How the NDIS will be funded was an election issue, with most political parties and many independents discussing it during their campaigns. The experience of the NDIS to date has seen a larger than estimated intake of people and escalating costs. This is of concern for the NDIS’s viability as the scheme’s costs are a major expense for the Australian Government.  

This article examines the cost of the NDIS to date, the projected cost, and proposals to help fund it. It focuses on the costs of ‘reasonable and necessary supports’, as they are the largest NDIS related expenditure. It does not examine the costs involved in administering the regulator, the NDIS Quality and Safeguards Commission, or the administering agency, the National Disability Insurance Agency (NDIA). 

What is the NDIS?

The NDIS is an uncapped, demand-driven scheme intended to support the independence and social and economic participation of people with disability. The scheme takes an insurance approach that focuses on reducing long-term costs by providing supports which build participants capacity; this may mean higher costs in the short-term to reduce costs over the participant’s lifetime. This contrasts with the previous systems which utilised annual block-funded programs where providers received funding to provide a fixed service to their clients.

The scheme was established in 2013 and became available to eligible Australians in all states and territories on 1 July 2020. The scheme is implemented through bilateral agreements between the Commonwealth and the states and territories. All jurisdictions have transitioned onto the NDIS except Western Australia which is due to complete its full transition to the NDIS by July 2023. 

The National Disability Insurance Scheme Act 2013 requires that any person or body that performs functions and exercise powers under this Act have regard to the need to ensure the financial sustainability of the NDIS when giving effect to the objects and principles of the Act (see subsections 3(3) and 4(17)). Financial sustainability is not clearly defined, but, according to the NDIA’s Insurance principles and financial sustainability manual, the NDIS could be considered sustainable provided both participants and financial contributors perceive the scheme as affordable, that costs are under control and supports are value for money, and that participants believe they are securing high quality supports to allow them reasonable access to life opportunities (p. 17–18).

The Australian Institute of Health and Welfare (AIHW) estimates that 1 in 6 people in Australia, about 4.4 million people, have a disability. To be eligible for support under the NDIS, a person must:

• have a permanent and significant impairment which reduces their functional capacity
• be aged from birth up to 65 when the access request was made
• reside in Australia, hold Australian citizenship, a permanent visa, or a special category visa holder.

As at 31 March 2022, the NDIS had 531,309 active participants (p. 127), or about 12.1% of the AIHW’s estimated population of people with a disability. This is about 120,000 more than estimated at full scheme in the Productivity Commission’s (PC) 2011 report Disability care and support (p. 2), and 46,000 more than the PC’s 2017 inquiry (p. 87) (410,000 and 475,000, respectively).

How is the NDIS currently funded?

Participant supports (also referred to as services for participants) are co-funded through a pooled approach by the Australian Government and state and territory governments.  

Commonwealth contributions to the NDIS are taken from the Consolidated Revenue Fund. To help meet the costs of the NDIS, the Medicare levy was increased from 1.5% to 2% of taxable income from 1 July 2014. The amount raised through the levy increase is directed to the DisabilityCare Australia Fund to reimburse governments for NDIS expenditure.  

State and territory contributions are capped and set out in bilateral agreements, which are all scheduled to end by December 2023 (see Table 1).

Table 1            Projected state and territory contributions to the NDIS*

* The amounts set out in Table 1 are taken from the most recent agreements and are not the total amounts contributed by the states and territories over the life of the scheme. Previous bilateral agreements can be found on the NDIA’s website.
** Western Australia’s contributions are subject to a complex set of conditions based on actual participant numbers and are divided into NDIA costs and participant costs. Western Australia is not due to reach full-scheme status until 2023.

Source: Bilateral Agreements between the Commonwealth of Australia and the states and territories on the National Disability Insurance Scheme, as follows: New South Wales, 2018; Victoria, 2019; Australian Capital Territory, 2019; Queensland, 2019: 1, 14; South Australia, 2018; Tasmania, 2018; Northern Territory, 2019.

