National Disability Insurance Scheme funding

Budget Review 2021–22 Index

Elliott King

The Government has announced $13.2 billion in ‘additional investment’ in the National Disability Insurance Scheme (NDIS or ‘the Scheme’). The additional investment is not tied to any specific measure but is an upwards revision of the projected costs of the NDIS, bringing the estimated cost to $24.6 billion in 2020–21 (BP 1, p. 172). This follows comments by both the former and current Minister for the NDIS and the Prime Minister concerning the fiscal sustainability of the Scheme.

The NDIS provides support to people with disability and their families and carers. It is jointly governed and funded by the Australian, and state and territory governments. The main component of the NDIS is individualised packages of support to eligible people with disability. To receive individualised support under the NDIS, a person must meet disability requirements, and be aged under 65 years when they seek to join the Scheme. The NDIS was first introduced in a number of trial sites in 2013, began to be fully rolled out in 2016, and has been available in all states and territories since July 2020.

Current costs

According to the latest NDIS quarterly report, between 1 July and 31 December 2020 $10.9 billion in payments were made to participants, supporting around 433,000 people (p. 75). The 2021–22 Portfolio Budget Statement (PBS) for Social Services has forecasted the NDIS to reach $33.3 billion in total costs (of which participant supports will account for about 96%) by 2024–25, over half of which will be provided for by the Commonwealth (p. 172). Moreover, the National Disability Insurance Agency (NDIA) flagged in the 2019 Annual Report that the Scheme will reach 532,000 participants, or 2.3% of Australia’s estimated resident population, by June 2023 (p. 94).

The provision of supports is the primary function and cost of the NDIS. Figure 1 presents projections for support costs compared to actual payments since 2013–14. As Figure 1 shows, actual costs of supports have consistently fallen below the forecasted support costs published in successive Budgets. The only exception to date has been the 2019–20 Budget’s estimate for support expenditure in 2019–20 when actual expenditure was slightly higher than had been forecast. 

Despite this historical underspend, Figure 1 shows that the 2021–22 Budget significantly increased the costs for participant supports over the forward estimates.

Figure 1: Budget estimated costs of reasonable and necessary care and support for participants (2013–14 to 2024–25) and actual payments (2013–14 to 2019–20)

Figure 1: Budget estimated costs of reasonable and necessary care and support for participants (2013–14 to 2024–25) and actual payments (2013–14 to 2019–20) 

Source: Australian Government, Portfolio budget statements: budget related paper no. 1.15a: Social Services Portfolio, various years; NDIA, NDIS Quarterly Report to disability ministers, 31 December 2020, p. 75.

Notably, projections for the years prior to 2020–21 have a wide range between projected and actual expenditure reflecting the difficulty of estimating the transition of existing state-supported participants to the NDIS, exits from the early intervention pathway, and utilisation of plans. The range of estimates appear to narrow around 2020–21 then widen for subsequent years. The projected costs from the 2021–22 Budget appear to follow a greater growth trajectory than earlier years, which flattened after 2020–21. The difference in projections for 2020–21 and beyond show a continual revision upwards, however this Budget’s forecasts are noticeably greater for comparable years than earlier projections. Figure 2 presents an overlay of Budget estimates for comparable years with cost projections from the 2021–22 Budget:

Figure 2: Budget projection overlay.

Figure 2: Budget projection overlay. 

Source: Australian Government, ‘Expenses and net capital investment’, Budget Strategy and Outlook: Budget paper no. 1, various years, Table ‘Trends in the major components of assistance to people with disabilities sub-function expenses’.

Note: **Includes both Commonwealth and State contributions to the cost of the NDIS delivered through the NDIA, which is a Commonwealth agency in the General Government Sector. Also includes Transition Programme funding.

***Includes both Commonwealth and state contributions to the cost of the NDIS delivered through the NDIA, which is a Commonwealth agency in the General Government Sector, and the cost of the NDIS Transition program delivered by the Department of Social Services.

