The government is on track to rein in the growth of the runaway National Disability Insurance Scheme to 8 per cent a year earlier than expected, but the cost of the scheme will continue to rise as a proportion of GDP, and could still outstrip the age pension within a decade.
The latest Annual Financial Sustainability Report, produced by the NDIS actuary, says that a range of reforms implemented by the Albanese government will see the current growth rate of 12 per cent fall to 8 per cent next financial year, earlier than the July 1, 2026, target date set by national cabinet late last year.
When the NDIS was launched in 2013 the growth rate was envisioned to peak at 4 per cent. Now the actuary predicts the growth rate of the scheme will remain just below 8 per cent over the medium term. It remains one of the top five spending pressures on the budget, and is forecast to cost $92.7 billion by 2033-34.
Prime Minister Anthony Albanese has previously warned the NDIS was “on the brink” and getting it under control has been a priority budget challenge.
At the same time, the government has started to spend big on other social programs, including $1.4 billion on changes to childcare.
Mr Albanese announced on Wednesday that the government will scrap the work or study activity test that governs eligibility for childcare subsidies and will build 160 new centres in areas of need. The government is expected to make more substantial changes to childcare in the new year, phasing in a flat daily fee for care, regardless of income.
Increased government spending, including on social programs like the NDIS, childcare and aged care, has fuelled inflation and made it harder for the Reserve Bank to cut interest rates.
To rein in the growth of the NDIS, the government has reduced eligibility, introduced long-term care plans to prevent cost blowouts, curbed the number of services the NDIS pays for, and cracked down on fraud.
In nominal terms, which takes into account inflation, the actuary forecasts the cost of the NDIS will rise from $42 billion last financial year to $46.9 billion in 2024-25, and reach $58.4 billion by 2027-28, the end of the four-year budget period.
By 2033-34, the scheme is forecast to cost $92.7 billion, which is $7.7 billion lower than forecast a year ago. Over the same 10-year period, the scheme, as a proportion of GDP, will rise from 1.8 per cent to 2.1 per cent in 2033-34.
The NDIS was growing at 23 per cent when Labor came to power and the actuary predicts that rate to almost halve to 12 per cent this financial year, fall to 8.4 per cent in 2025-26 and then to 6.7 per cent in 2026-27. After that, the growth rate will remain between 7 per cent and 8 per cent.
“This proves the changes we are implementing to make the NDIS stronger are starting to take effect,” said NDIS Minister and co-architect of the scheme, Bill Shorten, who will retire from politics in the new year,
“We are getting better at managing plan growth through clarity around what NDIS funding can and cannot be used for and ensuring every NDIS dollar goes towards participant outcomes.”
However, the actuary cautions “significant uncertainty” surrounds its NDIS forecasts, given they depend on the successful implementation of the reforms and anti-fraud measures designed to curb the cost of the scheme.
One signature reform to the NDIS is removing the foundational supports for children with mild autism and early developmental challenges which have swamped the scheme and rendered it unsustainable.
National cabinet agreed these supports should instead be provided through schools, childcare centres and other government service settings under a new Commonwealth-state funded scheme that will be phased in.
“The design and scope of foundational supports to be provided by states and territories are yet to be agreed,” the actuary says. Mr Shorten said he was confident the deal with the states would happen.
A previous separate analysis by The Australian Financial Review showed the annual cost of the NDIS will reach $100 billion by 2034-35 and overtake the age pension.
The NDIS 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).
“In considering longer-term projections it is recommended users refer to expenses as a percentage of GDP rather than nominal dollar figures as these provide a more meaningful measure of scheme expenses,” the actuary says.
The NDIS reforms introduced by Mr Shorten include a new assessment of the needs of each participant, not their eligibility, and then providing them with a budget that will last them up to five years.
This is designed to eliminate plan inflation associated with the current practice of giving a participant a new plan every year, which is inevitably more expensive than the year before. Along with child participants, plan inflation is the biggest contributor to the cost blowouts of the NDIS.
Funding will be allocated on the basis of impairments that meet disability requirements, not by having a listed medical condition that guarantees entry to the scheme.
Supports eligible for NDIS funding have been clearly defined and there are new safeguards to stop the exploitation of participants and the scheme.
In a note released on Wednesday, Westpac forecast next week’s mid-year budget update will show a marginal improvement in the budget bottom line this financial year “before deteriorating from 2025-26 onwards, compared with the May budget”.
“We forecast an increase in new government borrowing to around 6.25 per cent of nominal GDP by 2026-27, in line with the levels of borrowing seen during and after the GFC,” Westpac senior economist Pat Bustamante said.
“Borrowing of this magnitude has previously been a response to a significant deterioration in the labour market and the threat of a protracted recession.
“While we expect the labour market to soften from here, the scale of that shift does not compare to those previous episodes.”
Editorial: This article contains many errors.
Australian data shows that there are very few if any NDIS participants with a primary disability of "mild autism". They have not swamped the NDIS as this article suggests.
New NDIS plans are for 12 months.
The statement that the NDIS has removed "foundational supports" is correct - the NDIS now denies autistic participants (and others) access to many essential supports that are not available or funded elsewhere ... thereby breaking Mr Shorten's original commitment that "no one would be worse off under the NDIS". People who are now denied essential supports under the NDIS that they had before the NDIS are worse off.