The Coalition’s conditional support for the Labor proposed National Disability Insurance Scheme (NDIS) has sparked media frenzy and has dominated domestic news headlines this past week due to the wide and deep affects this will have on the community at large. The scheme, funded in part by revenue raised through an increase in the Medicare levy, represents a tax hike of 0.5% to the average taxpayer. However, for the 410,000 Australians and their families suffering from a congenital or acquired permanent disability, the NDIS embodies the much-needed lifeline that will assist in alleviating the financial burden imposed by their disability.

The NDIS will change the way the government assesses disability funding through providing long-term support, financial or otherwise, to those affected with a communication, mobility, self-care or self-management impairing disability. An important distinction to be made is that this scheme is not a welfare program, rather, an insurance scheme designed to help with the expensive medical costs incurred by those with a disability. In addition to assisting with the financial burden placed upon individuals and families suffering from the disability, it will provide referral services and community support to ensure that they can live a full and meaningful life.

The NDIS will change the way the government looks at its disability assistance programs and improve the quality of life of those affected by disability through four key areas:

1. Individualised, long-term funding. No two disabilities are exactly alike and therefore, the funding required for each case is unique as well. As their disability and needs change, so will the funding and support provided.
2. Allowing individuals to have the choice and control over when, where, and how they will receive their support.
3. Assistance of individuals to live a full, meaningful life and to become a contributing member of society.
4. Investment in remedial, preventative, and early intervention resources.

Despite having voiced his support for the NDIS, Abbot has stated several conditions he would like met. He wants exact details and a breakdown of how to NDIS will be funded, as well as specifics regarding who would be eligible for the scheme and who would not. However, both parties have plans to expedite the passing of the bill in order to provide ‘security and assurance’ to the ‘millions of vulnerable Australians.’

The annual $AUD8 billion cost for the program will be partially funded through a combination of revenue raised through a 0.5% increase of the Medicare levy to 2% and state government spending. The levy increase of 0.5% represents a tax hike for Australians earning above the tax-free threshold, with the nominal levied amount increasing incrementally with one’s taxable salary. This levy seeks to rise $AUD3.3 billion in the 2014-15 fiscal year, with the aggregate total of the revenue received estimated to hit $AUD20.4 billion by the time in scheme comes into place in 2018-19.

This levy will place financial pressure on Australians across the board. Estimates suggest that for the average household earning approximately $70,000 annually, this 0.5% increase will equate to a reduction of disposable income (personal income less current taxes) of $350, with this figure rising to $500 for a household earning $100,000, and a reduction of $1,000 for households earning $200,000. These figures are definitely not negligible, with many households set to feel this stronger pinch during a trailing economic period for not only Australia but for the rest of the global economy. It can be seen that unlike the GST, a regressive tax, that the financial burden of this 0.5% increase will not be homogenous. The top 10% of households will be paying over $1,000 annually while the bottom 40% earning below the levy threshold will essentially pay nothing. Bear in mind that this levy will only raise 40% of the costs needed to fund the scheme, with the remainder being funded by state government spending. The Victorian premier, Denis Napthine, has supported the proposal. This will cost the Victorian government $AUD2.3 billion annually.

The social impacts, something difficult to quantify in a purely economic cost vs. benefit relationship is evident. There is no doubt that this audacious and empathetic move by the Gillard government has a myriad of benefits for hundreds of thousands of Australians at present, and the many more who will suffer from a disability in the future. It allows a quadriplegic the opportunity to financial and social support needed to study, go to University or perhaps job or the provision of funds to an individual in desperate need of a newer, larger wheelchair that their family would have perhaps not been able to afford. Such social benefits are extremely hard to quantify. The scheme attempts to give those living with a disability the economic and social opportunities they would perhaps not have had otherwise and allows them to perhaps become a tax-paying, contributing member of society.

While the social benefits are far-reaching, there are drawbacks – economic or otherwise – associated with the NDIS. The Gillard government pulled the levy hike to fund the NDIS off the discussion table late last year however, retracted that stance and resorted to the use of the levy hike to partially fund the scheme. The question now is, will there be further levy increases to fund policies in the future? In a time of economic uncertainty in Australia, due to China’s slowed growth and a high Australian dollar making our international exports less attractive, the uncertainty about further tax increases could reduce consumer sentiment. Peter Costello, former Liberal treasurer, advises to defer the 1^st July 2014 start date of the NDIS to when the economy is in a better shape. Joe Hockey, the current shadow treasurer, shares Costello’s concern and states that he does not see this as the ‘right solution in this environment.’ Also, as aforementioned, further resources will need to be allocated to the scheme by state governments – perhaps resulting funding cuts of other crucial outlays and programs.

For Australian households and consumers, the economic effects felt by the passing of the NDIS proposal will be widespread and economically negative. The fall in disposable income will result in a decrease in consumer demand for goods and services. Economists and tax specialists have warned that RBA may have to cut interest rates to offset the impact the fall in aggregate demand caused by the NDIS will cause. Chief economist of AMP, Shane Oliver, warns that the reduction in household spending could jeopardise our attempt to offset the slowing mining boom. Overall, households that will not receive funding under the NDIS will be worse off position financially. However, in a tweet by Wayne Swan, ‘the same person earning $70k will still pay $938 in income tax each yr than they were in 07 due to [Labor’s] tax cuts’ [sic].

The reduced disposable income will have grave short-term effects for Australian businesses, especially retail businesses already bleeding post-GFC. Slowed exports coupled with the growing popularity of Australians purchasing goods online from international retailers have left retail businesses under immense strain. Myer’s chief executive, Bernie Brookes, stated at a conference on Wednesday (1/05/13) that the increase in the Medicare levy would ‘hurt sales’. Businesses across the board, especially ones specialising in non-essential upmarket goods such as Myer, will experience a reduction in sales in the short term due to the levy increase. However, looking away from the narrow scope of the bottom line of the business, many business leaders have embraced the NDIS as a step in the right direction for Australia’s social progress. Westpac CEO, Gail Kelly, and chief economist, Saul Eslake, of The Bank of America – Merrill Lynch Australia have both expressed their support of the scheme.

From the onset, this scheme was never going to bring quantifiable economic returns on par or exceeding the government and public’s investment. Rather, it was an investment into enhancing our social quality and the quality of life for those currently suffering from a permanent disability and those that will in the future. Therefore, if we rationalise the program merely from an economic perspective, it would seem illogical to push for such a bill to pass. However, the empathy and unity shown by the Australian political leaders who are willing to put aside their differences and work together to improve the livelihood of hundreds of thousands of disadvantaged Australians is truly a testament to the often overlooked underlying crux of the political establishment – to help the people of the nation.

References

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