The increasing cost of the Scheme over the last few years has led members of the Government and the media to query the fiscal sustainability of the Scheme over the long term. Often, these concerns are connected to cost projections coming in higher than the original forecasts from the Productivity Commission’s 2011 report Disability Care and Support for costs and participant numbers. The 2021–22 Budget cites ‘increased participant numbers and higher than expected average participant costs’ of the Scheme for the revised projections but does not expand on this (p. 83).

However, the NDIA revaluates the Scheme’s costs every year in its annual Financial Sustainability Report. These reports are provided to the NDIA Board and are not made publicly available, but a short summary of their findings is released in the annual report. The Productivity Commission’s 2017 Report National Disability Insurance Scheme (NDIS) Costs provided updated projections for the Scheme using trial data from the early years of the Scheme.

Projections over time

The Disability Care and Support report estimated that a fully rolled-out NDIS would cost about $13.6 billion in gross operating costs (or about $6.5 billion in net costs once offsets from existing disability services expenditures were considered) and would consist of about 411,250 participants by 2018–19 (pp. 776–7). The PC acknowledged considerable uncertainty about these estimates as the data available at the time was derived from multiple sources which varied considerably in their nature and quality (pp. 749–86). Furthermore, the PC’s model did not include persons over 65 years of age.

In 2014, the NDIA’s annual report presented the summary findings of the first Annual Financial Sustainability Report (FSR) of the NDIS. The 2013–14 Annual Report improved upon the PC’s original modelling through the inclusion of data gathered from the Scheme’s trial sites. The NDIA’s model estimated that the 460,000 people would be eligible for the NDIS, and package costs for participants at full Scheme in 2019–20 would reach $21.8 billion. The total operating cost of the Scheme was projected at $22.7 billion by 2019–20.

Although substantially larger than the PC’s estimates, the NDIA considered its estimates in line with the PC’s original work once inflation and population growth were considered, and people aged over 65 years were excluded (p. 109).

The 2014–15, 2015–16 and 2016–17 annual reports were largely consistent with the 2013–14 report, with all finding that the estimated cost of participant plans of $22 billion remained ‘the best estimate of the longer-term cost of a well-managed NDIS’. The Scheme expanded significantly over these years, almost tripling in size between 2015–16 and 2016–17 (NDIA 2016–17, p. 154), and in keeping with the roll-out schedule, would expand rapidly over the next three years.

As per the Heads of Agreement between the Commonwealth and state and territory governments, the PC reviewed costs of the Scheme in 2017. The PC’s National Disability Insurance Scheme (NDIS) Costs report examined the operation of the Scheme to date, the sustainability of the Scheme’s costs and provided recommendations to inform the final design of the full Scheme.

The PC found that the NDIS costs were broadly on track with long-term modelling, however:

In terms of reliable cost data, it is still very early days in the transition to full scheme. And while the transition experience should inform estimates of full scheme costs, the NDIA has decided that, at this early stage, the data have too many limitations to update the prevalence and package cost assumptions. (p. 15)

With these limitations in mind, the PC considered the projection of full Scheme costs at $22 billion in 2019–20, reaching about 475,000 participants as broadly consistent with the PC’s 2011 report. Using NDIA modelling estimates, the PC presented estimated operating costs of the NDIS for 2024–25 as $30.6 billion, rising to about $41 billion in 2029–30 (p. 100). Commenting on the sustainability of the Scheme, the PC noted that:

While the NDIS is sometimes described as an ‘uncapped scheme’, the ultimate cap — and test of financial sustainability — is taxpayers’ continuing willingness to pay for it. Unlike other insurance schemes that rely on premiums to fund costs, the NDIS will only be funded as long as taxpayers consider it is a good use of taxes. (p. 82)

Subsequent NDIA annual reports appear to have updated their projections according to the PC’s recommendations. The 2017–18 Annual Report’s projections are in line with the PC’s estimates at full Scheme. The 2018–19 Annual Report presents new estimated participant figures for 2023, showing a rise of 460,000 estimated to be in the Scheme by July 2020 to 500,000 by July 2023. The 2018–19 report estimates that Scheme costs are expected to be about 0.9% of GDP by 2019–20 and 1.2% of GDP in 2022–23.

