More sustainable NDIS is in all of our interests
The National Disability Insurance Scheme is a wonderful thing, but its cost growth is completely unsustainable. On its current path the NDIS will challenge any federal government’s ability to produce a sustainable budget surplus. In the upcoming budget, the government must take serious steps to reform it.
The NDIS began its full rollout only six years ago, in July 2016. Last financial year its $29bn cost was similar to the entire Medicare system. There is no precedent in our history for this level of cost growth in a government program. The government now says the cost of the NDIS will rise by another $21bn in just the next four years, reaching $50bn by 2025-26.
Today about 2 per cent of all Australians are enrolled in the NDIS, with the number of participants reaching 535,000 by July.
Once people are in the NDIS, they stay in it. The exit rate from the NDIS is less than half of the original long-term forecast. In 2021-22, only about one in 167 NDIS participants over the age of seven left the scheme.
As few people exit and more people join the scheme each year, the number of participants will continue to rise.
In 2017 the Productivity Commission thought there would be 583,000 people in the scheme by the end of this decade. But the most recent NDIS financial sustainability report estimates it will be far more – about 859,000.
Last year the average payment per NDIS participant was more than $55,000. And the history of the NDIS shows the longer people stay in the scheme, the greater the cost of their plan. People who have had four NDIS plans on average have seen their annual payments increase from $30,000 in the first plan to $65,000 in the fourth plan. For people who have had five NDIS plans, the average payment for the fifth plan is $93,000 – more than triple the average $30,000 for the first plan.
This suggests that as the scheme matures and more participants stay in for longer, the average cost per participant will continue to rise.
The politics of the NDIS are hard for any government. It helps some of Australia’s most vulnerable people, and we all know someone who has benefited from its introduction. The pre-NDIS system was inadequate and needed to change. It’s easy to demonise concern about its incredible cost as a heartless indifference towards the people who benefit from it. That’s exactly what the opposition did when the previous government raised concerns about these issues. But – so be it. Australia must remain a country that is big enough to resolve hard problems.
To make the NDIS sustainable, you need a management structure that is designed to ensure that good decisions are made. We don’t have that now, and this needs to change. The NDIS has a strange and unwieldy governance structure, bequeathed by the Gillard government, that involves both the federal government and the states. Any significant change to the NDIS needs to be agreed by all governments.
This would be hard enough if the federal government and the states made equal investments into the NDIS. But the federal government and the states actually have very different financial exposure to the NDIS, so they have very different incentives.
Apart from Western Australia, all states have caps on how much their NDIS contribution can grow, following on from a Productivity Commission recommendation in 2017. The federal government has no cap at all. So if you are a state minister you don’t have much incentive to minimise cost growth in the NDIS because you aren’t liable for any increase above your capped amount. For example, in 2020-21 NSW’s contribution to the NDIS rose by 4 per cent, while the federal government’s contribution rose by 82 per cent.
For state ministers, one of the surest ways to get a headline is by standing up to big, bad Canberra. The structure of NDIS funding reinforces that dynamic. States can speak out strongly in favour of further NDIS investment, secure in the knowledge that it won’t actually affect them.
The rate of growth of NDIS spending has to be addressed. There are only two ways to do that: reducing the rate of growth of new participants being added, and/or reducing the rate of growth of the costs per participant. There are things you can do to reduce abuse of the system, and efforts to do that should be supported. But, overwhelmingly, the cost drivers are increases in the number of people in the scheme and increases in the average cost per person.
The growth in NDIS spending is a profound structural issue for the country. It must be talked about and resolved. If we don’t address it, the consequences will be felt by all Australians.
David Coleman is the federal member for Banks.