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Increasing income tax the right choice for a sustainable NDIS

While an income tax increase may be hard to sell to some people in the community in the lead-up to a federal election, it’s the right choice for a sustainable National Disability Insurance Scheme (NDIS…

Certainty of funding is important and that’s why an income tax levy or premium is the way to go. Image from shutterstock.com

While an income tax increase may be hard to sell to some people in the community in the lead-up to a federal election, it’s the right choice for a sustainable National Disability Insurance Scheme (NDIS).

From July 1 next year, the Medicare levy will increase by 0.5% to partly fund the NDIS, taking the Medicare levy to 2% and adding an extra $1 per day to the Medicare levy of an average worker on A$70,000.

But the move is a risk for the Gillard government because it gives the Coalition, if elected in September, the power to delay or veto the scheme.

Politics of the NDIS

Revised estimates suggesting a higher-than-expected budget deficit seem to have precipitated today’s announcement. The government has deflected discussion about the budget deficit to focus on funding of this landmark reform, which has broad community support.

This leaves the opposition in the confusing position of supporting the reform, but arguing against its implementation. With a definite funding proposal, the opposition now has to be clearer about whether it will actually support the scheme. The prime minister has issued a challenge along these lines, saying she will bring the legislation in before the election if the opposition will support it.

If the legislation is delayed, the NDIS becomes an election issue. And if the opposition gains power, Joe Hockey will be able claim a mandate for not going ahead with the scheme.

In times of budget surpluses the argument for disability support reform was often couched (unsuccessfully) in the terms that “times are good, we can afford it”. This has always been a problematic argument, as it implies that supporting people with disabilities to have choices and fully engage in their community is a luxury, not a right.

The opposition’s arguments put the NDIS back into the “luxury” basket, with the very real risk that this opportunity for meaningful and landmark reform may be lost.

Other options to fund the NDIS

The Productivity Commission’s 2011 report Disability care and support outlined a number of options to fund the NDIS.

One option was a hypothecated tax (a tax for which the proceeds are earmarked for a particular program); this was seen as an acceptable option, but not recommended on the grounds that a fully hypothecated tax could lack flexibility.

The Medicare levy is a type of hypothecated tax, but one that does not raise sufficient revenue to fully fund health care. Increasing it by 0.5% to 2% as proposed will not raise sufficient funds to fully fund the NDIS. The increase is expected to raise A$3 billion a year, which is just under 40% of the estimated A$8 billion a year cost of the NDIS.

Because this extra levy is not fully hypothecated, problems of inflexibility of funding use will not arise. However the Productivity Commission recommended against this on the grounds that increasing the Medicare levy could exacerbate any existing inefficiencies in the income tax system in the absence of other tax reforms.

The benefit of the Medicare levy is that it has broad support, as it makes the purpose of the revenue raising clear, and health care is valued. Likewise, an increase in the levy specifically to fund the NDIS could also have broad support.

An alternative option – and the one recommended by the Productivity Commission – would be directing general revenue into a (legislated) fund. This allows the option of partly (or fully) funding the NDIS through other tax reform, rather than just effectively increasing income tax.

Fight for state support

The NDIS trial is due to start in New South Wales, South Australia, Tasmania and Victoria in July, with the ACT joining a year later. The trial has been funded from consolidated revenue, with the states also contributing, after a lot of argy-bargy late last year. Western Australia and Queensland are still to sign up to the NDIS.

Under the proposed increase to the Medicare levy, Gillard has earmarked 25% of the funding pool to support states and territories to set up the scheme. This may be a political necessity, but it may dilute the advantages of a national scheme set up to ensure best practise and equitable and efficient access for all Australians. A fully national scheme will be more transparent, with corresponding incentives for good governance.

The inevitable political wrangling over which level of government should pay how much, and the likelihood that this would reduce the certainty of the scheme, was a key reason the Productivity Commission suggested that the Commonwealth should be responsible for full funding of the NDIS. This would make the scheme more secure, and funding more certain.

