NDIS to cost $100b, exceeding the pension: budget watchdog

Michael ReadEconomics correspondent

Jun 28, 2024 – 5.00am

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The National Disability Insurance Scheme is on track to overtake the age pension as the most expensive area of government spending within three years if it remains stuck on its current growth trajectory.

Even if Labor successfully reins in the rapidly growing $42 billion social program, it will still overtake the pension in terms of cost within a decade, according to projections by the independent budget watchdog, published on Thursday.

Bill Shorten launched an NDIS cost tracker in Parliament House on Thursday. Alex Ellinghausen

Labor’s attempts to cut the annual growth rate of the NDIS to 8 per cent from 20 per cent hit a roadblock this week, after the Coalition and Greens teamed up in the Senate to send the government’s overhaul legislation back to a second public hearing process.

Disability Minister Bill Shorten said the eight-week delay amounted to $1.1 billion of taxpayers’ money, describing it as a pointless exercise given the Senate had already heard from all relevant stakeholders and the Coalition was going to support the legislation anyway.

“Why are we going to do a circle jerk-around stuff which has already been established and provided,” he told reporters on Thursday, as he launched a website counting the cost of the delay down to the second.

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“This legislation will get through … We’re just wasting valuable money that could be going to participants and improving the scheme on just stupidity.”

While the $42 billion NDIS is just a decade old, it already costs more to run per year than the aged care system ($36 billion), Medicare ($32 billion), federal government funding for hospitals ($30 billion) and the pharmaceutical benefits scheme ($20 billion).

Analysis of the Parliamentary Budget Office’s updated build-your-own budget tool by The Australian Financial Review finds the watchdog’s baseline expectation is for the rapidly growing scheme to overtake the age pension in 2034-35, when both programs are expected to cost about $100 billion a year to operate.

About 2.6 million over-65s receive the age pension, while 650,000 people are NDIS participants.

The PBO’s baseline projection is effectively a best-case scenario, and assumes Mr Shorten achieves his target of reducing the NDIS’ annual growth rate from 20 per cent to 8 per cent by 2026.

But even these projections may be too optimistic, given the NDIS has outgrown Treasury’s forecasts for several years.

The cost of the scheme could exceed the age pension as soon as 2027 if it continues to grow at 20 per cent a year, as has been the case for the past three years.

Under the PBO’s high-growth scenario, which envisages the NDIS budget expanding at 10 per cent per year from 2026 instead of 8 per cent, the NDIS would overtake the age pension in 2030-31 at an annual running cost of about $82 billion.

Asked about the modelling, Mr Shorten said he was committed to the 8 per cent growth target despite the fact the Coalition and the Greens were “sabotaging” his legislation.

“If we can get to 8 per cent, that’s a very good start. I’m confident that when the scheme is working in the best interest of participants, some of the bloating will disappear, but it’ll be an even better experience,” he told the Financial Review.

Mr Shorten’s legislation aims to bring NDIS growth down to 8 per cent a year from 20 per cent in part by ending the practice of automatically topping up NDIS participant plans when they hit their limit. Mr Shorten said two-thirds of top-ups were not for legitimate reasons.

Hard decisions needed

Runaway growth in spending on the NDIS, higher debt-servicing costs and a decline in fuel excise due to the uptake of electric vehicles mean future governments will be increasingly reliant on taxing workers’ incomes to pay for spending, the PBO warned in its annual Beyond the Budget report.

“As bracket creep has been operating as a primary mechanism for budget repair, future governments may not be able to provide personal income tax cuts as regularly as in the past,” the PBO said.

It projects the average personal income tax rate, currently 25 per cent, to hit a record of 28.2 per cent by 2035 as bracket creep more than offsets the gains from the stage three tax cuts, which kick in on Monday.

The forecasts underscore the structural challenges facing the federal budget, which the PBO warned will remain in deficit in headline terms for at least the next decade amid a surge in so-called “off budget” spending on programs including Snowy Hydro, the NBN and housing.

“If future government decisions simply mirror those made over recent decades, particularly in infrastructure spending, other grants and government operational costs, future spending will be higher than forecast in the budget,” the watchdog warned.

Outside the NDIS, the fastest-growing expense over the next decade will be debt interest payments, which are projected to increase to 1.3 per cent of gross domestic product by 2034-35, up from 0.9 per cent.

While revenue as a share of GDP is expected to increase over the coming decade, the tax base will narrow. The PBO estimates tobacco excise revenue will fall to 0.2 per cent of GDP in a decade from 0.4 per cent as more people quit smoking. The fuel excise will fall to 0.9 per cent of GDP from 1 per cent as more people buy EVs.

Even though the underlying cash balance is projected to eke out a surplus in a decade, the PBO said it expects the budget to stay in the red in headline terms due to the “off budget” spending. Off budget spending is not included in the underlying cash balance, but it is included in the headline cash balance.

NDIS overhaul in the works

The PBO expects the headline deficit to be $81 billion worse than the underlying deficit over the four-year forward estimates alone, due to additional investments in Snowy Hydro and concessional finance for housing projects.

Aside from ending automatic plan top-ups, Labor also plans to claw back savings from the NDIS by taking a more holistic approach to assessing participants’ needs, rather than the current item-by-item method of planning assessment.

Among the major drivers of the NDIS’ rapid growth has been a surge in enrolments from children with autism and developmental delay.

About 12 per cent of boys and 6 per cent of girls aged between five- and seven-years-old are on the NDIS, according to the National Disability Insurance Agency.

Last year’s NDIS review recommended a new system of “foundational” supports for people whose disabilities were not severe enough to qualify for a radically revamped NDIS.

This includes people with mild forms of autism and developmental delay, who will no longer gain automatic access to the scheme when “access lists” of eligible medical diagnoses are axed within five years.

Rampant fraud has been another cost driver of the NDIS.

NDIS integrity chief John Dardo told a Senate committee earlier this month that internal analysis showed 90 per cent of plan managers that wrangled funding for up to 100 participants portrayed “significant indicators of fraud”.

NDIS review chairs Bruce Bonyhady and Lisa Paul said real-time claims for services would make it easier for participants to pay for services and monitor their budgets, while also making it harder for providers to commit fraud.

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