How much does the NDIS cost?

The 2022–23 Portfolio Budget Statement (PBS) for Social Services estimated that expenditure on the NDIS for the 2021–22 financial year (including Australian Government and state and territory government contributions) was $29.3 billion (p. 124), making it the third largest program expense for that year (Budget paper no. 1, p. 144) if including agency costs (or fourth without). Table 2 presents the split of Commonwealth funding, and state and territory contributions over the forward estimates.

Table 2            Budget estimates for reasonable and necessary supports, 2021–22 to 2025–26

Note: ‘states and territories’ is the sum of ‘contributions from state and territory governments’ and ‘revenue from other independent sources' which relates to services provided in-kind to participants on behalf of state and territory governments. ‘Commonwealth’ is the sum of ‘payment from related entities’ and ‘expenses not requiring appropriation in the Budget year’.

Source: Australian Government, Portfolio Budget Statements 2022–23: Budget Related Paper No.1.12: Social Services Portfolio, 124.

The estimates presented in the PBS assume full package utilisation by participants. This means that actual payments tend to be materially lower than estimated costs as utilisation rates never reach 100%. Table 3 presents data from the latest NDIA quarterly report showing actual payments and committed supports up to the third quarter of 2021–22.

Table 3            NDIS committed supports, payments and plan utilisation to 31 March 2022

Note: the amount paid will differ from the amount committed or estimated by the NDIA. This is largely due to the cost of the NDIS in a given year being dependent upon participants utilising their care plans to their fullest extent. Utilisation can be influenced by a variety of factors.

Source: National Disability Insurance Agency (NDIA), NDIS Quarterly Report to disability ministers, 31 March 2022, (Canberra: NDIA, 2022): 205.

Although the NDIA’s quarterly reports do not present a breakdown of each jurisdiction’s contribution per year, the PC’s Report on Government Services (RoGS) began including a breakdown in 2021, using 2019–20 data. According to the 2022 RoGS, in 2020–21 the Australian Government contributed $12.9 billion to services for NDIS participants, compared with $7.2 billion in 2019–20. This was in addition to contributions by state and territory governments (see Figure 1).

Figure 1          Commonwealth, state and territory government contributions to the NDIS (2020–21 dollars)

Note: data is subject to several limitations, as outlined in notes attached to the original source.

Source: Productivity Commission (PC), Report on Government Services 2022: Services for people with disability (Canberra: PC, 2022), Table 15A.1.

Long-term projections

Long-term projections of the NDIS are fraught with difficulty due to the lack of certainty around new entrants into the scheme and estimating non-mortality exits- currently around 30% to 40% of the assumed rate (Taylor Fry, Review of NDIA actuarial forecast model and drivers of scheme costs: p. 26)- and limited longitudinal data on which to base cost assumptions. The early summary forms of the Annual Financial Sustainability Reports (AFSRs), as published in the NDIA’s annual reports, and PC reviews drew on data from the 2009 Survey of Disability, Ageing and Carers (SDAC) and data derived from the NDIS trial sites to project what a (theoretical) fully operational NDIS would cost. These earlier projections could not account for subsequent policy changes (for example, the inclusion of children with developmental delay) or unanticipated inflation shocks (for example, higher than expected remuneration orders), nor the lack of robust statistics about the size of the eligible population.

This has led to some questions being raised about the reliability of projections out to 2024–25 and 2029–30 as it appears that there are competing projections (p. 62). Table 4, drawn from the NDIA's 2020–21 annual report, compares NDIS projections based on different sources.

Table 4            Comparison of NDIS projections to 2029–30 (accrual basis)

Note: This table collates information from separate tables in the NDIA’s 2020–21 Annual report and includes the Interim Update’s projections to provide a comparison of estimates across different publications. The ‘Dec 2020 update’ is the interim update to the AFSR which updates the 2019–20 AFSR with data gathered in the period between 30 June 2020 and 31 December 2020.