There is a long and sorry history in disability support of cost shifting and responsibility denial between the state and federal governments. So any joint funding and responsibility arrangements would need to be carefully legislated.

Social equity

Just under half (45%) of Australians with disabilities live in or near poverty, compared with an OECD average of 22%. So while the current debate is focused on the economic value of the NDIS, we can’t ignore the social justice and equity.

Australia also fares badly for unemployment outcomes, with just 31% of people with disabilities participating in the labour force, compared with 83% of the general population. Primary carers tend to work fewer hours than non carers, and have significantly higher rates of depressive illness.

This is a critical time for the NDIS, and public awareness and support will be crucial.

An additional levy on personal income tax, labelled as an insurance premium for the NDIS, sends a clear message about what the revenue is being raised for and that everyone is covered if need be. It spreads the costs and risks of disability. And it avoids the current situation where disproportionately high costs fall on a randomly selected group that happen to have a disability.

Join the conversation

15 Comments sorted by

  1. Colin MacGillivray

    Architect, retired, Sarawak

    The Medicare levy is already overspent by a factor of at least four times. It is just deceit to pretend that the increased contribution by income earners is anything other that extra income tax.
    The surplus is a myth and the deficit must be reduced. This means that any new government expenditure should be funded by current revenues. The only way to fund the NDIS is to cut something else. Lots of options - no more submarines, no more first home subsidies and cut the number of politicians for a start.

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    1. James Jenkin

      EFL Teacher Trainer

      In reply to Colin MacGillivray

      I agree Colin. The article offers only two options: raise taxes or abandon the NDIS. However. you could suggest some of the tax currently raised could fund the scheme.

      For example, Canberra has budgeted $131,656 million for social welfare this year. It's estimated 3 million people are below the poverty line. Divide up the social welfare budget and they should each be receiving $43,000. But clearly they're not. So where's the money going?

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    2. margaret m

      old lady

      In reply to Colin MacGillivray

      How about cutting negative gearing how about cutting the fuel subsidies to the big mining sector how about real tax reform. How about investing and once again taxpayers owning the income generating assets that the Liberal Country party had a fire sale on Telstra a great example still very profitable but we pay and no longer have the benefis of the profits which enabled us to have good services.

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    3. Colin MacGillivray

      Architect, retired, Sarawak

      In reply to margaret m

      When I was on (Rodney, now part of the Auckland) Council, an enlightened bureaucrat helped our discussion of capital expenditure on new road building. He "gave" us each 100 units and each councillor decided separately which roads to spend how much of the "cash" on.
      It would be worthwhile to ask the people of Australia the same question. Politics is about what to spend public money on. My guess is the Disability would be on the list and many other items of expenditure would not.

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    4. John Perry

      Teacher

      In reply to James Jenkin

      Gary Foley has asked the same thing about government money for Aboriginal programs - by his calculations, he says "I should have been a millionaire several times over by now!"

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  2. Robin Bell

    Research Academic Public Health, at University of Newcastle

    Like a lot of Australians I talk to, my worry isn't whether or not the NDIS gets implimented by Labor or Liberal governments. Both agree that it should happen, and sooner rather than later.
    I just don't trust the Labor government to actually use the money from the levi for the NDIS. Labor have no credibility at all. My understanding is that the levi will not cover the cost of the scheme. Gillard Swann and Wong arn't saying where the rest of the money is coming from. So when the levi falls short will there be another reasonable change of mind to match the new circumstances; i.e. we can't afford the NDIS in its current proposed form? Or another rise in tax (hike up the GST).
    I have heard that the levi will be collected from July 2014, but the scheme will not be implimented until 2018. Is this right?

