Julia Gillard’s deal rush left NDIS flawed

Two decisions by Julia Gillard in 2012 form the genesis of the $22bn NDIS’s current quagmire.

Former PM Julia Gillard. Picture: Julie Kiriacoudis

When the National Disability Insurance Scheme was a formless concept at the mercy of state governments, then prime minister Julia Gillard made two crucial decisions in acquiescence to a belligerent Victoria.

These decisions, made in 2012 and almost entirely uncosted, form the genesis of the $22 billion scheme’s current quagmire.

The Victorian government, then led by Liberal premier Ted Baillieu, demanded the headquarters of the scheme be based in long-suffering Geelong, south­west of Melbourne. His wish was granted.

The second demand centred on the definition used to allow some vulnerable children into the scheme.

Victoria wanted to keep its definition of “developmental delay” for children, which is a broad-ranging concept that captures hundreds of thousands of children who miss a normal ­developmental milestone while growing up.

South Australia used a specific condition of “global developmental delay”, which is diagnosed by pediatricians when children fail to meet two or more developmental milestones in gross motor skills, speech, intellectual understanding and socialisation.

The difference in the two definitions, conservatively, is in the tens of thousands of children.

Despite warnings from the SA government that the scheme would be swamped, Victoria ­insisted that no children then ­receiving support would miss out and said it would not sign unless its demands were met. They were. In the words of one senior former Gillard staffer: “So we gave them Geelong and whatnot to get them across the line.”

The legislation was drafted so that “developmental delay” applied across the country and today the National Disability ­Insurance Agency, which runs the scheme, concedes it has had to deal with an influx of children well beyond what was originally forecast, adding to “cost pressures” in every age group under the age of 18.

The mess of the SA trial of the scheme, with at least 3000 new children qualifying for inclusion, is now a point of historic fact.

When the agency moved to Geelong, not a single member of the second-tier leadership team moved with it. The agency lost the three most senior members of its legal team.

The fledgling organisation ended up being staffed with ­“second-rate, retiring bureaucrats”, according to a senior federal public servant who worked directly on negotiations with state governments.

Mandarins in the then ­Department of Families, Housing, Community Services and Indigenous Affairs referred to them as “Dad’s Army”.

Before the “disastrous” move to Geelong, the public servant recalls the stress driven down from the prime minister’s office to “get the deal done” with the states on a rollout schedule.

“It was the most arduous, mind-bending process,” he says.

“They wanted the deal done. We were trying to negotiate with the states while my boss effectively was out there publicly saying she would deliver the NDIS, so we were working in a corner.”

The states knew this.

Not long after the NSW government signed up to the scheme — receiving bumper concessions for its expensive, large residential institutions — this senior public servant spoke with a counterpart in the NSW bureaucracy.

“The senior management were ecstatic. One of the bosses told his people ‘it’s not often you get such a golden goose’,” he recalls.

It was an Alan Bond moment for Kerry Packer all over again, only on a grander scale.

Not every premier was so quick to ink a deal. Former Queensland leader Campbell Newman tells The Australian he is “still angry” about the way Gillard used the scheme as a “political weapon”.

“She was reckless, cavalier and politically motivated. I didn’t approve of her cynical manipulations that made out we didn’t care. It was such an outrageous slur,” he says.

“All I ever wanted was for it to be properly planned and properly funded.”

It was Newman who first raised the idea of a tax to pay for the scheme, an idea Gillard originally rejected out of hand.

That was in July 2012 and all state leaders were at dinner at The Lodge when Newman raised it. There was agreement in the room.

“If she had have gone with it I would have walked out there the next day, stood beside her at a press conference and told her I backed the levy,” he says.

By April 2013, with an election approaching and a deal still not clinched on the NDIS, Gillard capitulated and introduced a hike of half a percentage point to the Medicare Levy to part-fund the scheme.

A source says the negotiations with the state governments lacked any sense of order or structure. The West Australian bureaucrats, who had no intention of signing up to the NDIS, yelled at their federal peers over teleconferences, texted Victorian bureaucrats during meetings and openly laughed during negotiations.

Still, the federal negotiators were told to get the deals done, even without Western Australia.

A former senior federal bureaucrat involved in striking the agreements noted that “everything was on the table” and issues that remained unresolved were deferred until during the trials.

“That’s what we did with every issue that remained unresolved,” he says.

States were given veto rights in the NDIS Act when it came to voting down rule changes which could control costs in the scheme.

Alarmingly, their costs were capped each year, they bore no risk of blowouts and were allowed to cash out their ­“in-kind” services.

This means, when the NDIA sends the states a bill for their share of the scheme, states can put their own value on the services they still deliver — say, group homes — and subtract it from the bill.

“I really think this is a problem the agency has now. It reduces the cash they have on hand to pay for things,” the former public servant says.

“The big work of modelling was done on the design of the scheme but almost none of the little things were costed — it might have been impossible to cost them, it might have been we had no time.

“How much did any of the concessions we made cost? We had no way of knowing. Now if any of these came as individual policy proposals to cabinet they would have had costings prepared but because they were nested within the NDIS itself it was never done.

“In a worst-case scenario, if 10 things really went pear-shaped, we’ve added $3bn to $5bn to the cost of the scheme. I think that is entirely conceivable.”

The bureaucrat says things were in such a state when the Coalition came to power they toyed with the idea of slowing down the rollout.

A plan was hatched in then assistant minister Mitch Fifield’s office to commission a review of the implementation of the scheme — one such review by KPMG was completed — and use recommendations from this review as a credible way of slowing progress.

But Tony Abbott, fresh from a Pollie Pedal ride raising money for carers of people with a disability, “didn’t want to take the heat”.

Phase two involved going to the board, led by Labor pick and co-architect Bruce Bonyhady. If they advised the rollout needed to be slowed down, that would provide the political cover needed to do just that.

“Bonyhady was in favour of it, the board knew what they had to do was impossible within the timetable they had been handed,” the public servant says.

“But when he got pushback from the disability community the board went to water and backed away.”

There is a view, now, that the time for considered delays is well and truly past.

“We were screwed with our pants on,” the bureaucrat says.

“What we are seeing now is the agency trying to push back after not taking the one opportunity they had to slow things down.

“That’s why we’re seeing cost-cutting with the reference packages. It all comes back to the negotiations.”

As the former Gillard associate says: “In these sorts of deals there is always a premium to be paid by the level of government that wants it the most.”

The original scope of the NDIS has now been fully funded but the battle to implement the vision is far from over.