Opinion & Commentary

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Improving lives or just a welfare monster in the making?

Andrew Baker | The Australian | 15 November 2012
EVERYONE seems to be in favour of the National Disability Insurance Scheme and for good reason; it will improve the lives of hundreds of thousands of Australians with disability, their carers and families.

The scheme has been described as the biggest social reform in Australia since Medicare, yet it has gone without substantial public scrutiny because of its broad public and political support.

The scheme will not "be like" another Medicare. In budgetary terms, it is another Medicare. It will give many people with disability (but not all) the supports they need to live a full life, take advantage of educational and employment opportunities, and participate in the community. Early estimates placed the total cost of providing disability supports to 600,000 people through the scheme at about $11 billion a year.

More rigorous estimates from the Productivity Commission revised the total cost of providing supports to 411,000 people with disability at about $15bn a year.

However, these estimates are based on 2009-10 prices, population and costs, and do not take into account price inflation, general wage increases and population growth to 2018-19 when the scheme will be fully operational.

Another report, this time by the Australian Government Actuary, filled the gap left by the commission and found that in 2018-19 the cost of providing scheme-funded supports to about 441,000 people will start at $22bn (gross) and $10.5bn (net) every year.

That works out to be about $50,000 a person on average and assumes there are no cost blowouts during the development of the scheme.

However, neither the commission nor the actuary estimates adequately reflect the cost and population growth the scheme will experience once it is fully operational.

For example, increases in the pension age from July 2017 onwards will keep people on the scheme for longer and allow more people to receive funded supports. This will add thousands of people to the scheme - and, at an average cost of $50,000 a person, it will not come cheap.

Combined with normal population growth and growth from other areas, the scheme will grow rapidly from the actuary's estimate of 441,000 funded people with disability in 2018-19 to about 500,000 by 2023-24.

Population growth will drive expenditure growth. Nominal expenditure growth in the scheme will be about 6 per cent every year from 2018-19 onwards if we take similar schemes as examples. Expenditure on Medicare services has grown rapidly since the mid-1980s and New Zealand's Accident Compensation Corp has suffered huge cost blowouts.

At this rate, taxpayers will be paying about $29.5bn every year by 2023-24 to provide disability care and support to 500,000 people through the scheme. To top it off, the government will need more than 8000 local area co-ordinators to administer the scheme at a cost of about $2bn every year, in addition to the Canberra-based bureaucracy that will also be charged with administering the scheme.

And this is the case if everything goes to plan - and there is no cost blowout, "scope creep", mismanagement, incompetence or inefficiency.

There is a real danger the scheme could be even bigger and more expensive than we imagine.

Political pressure is being applied to expand the scheme to those who will not be included. About 500,000 people on the disability services pension will not be eligible for the scheme. Another 600,000 people aged 65 and older with a severe or profound disability will miss out on funded supports as well because the scheme is rightly targeted at those who are of working age or younger.

Together, these groups represent more than one million voters with a vested interest in having the size and scope of the scheme blow out so it can provide services and support to them as well.

Costs are already starting to blow out. The draft eligibility criteria for the scheme have expanded to lock in funding for early intervention therapies and the scheme will provide supports for those with a "psychosocial disability". It is not clear what impact these decisions will have on the cost of the scheme in the future.

And we still don't know how we are going to pay for it. The options are more debt, more taxes or more spending cuts.

More debt is neither financially sustainable nor politically feasible. And Australia's three tiers of government already collect more than $500bn in revenue so they have plenty of money to pay for the scheme and should not need another new tax. So, the answer must be cuts to existing government programs.

At an initial price tag of $22bn a year, the NDIS will be a monster of a government program - the new leviathan of the Australian welfare state. But we should see the scheme not just as a monster but as an opportunity to reprioritise government spending to those who need the most help.

Andrew Baker is a policy analyst at The Centre for Independent Studies. His report The New Leviathan: A National Disability Insurance Scheme was released by the CIS today.