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Federal

May 2, 2013

The strange politics, and sensible economics, of the NDIS levy

Labor is using revenue writedowns as justification for an unrelated tax increase -- but it's not actually a bad idea. From Canberra, Crikey's man on the strange politics of the NDIS.

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At first glance the government’s sudden conversion to an income tax levy to fund the NDIS is a shemozzle, a specialty of Labor’s.

This government has had two opportunities to embrace an NDIS levy. The first was after the Productivity Commission released its final report on disability services in 2011. The PC examined a levy closely and preferred NDIS funding to be sourced from elsewhere in the budget, but a levy was its fallback option, and it ended up focusing on the need to establish a specific fund for the NDIS, which under legislation the government would be required to maintain, either from savings elsewhere in the budget or from new taxes.

An even better opportunity came last year, when state and territory premiers and chief ministers, as one, told Prime Minister Julia Gillard they’d back her if she wanted to fund a NDIS with an income levy. Gillard, having seen what Opposition Leader Tony Abbott had managed to do with a carbon price, knocked them back.

Now, flying solo, she’s accepted a levy, saying she’d changed her mind.

What changed to change the Prime Ministerial mind? Not, surely, as she claimed yesterday, “the amount of tax money coming to the government is not what we expected”? The revelations of further tax revenue writedowns earlier this week has exactly zero to do with funding the NDIS, given it’s a budget problem in the here and now and the NDIS will be years in rolling out. There’s no reason why “structural savings” are no longer appropriate to pay for the NDIS. And in fact, the levy won’t be sufficient to pay for the additional funding eventually required by the NDIS. The revenue might be hypothecated to a specific purpose, but like the Medicare levy, won’t do the intended job fully.

Perhaps it was the politics of presenting the opposition with the stark choice of supporting the levy or having it become a key part of Labor’s re-election campaign, to the extent that anyone within the Coalition is worried about his or her own prospects in September. Abbott’s immediate reaction was an embarrassing media conference in which he refused to answer David Lipson’s repeated questions about whether he supported the levy. This morning he finally dodged Labor’s trap and agreed to support the levy subject to seeing the details, etc, etc. What the heck, Labor will get to wear the odium of a tax rise while Abbott will get an extra $3 billion to $4 billion a year in tax revenue. It’s a no-brainer.

“But in increasing personal income tax, Labor is also … making the tax base less volatile and procyclical.”

However, Abbott and the media were as one in calling for the levy legislation to be introduced before the election. That’s a peculiar position for the PM’s critics, and particularly Abbott, given he has destroyed Gillard over her politically motivated change of mind on a carbon price and failure to take that to an election or referendum. Still, with the opposition for once falling into line, the matter becomes moot.

But let’s go back to those budget writedowns that the Prime Minister claimed were the reasons she’d changed her mind about funding a scheme that won’t be rolled out until 2019. What Labor appears to have done is relied on voters’ confusion over basic budgeting, invoking a shortfall this year as a justification for increasing taxes the financial year after next, assuming voters won’t spot the sleight of hand. To what purpose? Well, to obviate the need to find more “structural savings” in the budget, yes.

But in increasing personal income tax, Labor is also, whether intentionally or otherwise, making the tax base less volatile and procyclical. The additional $3-4 billion per year the levy will raise is only about 1% of Commonwealth tax revenue, but it will marginally increase the overall level of personal income tax compared with company tax, making the overall tax mix less pro-cyclical (update: see below) and volatile.

That’s good, because company tax is far more sensitive to the economic cycle than personal income tax (around twice as volatile, in fact, over the last 20 years), and the government is far more reliant on company tax than it used to be. In 2002, company tax revenue was around one-third of income tax revenue; in 2007, it was around 47% after a succession of personal income tax cuts. In 2010-11, it was still over 46%. Like the superannuation changes, the NDIS levy is a small step toward making the tax base more resistant to swings in the business cycle, even if we’ll never go back to the sort of tax mix we had in 2002.

When the PC originally proposed the NDIS, it recommended it be used to remove inefficient taxes by states abolishing one or two inefficient taxes and the Commonwealth making good the revenue by taking over disability services, using its own more efficient tax base. The levy won’t improve the efficiency of the tax system — indeed it may create disincentives to participation for lower-incomes earners — but it will slightly improve its sustainability, which is a more pressing issue in the long term.

But the PC was ultimately also concerned that if a levy was used to fund an NDIS, it would be a separate levy (the “National Disability Insurance Premium”) and it would provide the full additional funding needs of the NDIS. While the government will establish a separate fund under legislation, it’s simply increasing the Medicare levy, as though disability services are just another part of the health system.

It’s a fine but important distinction that is being lost in the race to establish something that everyone enthusiastically agrees on.

Correction: Ross Gittins correctly points out that describing corporate tax as “pro-cyclical” is wrong and that the effect of lower corporate tax may well be anti-cyclical in terms of impacts on private demand.

