Paying for the National Disability Insurance Scheme

Dr Luke Buckmaster, Social Policy

Key issue
The National Disability Insurance Scheme (NDIS) is being introduced across Australia from July 2016, at a cost of around $22 billion by 2019. How does the Commonwealth plan to pay for its share?

What is the NDIS?

The NDIS provides support to people with disability, their families and carers. It is jointly governed and funded by the Commonwealth and participating states and territories. The NDIS is being introduced across Australia from July 2016, except in Western Australia where it is still being trialled.

The main component of the NDIS is individualised, long-term funding to provide support for people aged under 65-years with permanent and significant disability, or eligible for early intervention support. Participants meet with the National Disability Insurance Agency to identify a set of supports agreed as ‘reasonable and necessary’ to meet their goals. They are provided with funding for these supports and can choose how their needs are met.

When the NDIS is fully implemented in 2019, it is expected that around 460,000 Australians will receive individualised supports.

The NDIS also has a broader role in helping people with disability to access mainstream services and community services, and to maintain informal supports (such as family and friends).

This NDIS is not means tested. Like many other Commonwealth social policy programs—such as Medicare, the Pharmaceutical Benefits Scheme and income support payments—the NDIS is an uncapped (demand-driven) scheme.

How much will it cost?

The cost of the NDIS will increase substantially over the next four years while it is progressively introduced: from around $4.2 billion in 2016–17 to $21.5 billion in 2019–20—representing an increase in spending to around 1.1 per cent of GDP. It is important to note, however, that the Commonwealth will only be responsible for half of the annual cost of the scheme.

The most recent NDIA annual report projects that expenditure will increase gradually to 1.3 per cent of GDP in 2044–45, reflecting the increased cost of supports as NDIS participants age over time.

In its 2011 report recommending the introduction of the NDIS, the Productivity Commission suggested that the benefits of the NDIS would outweigh the costs and add almost 1 per cent to Australia’s GDP.

Why the funding source is important

Funding for disability has long been the subject of debates about cost and blame shifting between the Commonwealth and the states and territories. Guaranteed future funding for disability services was part of the rationale for the NDIS.

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 the scheme from general revenue, or a levy ‘hypothecated to the full revenue needs of the NDIS’.

How is the NDIS being funded?

The method of financing agreed between the Commonwealth (Gillard) and state and territory governments is different to the two main approaches proposed by the Productivity Commission. Participating governments jointly provide funding based on intergovernmental agreements. Funding comes from a combination of sources.

First, existing money spent by Commonwealth, state and territory governments on disability services is being redirected to the NDIS. According to the 2016 Report on Government Services, 29.7 per cent of the $8.0 billion spent on disability services in 2014–15 came from the Commonwealth.

In addition, funds for the NDIS are taken from the July 2014 increase to the Medicare levy (from 1.5 to 2 per cent of taxable income). Revenue raised from increasing the Medicare levy is directed to a special fund—the DisabilityCare Australia Fund—for the purposes of reimbursing governments for NDIS expenditure. In contrast to the Productivity Commission model, the increased Medicare levy is not designed to meet the full revenue needs of the scheme (just as the levy only partially covers the annual cost of Medicare).

Finally, any NDIS funding not offset by the above sources must come from general budget revenue or borrowings. As the Parliamentary Library noted previously, the reliance on multiple sources creates ‘some risk of future instability of financing’ for the NDIS.

Funding from 2019

The Commonwealth Government’s share of NDIS expenditure in 2019 is expected to be around $11.2 billion. The Government says that around $6.8 billion of this will come from the redirection of existing disability funding and the Commonwealth’s share of the DisabilityCare Australia Fund, leaving $4.4 billion to be sourced elsewhere.

The Government has proposed that this additional amount should come from budget savings directed to a special account—the NDIS Savings Fund—which will ‘hold NDIS underspends, and selected saves from across the Government’. While savings may come from any portfolio, all savings proposed so far have been from the social services portfolio. Legislation to establish the NDIS Savings Fund lapsed with the dissolution of the 44th Parliament.

To the extent that it cannot be funded from these sources, the Commonwealth’s contribution will be a cost to the Budget—as are most other Government programs that do not have dedicated funding sources.