annually).
  • would revenue from any levy be paid into consolidated revenue or into a separate NDIS fund?
These design questions would probably intersect with political questions about how to best gain support for an NDIS Levy and indeed how to retain what appears to be widespread public support for the NDIS.

(post updated 8am, 1 May 2013)

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