The Government has announced that it will not proceed with its proposed 0.5 percentage point increase to the Medicare levy. The increase in the levy was to have raised $8 billion over four years and to be used in part to assist with funding the National Disability Insurance Scheme (NDIS). The Bill to introduce the increase was opposed by Labor, which said it would only support it for people earning over $87,000 per year. This FlagPost looks at the implications of the decision not to proceed with the Medicare levy increase for the funding of the NDIS.

Funding controversies

The Treasurer, Scott Morrison, has argued that the Medicare levy increase is no longer required due to an improved budget situation, including higher than expected tax receipts. He said that ‘the goal was not to increase taxes, the goal was to fully fund the NDIS’.

Guaranteed future funding for disability services was part of the rationale for the NDIS. The Productivity Commission noted in its 2011 report on disability care that ‘current funding for disability is subject to the vagaries of governments’ budget cycles’, and proposed several options for entrenching a stable revenue stream. Various disability and social sector organisations have expressed disappointment at the decision not to proceed with the increased Medicare levy, arguing that it will lead to long-term funding uncertainty for the NDIS. According to Therese Sands of People with Disability Australia, ‘we are back to the uncertainty around the NDIS, and fighting for funding at every budget’.

Debate over funding of the NDIS has been contentious and arguably has overshadowed other important issues relating to the introduction of the scheme. Labor has maintained that it ‘fully funded’ the NDIS in the 2013–14 Budget. However, this has been challenged by the current Government. For example, the former Minister for Social Services, Christian Porter, argued that ‘the previous Labor government failed to fully-fund the NDIS, leaving a substantial funding gap of $3.8 billion for when the scheme is fully operational from 2020’.

Would the NDIS have been ‘fully funded’?

The NDIS is funded through a complex set of arrangements established in intergovernmental agreements. Funding comes from redirected existing Australian and state and territory government funding for disability services and an earlier increase in the Medicare levy, with the rest funded from Australian Government revenue, savings or borrowings.

According to the 2017-18 budget papers (pp. 3-9), funding from the Medicare levy increase was intended to cover the gap identified between the sources of funding set out in the agreements and the remaining amount the Australian Government is obliged to provide (a $3.8 billion shortfall in 2019–20). One-fifth of the revenue raised from the increased levy was to have been credited to the NDIS Savings Fund, a special account (as yet unlegislated) from which funds were to have been debited to help fund the NDIS from July 2019. Savings from other budget measures were also intended to be directed to this special account to help meet the cost of the NDIS. For further details, see this Parliamentary Library Budget Review article.

On introducing the legislation to increase the Medicare levy, Mr Morrison said that ‘now is the time to fully fund the NDIS once and for all, and, with this Bill, we will finally achieve that objective’.

The Parliamentary Library Bills Digest noted, though, that ‘given revenue from the Medicare levy is not intended to meet the full cost of the NDIS, it may not provide the stable revenue stream originally envisaged by the [Productivity Commission]’.

Why full funding?

The Bills Digest made the further point that the idea of ‘fully funding’ a program like the NDIS is unusual, noting that the ‘ongoing costs of the Age Pension, for example, are funded directly from the consolidated revenue fund as part of the ongoing costs of the Government’s core business’.

While the idea of using an increase in the Medicare levy received widespread support among social services organisations, some argued that the idea that special arrangements were required to ensure that the NDIS was ‘fully funded’ suggested that it was a peripheral area of Government expenditure. In their joint submission to the Senate inquiry into the bill to increase the Medicare levy, Children and Young People with Disability Australia (CYDA) and Young People in Nursing Homes National Alliance (YPINHNA) said that:

Because the NDIS will support the realisation of Australia’s human rights obligations and provide essential services and supports for people with disability, CYDA and YPINHNA believe it is critical to recognise the Scheme as a core area of government spending.

Further, YPINHNA argued in their submission to the Senate inquiry into the NDIS Savings Fund Bill that:

… if the NDIS was a core function of government, there would be no ‘shortfalls’ as they are conceived in this Bill [the National Disability Insurance Scheme Savings Fund Special Account Bill 2016]. Core functions of government do not have ‘accounts’ to ensure their survival and obligations … nor should the NDIS.

Risks remain

As noted above, the arrangements for funding the NDIS are complex. They are also different to the two main approaches recommended by the Productivity Commission when it originally proposed the scheme: that the Commonwealth should finance the entire costs of the scheme from general revenue, or a levy ‘hypothecated to the full revenue needs of the NDIS’.

As the Parliamentary Library noted previously, the reliance on multiple sources under current arrangements creates ‘some risk of future instability of financing’ for the NDIS. Future debates about the funding of the NDIS may come to focus more on this structural issue.