*The 2017 PC costings reported here have been adjusted by the NDIA to allow for items not covered by the PC’s model. This adjustment includes an explicit allowance for 4 items which account for an additional $1.5 billion per annum.

Source: National Disability Insurance Agency (NDIA), Annual Report 2020–21, (Canberra: NDIA, 2021): 106–110.

The differences in each projection are due to different assumptions and the data availability at the time. The Taylor Fry Review of NDIA actuarial forecast model and drivers of scheme costs explored these issues and found that the assumptions underpinning the NDIA’s model were reasonable, though potentially underestimated the expected cost of the full scheme (pp. 46–50). Figure 2, reproduced from the Taylor Fry review, plots the different projections from the 2018–19 to 2020–21 AFSRs, the PC’s projections (both the original estimates and the adjusted figures), and actual payments as at 30 June 2021. Reasons for this cost escalation are discussed below.

Figure 2          Change in projected payments from different forecast models

Source: Taylor Fry, Review of NDIA actuarial forecast model and drivers of Scheme costs, report prepared for the Disability Ministers Forum, (Canberra: DSS, 2021): 46.

In addition to the PC’s and NDIA’s projections are the long-term projections in the 2021 Intergenerational Report (IGR) produced by the Treasury. The IGR projected that NDIS costs would likely plateau around 2029–30 at 1.4% of gross domestic product (GDP), remaining at about that level out to 2060–61 (see Figure 3). As Figure 3 shows, the Australian Government’s share of NDIS expenditure increases over this period. It should be noted the IGR does not consider changes to the states and territories’ contributions and takes the current rates (which will be renegotiated in 2023) as given.

The IGR’s projection of 1.4% of GDP by 2029–30 is less than the 2020–21 AFSR’s projection of 1.95% of GDP in that year (p. 54). The reason for the difference between the AFSR’s and the IGR’s projections is not entirely clear as the IGR does not explain whether the model used by Treasury is the same as employed by the NDIA.

Figure 3          Intergenerational report projections of NDIS expenditure as a proportion of GDP

Note: Total government spending includes spending by the Australian Government and state governments. The Australian Government contribution does not include payments made under the DisabilityCare Australia Fund or NDIA agency costs.

Source: Australian Government, 2021 Intergenerational Report: Australia over the Next 40 years, (Canberra: The Treasury, 2021), 108.

A helpful comparison of how much the NDIS is expected to cost the Australian Government as a proportion of GDP compared with other government programs is presented in Figure 4.

Figure 4          Government spending on the NDIS compared with other programs as a proportion of GDP

Source: Australian Government, 2021 Intergenerational Report: Australia over the Next 40 Years, (Canberra: The Treasury, 2021), 93.

Why are projections for the NDIS going up?

The Scheme Actuary, in the 2020–21 AFSR, gave several reasons for why the cost of the NDIS has exceeded earlier projections. These include:

• more participants joining the scheme than expected (pp. 5–6)
• the cost of participants’ plans being on average higher than previously forecast (pp. 9–10)
• fewer participants who receive early intervention support exiting the scheme than anticipated (p. 8). This is despite early intervention being intended to reduce the functional impact of a participant’s disability over their lifetime and reduce their need for ongoing NDIS support.

Other reasons may include:

• there being fewer services for people with disability provided by other levels of government than anticipated, a situation described by one of the architects of the scheme as the ‘NDIS cliff’, in which the NDIS provides considerable supports and state and territory disability services provide very few services (p. 7)
• increased awareness of the NDIS and the services it offers for populations who previously did not engage with disability systems, as well as increased awareness and diagnoses of some disabilities (for example, increased diagnoses of autism spectrum disorder).