The latest annual report covers the 2019–20 financial year and appears to revise both expected participant plan costs and participant numbers upwards over the short term. The 2019–20 Annual Report projects the Scheme to reach 530,000 by July 2023, with Scheme costs rising to the equivalent of about 1.4% of GDP. This increase appears to inform the most recent Budget estimates and seems to be part of the reason for wider discussion concerning the growth of Scheme costs, or ‘the financial sustainability of the scheme’. As the NDIA has pointed out, the current estimates for participant plan costs come in higher than those estimated by the PC in 2017. The 2019–20 Annual Report identifies the larger number of participants in the scheme and higher costs of participant plans as drivers of this (p. 95). However, the report does note that the Scheme’s costs for 2021–22 are in line with the PC’s 2017 estimates, once certain costs not included in the PC’s estimate are considered (p. 40).

Why have estimated future costs increased

Since the 2013–14 Annual Report, the NDIA has identified ‘cost pressures’ within the Scheme and associated ‘management responses’ to address sustainability pressures in each report. The cost drivers don’t significantly change year to year, with ageing and inflation driving up the cost of participant budgets. Average costs per plan have steadily grown since the trialling phase of the Scheme and have grown rapidly for participants in supported independent living arrangements.

However, the information available in the NDIA’s annual reports and the latest Budget do not provide a clear picture for why the NDIA’s latest projections have risen so substantially. The cost pressures identified do not differ significantly from previous years’ reporting, and in those previous years’ forecasts for the cost of the Scheme were not revised up as substantially as they have been in the 2021–22 Budget.

Although this Budget did not present any new measures to address cost pressures within the NDIS, the Government pursued some options in previous years.

Attempts at addressing the cost of the NDIS

The financing of the NDIS has been a persistent concern since the early days of the roll-out. The original Productivity Commission report considered several financing arrangements, ultimately recommending that the Australian Government should be the single funder of the NDIS. The PC also recommended that the Australian Government direct payments from consolidated revenue into a specific-purpose fund using a legislated formula that provided stable revenue to meet the needs of the NDIS. The Scheme would be funded by ‘whatever was the most efficient tax financing arrangement at the time’ (p. 34)

The implemented NDIS uses a pooled approach, with funding contributed by Australian and state and territory governments. The Government has proposed a few means to allocate funding and to finance the Scheme:

  • an increase of the Medicare Levy to 2.5%, and
  • the establishment of a NDIS Savings Fund in 2016, which was intended to meet the future demands of the Scheme and would be funded by savings from within the Social Services portfolio.

The Savings Fund was subsequently dropped in 2019–20 as ‘the Government’s positive budget position means that future funding for the NDIS [had] been secured’ (‘Part 1: Revenue Measures’, Budget paper no. 2: Budget measures 2019–20, p. 8), with the enabling Bill lapsing in 2019. In contrast, the Medicare Levy was increased to 2% in July 2014 with the second increase to 2.5% failing to pass the Parliament.

Final thoughts

The NDIA has consistently flagged cost pressure concerns throughout the roll-out of the NDIS. It has noted that the Scheme has come in either at cost or lower every year, however this is due to the masking of costs caused by low plan utilisation rates coupled with high cost packages. As the national roll-out is now complete, plan utilisation will likely increase as existing participants improve their plan usage (the longer a participant is in the Scheme, the more they tend to use their plan) (NDIA, Annual Report 2019–20, p. 36).

It is unclear why the revision in the latest Budget is as large as it is. The change in projected costs is considerably larger than previous years, and the explanation provided does not provide a clear reason why. Stakeholder groups, commentators and representatives from the state and territories have argued that the Scheme is largely tracking in line with expectations.

It is also worth considering the benefits of the NDIS. As the PC report notes in the 2017 report:

Early indications are that most NDIS participants are accessing more supports under the NDIS than under the previous disability system, including more hours of support, a wider range of support and greater access to equipment. (p. 133)

As the PC estimated in 2011 the private benefits for people with disabilities, fiscal offsets and economic efficiency gains of the Scheme ‘would significantly exceed the additional costs of the scheme’ (p. 976).