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ESSA

Labor’s National Disability Insurance Scheme (NDIS)


Aziel Goh

By

May 5th, 2013


Labor’s proposed National Disability Insurance Scheme seems to be an investment that brings a variety of returns that may not necessarily be quantifiable.


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 1st 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

  1. Department of Families, Housing, Community Services & Indigenous Affairs 2013, ‘National Disability Insurance Scheme’, accessed 3 May 2013
  2. Jones, G 2013, ‘Medicare levy hike could push RBA rates cut,’ News Limited Network, 2 May, accessed 3 May 2013
  3. Scarr, L 2013, ‘Julia Gillard says she will legislate the National Disability Insurance Scheme before the Federal election,’ News Limited Network, 2 May, accessed 3 May 2013
  4. Osborne, P 2013, ‘Coalition backs Medicare levy rise,’ AAP, 2 May, accessed 3 May 2013
  5. AAP 2013, ‘Medicare levy laws set for budget week,’ AAP, 2 May, accessed 3 May 2013
  6. Robins, B 2013, ‘Medicare levy will hit Myer sales, says CEO,’ The Age, 2 May, accessed 3 May 2013
  7. Wicks, K 2013, ‘Hijacking the NDIS,’ The Age, 2 May, accessed 3 May 2013
  8. Barnes, T 2013, ‘Lazy and lacking: NDIS levy will starve the scheme,’ The Age, 2 May, accessed 3 May 2013
  9. Marszalek, J 2013, ‘Medicare levy hike to fund NDIS would cost less than a coffee a day,’ News Limited Network, 2 May, accessed 3 May 2013
  10. Harrison, D & Swan, J & Willingham, R 2013, ‘PM’s challenge to Abbott on disability scheme,’ The Age, 1 May, accessed 3 May 2013
  11. Kenny, M 2013, ‘Labor to lock levy rise,’ The Age, 1 May, accessed 3 May 2013
  12. Peatling, S 2013, ‘Anger subsides as leaders reach NDIS compromise,’ The Age, 2 May, accessed 3 May 2013
  13. Holland, A 2013, ‘Myer slammed over disability levy comment,’ The Age, 2 May, accessed 3 May 2013
  14. Gridneff, I 2013, ‘Myer in social media storm over NDIS comments,’ The Age, 2 May, accessed 3 May 2013
  15. Davy, M & Harrison, D 2013, ‘Gaping Holes in Medicare safety net,’ The Age, 29 April, accessed 3 May 2013
  16. Packham, B 2013, ‘Brawl looms over detail of NDIS plan, as Julia Gillard aims to legislate before election,’ The Australian, 2 May, accessed 3 May 2013
  17. AAP 2013, ‘Govt to deliver on schools, NDIS in budget,’ The Australian, 28 April, accessed 3 May 2013
  18. Karvales, P 2013, ‘Medicare lift delivers $1000 hit to wealthy,’ The Australian, 2 May, accessed 3 May 2013
  19. Young, S 2013, ‘$300 for Julia Gillard’s NDIS scheme? Please, my wheelchair costs $22,000,’ news.com.au, 30 April, accessed 3 May 2013
  20. Ryan, P 2013, ‘Westpac backs National Disability Insurance Scheme,’ ABC News, 3 May, accessed 3 May 2013

The views expressed within this article are those of the author and do not represent the views of the ESSA Committee or the Society's sponsors. Use of any content from this article should clearly attribute the work to the author and not to ESSA or its sponsors.

  • Lachlan Walden

    Hey Aziel,

    This is certainly a very well-written article that comprehensively outlines and analyses basically all of the recent developments pertaining to the introduction of the NDIS. However, I disagree with you on two of your points of analysis.

    Firstly, the effects of the 0.5% Medicare levy increase are not likely to be “deep”. Within the context of existing personal income taxation levels (currently peaking at 46.5%), this increase is undeniably insignificant even when examined at a marginal level. Additionally, as you state, the Medicare levy is not regressive. This means that those who are sensitive at the margin to taxation increases bear very little impact from an increase such as this.

    Secondly, the scheme WILL actually “bring quantifiable economic returns on par or exceeding the government and public’s investment”. The NDIS has been thoroughly examined by the Productivity Commission (see: http://www.pc.gov.au/projects/inquiry/disability-support/report). They explicitly state: “The benefits of the scheme would significantly outweigh the costs. People would know that, if they or a member of their family acquired a significant disability, there would be a properly financed, comprehensive, cohesive system to support them. The NDIS would only have to produce an annual gain of $3800 per participant to meet a cost-benefit test. Given the scope of the benefits, that test would be passed easily.”

    Lachlan.

    • Aziel Goh

      Hey Lachlan,

      I really appreciate the feedback, and yes, a change will have to be made regarding the economic returns of the NDIS. Thank you for bringing that to my attention!

      In regards to the significance of the 0.5% Medicare levy increase, while not significant from an accounting stand point (materially insignificant if it is less than 5%), I do not believe that figure is ‘undeniably insignificant’ for a household.

      A household with a total income of $70,000 is extraordinarily middle class and I do not doubt that given the necessary expenses for a family living in Melbourne, the world’s fourth most expensive city to live in, $350 is no negligible amount – especially if this is a household with one or more dependents.

      Indeed a top tax rate already peaking at 46.5% is extraordinarily high. In a time when Australia is attempting to offset our rapidly approaching predicted resources boom peak, boost our sluggish retail sector growth, and keep our non-mining exports internationally competitive in bleak global economic conditions (in combination with the high Australian dollar), I do believe that a 0.5% increase is a significant amount not only for Australian households having less disposable income in the form of a tax hike, but for the Australian economy on the whole.

      Kind Regards,

      Aziel Goh

  • Hannah Lipshut

    To be host I think that the 0.5% increase in the MLS is fairly insignificant, and lets face it – where else is the money going to come from?
    I also think that whilst the productivity commission provides an emtremely comprehensive report, it is really too difficult to try to quantify the long term benefits of the NDIS in advance of the policy, and thus makes it difficult to make any firm comment about its cost effectiveness.

    One further element I would like to bring to the discussion, is how the NDIS is likely to affect the disability services industry. The move from block funding to portable funding means that service providers will effectively be in competition with each other. This will mean that instead of running as not for profits, oganisations will need to run for sustainability – to ensure that their profit from today covers their costs for tomorrow. Whilst yes this will lead to efficiency (good!), this may lead to service providers cutting corners and compromising quality of care to reduce costs – something worth thinking about.

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