However, advances in medical research and clinical care have seen increases in the life expectancy and improvements in the quality of life of many people living with different conditions. As a result, the level of support participants need over their lifetime may be reduced. Examples of advances include:

• reduced incidence and severity of cerebral palsy
• increased life expectancy and better quality of life for people with cystic fibrosis
• medication that can slow and in some cases halt the progression of spinal muscular atrophy (recently listed on the Pharmaceutical Benefits Scheme).

Examining the benefits of the NDIS

The roll-out of the NDIS has placed greater control and choice in the hands of people with disability. The NDIS now supports a larger cohort of people than would have been supported under previous systems (pp.131–34).

But it is less clear whether the NDIS has generated the system-wide benefits originally envisioned. In proposing an NDIS in 2011, the Productivity Commission argued that the benefits of the NDIS ‘would significantly outweigh the cost… The NDIS would only have to produce an annual gain of $3800 per participant to meet a cost-benefit test’ (p. 2). Benefits that the Productivity Commission envisaged included (p. 941):

• wellbeing gains to people with disabilities and their informal carers
• efficiency gains in the disability sector
• savings to other government services
• increased workforce participation for both people with disability and their informal carers.

The original proposal for a NDIS assumed that the scheme would eventually become close to budget neutral by 2050 (p. 788). This was predicated on offsets from other government programs, the introduction of a National Injury Insurance Scheme (which was to be implemented concurrently with the NDIS), efficiencies in the market for disability supports, and greater levels of employment for people with disability and their informal carers. There is yet to be an evaluation of whether the NDIS is yielding these wider benefits.

An impediment to evaluations, as the Productivity Commission pointed out in its 2017 inquiry into NDIS costs, is the long-term nature of most of the anticipated benefits (the 2017 review being conducted only 3 years after the first trial sites began). The Joint Standing Committee on the NDIS has also not conducted a wide-ranging evaluation to date, although it recently recommended that the Australian Government and disability ministers commission independent research into the benefits of the NDIS to the Australian economy. The Committee also recommended that the NDIA, the Scheme Actuary, and the NDIA Board review their methods and approaches of managing the financial sustainability of the scheme to ensure that ‘appropriate emphasis is placed on measuring the benefits of the scheme and promoting those benefits to the broader Australian community’ (p. 74).

In response to questions on notice from the committee, the NDIA has stated that an independent review of NDIS costs, which will include an examination of participant outcomes, is scheduled to be undertaken by the end of 2023. As such, the recent focus on the benefits of the NDIS, and how these relate to the costs of the scheme, will likely continue into the 47th Parliament.

Proposals to fund the NDIS into the future

As governments grapple with an NDIS forecast to cost far more than originally anticipated, it may be time to re-examine previous proposals put forward on how to source funding for the NDIS. These include:

• increasing the Medicare levy to 2.5%
• establishing an NDIS savings fund to meet the future demands of the scheme, using underspends and savings from social welfare payment expenditure
• establishing a pool of reserves as is typical of other insurance schemes. These schemes typically invest reserves in financial markets (see the Productivity Commission’s 2017 report on NDIS costs, pp. 460, 464–467)
• increasing the contribution of the states and territories proportionally.

Whether these options are revisited as part of the scheduled independent review of scheme costs in 2023 remains to be seen (p. 31). However, it should be noted that Labor has stated its intent to ‘review NDIS design, operation and sustainability’ and ‘use the existing budget in the forward estimates to fund … the NDIS’. 

Further reading

Elliott King, ‘National Disability Insurance Scheme Funding’, Budget Review 2021–22, Research paper, 2020–21, (Canberra: Parliamentary Library, 2021).

Rosalind Hewett, National Disability Insurance Scheme: a Quick Guide, Research paper series, 2021–22, (Canberra: Parliamentary Library, 2022).

Joint Standing Committee on the National Disability Insurance Scheme, Final Report: Current Scheme Implementation and Forecasting for the NDIS, (Canberra: Joint Standing Committee on the National Disability Insurance Scheme, 2022).

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