Up to 300,000 Australians to be cut from program in Labor overhaul to save $35 billion

Labor’s sweeping overhaul of the National Disability Insurance Scheme will recoup $35 billion in next month’s budget by removing up to 300,000 people from the scheme and cutting participants’ plan budgets over the next four years.

Health and Disability Minister Mark Butler, in a major speech on Wednesday, revealed that significant cuts to the $50 billion NDIS would effectively stall the scheme’s growth in real terms over the four-year forward estimates, saving federal coffers up to $150 billion in the coming decade.

Participants in the scheme will see changes as soon as July as the government seeks to reduce the frequency that plans are reassessed, stops rolling over unspent funds every year, and cuts budgets for social and community activities.

This will be the first stage in a dramatic overhaul that will rewrite the rules for NDIS eligibility for everyone on the scheme, hand the minister power over how prices are set, and change the rules for who can provide certain services.

Emphasising the urgency of reforms, Butler said his mission was to reset the NDIS by 2030 by curtailing its runaway costs, and return the scheme to its original purpose of serving disabled Australians with significant functional impairments so that it retained support in the future.

“We want to have an honest conversation with people about this,” Butler said.

But the extent of Labor’s plans, which deliver much deeper short-term cuts than most stakeholders expected, caused alarm among many in the disability community and prompted criticism from the Coalition and Greens, who accused Labor of using disabled Australians to improve its bottom line.

Most state governments said little before a government briefing on Wednesday night, but Queensland’s Liberal premier, David Crisafulli, was sceptical. “By all means, the federal government owes it to every taxpayer to make sure that … people rorting the system, that they’re dealt with,” he said. “But you can’t walk away from those who society has an obligation to look after.”

Coalition NDIS spokeswoman Melissa McIntosh said Butler had “dropped a complete bombshell” and caused mass anxiety among participants. “They feel this is a disaster awaiting them. Labor’s own baby is now broken,” she said.

The NDIS has become the federal government’s third-largest budget item as wide eligibility criteria and loose guardrails have led it to evolve beyond its original design. Broad state-based supports outside the scheme dried up, and it became the only option for thousands of disabled Australians.

This has meant that a scheme that was forecast in 2017 to service about 550,000 people by 2030 at a cost of $40 billion, is already serving 760,000 people and costing $50 billion. Crucially, the NDIS was still growing at 10 per cent a year in the latest quarter.

Butler wants to slash that growth rate to 2 per cent on average across the next four years – a figure below inflation – before lifting to 5 per cent again from 2030, in line with other social programs such as health.

In practice, the scheme’s growth rate will probably dip from 10 per cent to 4 per cent over the next year as the first raft of major changes flow through, and then hover closer to 1 per cent for the three years afterwards, as thousands of people are removed from the scheme from 2028 onwards.

Labor will make changes to eligibility, cuts to plans

Butler will introduce new laws in next month’s budget week to enable many of those changes, which will start coming into force from July this year but take years to fully implement.

He will act on a major recommendation from the 2023 NDIS review, which said eligibility to the NDIS should be determined by a functional assessment rather than a firm diagnosis list.

“I want to get away from the diagnosis list, the diagnosis gateway. We need to return the scheme back to a question of functional capacity. That’s what it was built on, the idea of people with significantly reduced functional capacity that impacts their day-to-day living needs,” Butler said.

“What it will mean, though, is that Australians with lower support needs or higher functional capacity, depending on your perspective, will be moved out of the scheme.”

The new assessment tool to determine NDIS eligibility will be designed over the next 18 months and rolled out from January 2028. Existing participants will then be gradually reassessed, and new applicants will be evaluated on the updated criteria.

This is expected to reduce the number of scheme participants to 600,000 – removing 160,000 people based on today’s figures, or up to 300,000 based on future projections.

The eligibility shift will probably capture many autistic participants who have lower support needs and qualified for the scheme through the diagnosis list, including thousands of children.

Young children would probably be moved to the Thriving Kids program while others would use “foundational supports” yet to be designed with the states. About $10 billion has been allocated to these services.

Butler will also cut back on funding allocated to people through the “social and community participation” category of supports, which range from helping people build social skills to support workers taking them to the movies.

It cost $12 billion this year, having tripled in five years. “While many support workers provide valuable supports, too many participants tell us their support workers are spending more time on their phones than engaging with them,” the minister said.

Butler said these budget cuts – to start this October and continue over the next two years – would reset people’s allocations to 2023 levels. “This will have a material impact on participant plans,” he said, some of which will be reduced by as much as 50 per cent.

Other structural changes will target the scheme’s integrity, such as expanding the requirements of providers to register, introducing a new digital payment system and starting work on a new pricing regime.

Butler will take control of NDIS pricing from the agency’s independent board, bolstering the government’s control over the scheme.

The government will also move towards a “commissioning approach” for certain sections of the scheme – supported independent living, plan management and support co-ordination – where it has greatest concerns about quality.

“Our government will identify a short list of accountable quality providers, which people can then choose from,” Butler said.

“What I have announced today … is a move away from the ‘let it rip’ market that I think has built up over the last 10 years, where there’s very little oversight or line of sight about the quality and the qualifications of providers of … taxpayer-funded services.”

Disability community shares anxiety

Disability groups reacted to the announcement with a mixture of shock and alarm.

Sarah Hayden, a social worker and Victorian mother of five, including two neurodivergent daughters, said the changes to the NDIS had sparked widespread fear and concern among families about what the overhaul will mean for them.

“Cutting support to participants is the most blunt and harmful tool … you are penalising the very people the system exists to support,” she said. However, she welcomed any changes that would improve regulation and accountability within the scheme, which has long been susceptible to fraud and misuse.

Dr George Taleporos, chair of Every Australian Counts, which fought for the introduction of the NDIS, said he was deeply concerned that people would lose access to the scheme before supports were in place.

“The government must listen to our concerns before any of these changes are made. The promise of the NDIS was that people with disability would have the support, choice and control to live ordinary lives in the community, and that promise must not be broken,” he said.

Children and Young People with Disability Australia chief executive Skye Kakoschke-Moore said reductions in community participation support were especially troubling.

“This doesn’t actually address the root cause of the issue, which is poor training or oversight of providers. We would much rather see focus placed on that rather than simply cutting the amount of funds available to a person with a disability,” she said.

With Shane Wright and Melissa Cunningham

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