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    1. margaret m

      old lady

      In reply to Robin Bell

      I dont trust the big business media they may have a conflict of interest. Globalisation part of requirements to sell off government income generating assets so big business could enjoy the profits not taxpayer.
      I think we need to hear more of what positives this hung parliament has done but we hear little or nothing who is framing the debate.
      The easy way the Liberal country party way is to govern do little or nothing and if any problems blame Labor or the unions or unemployed or single parents…

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    2. Emma Anderson

      Artist and Science Junkie

      In reply to margaret m

      "I believe that ALL Political PARTIES need to hear that the NDIS should go through no excuses services have been dismantled run down over the years enough is enough."

      Exactly and it should go through everywhere. Also the dismantling/running down of services and the often regional inequities of various social (and medical services) actually does contribute to the overall rate of acquired disability.

      So the NDIS should absolutely be there for all kinds of disability (congenital and acquired…

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    3. Judith Olney

      Ms

      In reply to Emma Anderson

      Getting rid of tax concessions for superannuation, for the already very wealthy, could be a huge saving, that would actually pay for the Gonski reforms, and the NDIS, without the need of any extra taxes. Gutless governments that govern for the wealthy will not do this however.

      Getting rid of the baby bonus would be another huge area of savings. People got along without this before it was brought in by the Howard government, (along with other profligate spending on middle, upper class and corporate…

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  3. margaret m

    old lady

    comment my Emma Anderson.
    In a perfect world refugees would be accepted but this is far from a perfect world. Unfortunately there is so much war and violence and so many people looking for a safe place to come. I think the community concern is government increasingly have less funds, Liberals want smaller governments less taxes and obvioulsy less services, another debate as to why. Many of those refugees are traumatised by war etc we cannot help our own people with chronic mental health issues…

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    1. Emma Anderson

      Artist and Science Junkie

      In reply to margaret m

      Correct me if I'm wrong but

      1. We don't get refugees from every country that's up shit creek. We get them from the general neighbourhood mostly, not next door exactly, but a few doors up and a couple of the houses in between are in strike so they're coming here.

      2. Some of the places where refugees are coming from are countries Australia, Australian businesses or indirectly Australian consumers have actually contributed to the problem. For example, any refugees coming here from Afghanistan…

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    2. Emma Anderson

      Artist and Science Junkie

      In reply to margaret m

      Sorry also I was going to say, as for the refugees being the people who can pay for plane tickets, boat rides etc, the fact is that we can't do much about that even if it's true.

      Or more specifically, we would need to change the reasons why people are refugees in the first place - ie the conditions of the home country - in order to change the socioeconomic inequality that means it is possibly more likely that a refugee with more money will be more likely to escape.

      On the other hand, it is…

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    3. margaret m

      old lady

      In reply to Emma Anderson

      Emma
      I hear all you are saying. I think but for the greed factor in all countries there is enough to go around food money whatever. The Myer CEO and his concerned for our discretionary spending money going to the NDIS and possilbe negative effecting his profit bottom line perfect example.

      When you are faced by fellow human beings needing a safe place to have a new begining it is no easy task to say no I would prefer as I said temporary protection and an education and skills training but…

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  4. Kim Bulwinkel
    Kim Bulwinkel is a Friend of The Conversation.

    Retired regional medical specialist

    Let's do some maths! 23 million people live in Australia. About 9 million actually pay income tax [12.5 million file tax returns but 3.5 million pay no tax]. The top earning 10% of tax payers [900,000 odd people] already pay nearly 45% of the tax revenue for the personal income tax take for the commonwealth. A percentage increase in the medicare levy raises most of its income from the top cohort of income earners in Australia. ........ Many will say that is only "fair".

    I ask the question…

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  5. Lexie Grace

    Resource Worker

    The National Disability Insurance Scheme was designed in the hope to help improve disability services and provide greater control and decision making to people with disability in Australia. As someone who has worked in the disability sector for many years I have seen how disempowered people can become when dealing with Government agencies and other bureaucracy. Hopefully the NDIS and the NDIA will be vastly different to the current Disability Services (both the Department and system) with access…

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