Budget Review 2013–14 Index

Luke Buckmaster

The Budget announced an additional $14.3 billion over seven years for the transition towards full implementation of DisabilityCare Australia (DisabilityCare) (formerly the National Disability Insurance Scheme) by 1 July 2019.[1] This funding is intended to contribute towards two distinct stages of implementation of the scheme:

• $2.4 billion for the initial launch of DisabilityCare in New South Wales, the Australian Capital Territory, Victoria, Tasmania, South Australia and the Northern Territory from 2013–14 to 2015–2016
• $11.9 billion for all states and territories (including Queensland, which will move to full implementation without participating in the launch stage) to introduce the full scheme from 2016–17 to 2018–19.[2]

It is intended that the full DisabilityCare scheme will commence by 1 July 2019. The Government says that the total operating cost of DisabilityCare in first full year of the scheme (2019–20) will be $22.2 billion.[3]

Agreement with Western Australia over participation in the scheme is yet to be reached. The Government says that it is ‘continuing to work with Western Australia towards full scheme rollout’.[4] The $14.3 billion provided in the budget is based on all states and territories accepting the funding offer for DisabilityCare Australia on the same terms as those agreed with New South Wales in December 2012.[5] This may include an amount set aside for Western Australia, should an agreement with that state be reached, but this is not clear.

Funding for DisabilityCare is to come from a combination of:

• an increase in the Medicare levy from 1.5 to 2 per cent of taxable income beginning in 2014–15 (announced in this Budget) , expected to raise $20.4 billion between 2014–15 and 2018–19—money raised by the levy will be placed into a DisabilityCare Australia fund for 10 years and ‘will only be drawn upon to fund the additional costs of delivering DisabilityCare Australia’[6]
• new Australian Government funding drawn, for example, from savings in a range of areas including recent changes proposed to Government support for private health insurance and measures in the 2013–14 Budget including changes to retirement incomes policy and the phase-out of the Net Medical Expenses Tax Offset
• existing Australian Government funding for disability care and support and
• new and existing state and territory funding for disability care and support.[7]

Why identifying the source of financing is important

The significance of financing DisabilityCare goes beyond the issue of identifying where the additional money will come from. As with the health system, funding for disability has long been the subject of debates about cost-shifting 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 rationale for the scheme.

In its report recommending the introduction of DisabilityCare, the Productivity Commission noted that ‘current funding for disability is subject to the vagaries of governments’ budget cycles’ and proposed that the Commonwealth should finance the entire costs of DisabilityCare.[8] This would be done by directing payments from consolidated revenue into a dedicated fund using an agreed formula entrenched in legislation. The Productivity Commission's proposal that the Commonwealth become single funder of DisabilityCare 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.[9]

In the event the Government chose not to pay for DisabilityCare 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’.[10] Unlike the Medicare levy which only pays for about half of the $18 billion annual cost of Medicare, this levy would be ‘hypothecated to the full revenue needs’ of DisabilityCare.[11]

Comment

As can be seen above, the method of financing agreed between the Australian and state and territory governments is different to the two main approaches proposed by the Productivity Commission in a number of respects. For example, the Commonwealth will not be the single funder, leaving open the possibility of the kinds of problems with shared funding arrangements identified above. Also, the increased Medicare levy will be hypothecated to a dedicated fund (for 10 years) but this is not designed to meet the full revenue needs of the scheme. Reliance on the multiple sources identified above creates some risk of future instability of financing for DisabilityCare.

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