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36 thoughts on “The strange politics, and sensible economics, of the NDIS levy

  1. T DG

    The decision to fund the NDIS through an increased Medicare levy means the government will have to reconsider its decision to exclude NZ citizens legally residing in Australia from coverage by the NDIS.

    It was always dodgy excluding a group of people with residence rights in this country from coverage given that their taxes will be paying for it and many have been living here legally for many years, yet are also denied a pathway to citizenship that could allow them to access the service someday in the future.

    It is almost unbelievable that the government could seek to hit hundreds of thousands of people to fund a specific service to which they are denied access. Restrictions placed on NZ citizens accessing government services and citizenship in Australia are already straining trans-Tasman relations and were recently criticised by a joint report of the Productivity Commissions of both countries. Blatantly ripping off hundreds of thousands of NZ citizens in the manner proposed would cause very significant harm to the relationship and destroy any prospect of furthering trans-Tasman integration for years to come.

  2. mikehilliard

    Other than the comment @1 (seems very unfair) I don’t understand why increasing the medicare levy to partially fund the NDIS is a problem. I would have thought it would be politically much harder to create a new tax rather than extending an existing one, subtle difference I know. Maybe someone can explain this?

  3. Savonrepus

    Always when it comes to funding something it is hit payroll – hit payroll – we need a decent discussion on better ways to tax because getting a job should be a fundamental right for everyone and taxing it should be the last priority. I noticed a list on The Conversation as to revenue raising – cost reduction alternatives that shows that you do not have to look to far to think about alternatives to taxation on incomes via payrolls –

    I have listed some of the better ideas

    Extending the carbon tax to imported goods – a container tax would be simple to implement

    Cancelling the mining industry diesel fuel subsidy – claimed to be $2.5 billion

    Resource Tax that actually collects a tax

    Legalise certain drugs and tax them – seems to be working well in the fight against tobacco

    Stop funding a NBN that is being superceded by wireless as it is being built

    Start taxing property which at $1500 in $500,000 is ridiculously under taxed

    This list is not exhaustive and some points may be debatable but illustrates there are so many better opportunities than increasing unemployment by increasing a tax on wages. If you think there are upward pressures on unemployment now just wait till the super increase hits in July.

  4. Julia Birchwood

    “Stop funding a NBN that is being superceded by wireless as it is being built”

    did some go ahead and invent optical wifi when i wasn’t looking?

  5. Mark from Melbourne

    Why does everything be seen through such a complex prism/

    Gillard changed her mind – presumably the risks of pursuing a levy became lesser than the risks of pursuing it given the stress on the budget. FFS – contexts change, people change their minds. It’s called reality.

    The next time Abbott or someone carries on about the PM changing her mind we should ask them if they still hold 100% to their previous positions in all regards. I’d expect apopletic silence…followed by a swift exit.

  6. Mark from Melbourne

    “of not pursuing”…

  7. dazza

    “Optical wifi’? wow.. Someone’s going to be very rich.

  8. Savonrepus

    Julia what is happening around the traps is that people are no longer putting fixed installations into homes – and running off mobiles – a trend that is gathering pace they are getting their internet off their mobile as well as well as increasing use of free call software – NBN to sockets into homes – going to be a big waste of money – NBN to node and wireless termination well perhaps not so much of a waste. The roll out of the NBN is blowing out and being delayed by a total under estimation of the expense of node to the socket cost and now it seems totally unnecessary.

  9. Simon Mansfield

    >>Stop funding a NBN that is being superseded by wireless as it is being built<<

    Those WiFi towers will just be linked with fishing line instead – unlike it can be stretched without breaking.

    Better yet – this new replacement technology which goes beyond any known physics should much make climate change a solved issue. Beam me up … Savonrepus.

  10. Savonrepus

    Simon – read my comment – obviously the major links of the NBN need to go ahead – just not the expensive bits –

    It is a great shame that people like Simon like to ignore the reality of what people are actually doing just so you can take the opportunity to be facetious.

    Well I have the comfort in my arguement to know that I am right. Very few of my twenty something kids and their mates are installing fixed connections into premises that they are moving into. The cost of the NBN from the node to the socket is a total waste of money. Thank goodness we do have a political party available in the next election that understands economics.

  11. GrimTidings

    Savonrepus – its obvious with your well constructed anti-NBN logic that you have done your research.

    Here – I’ll help you out & share some of your source material. Hope you don’t mind.

    Dilbert Pwns NBN
    and of course…
    Coalition Wireless Policy

    Apologies for the diversion from the worthy NDIS discussion.

  12. Brad Sprigg

    Savonrepus, there is not one country in the world that is building a national broadband network based primarily on wireless. NOT ONE. So designing one would be a much bigger risk than using tried and established technologies such as fibre.

    Furthermore, there is a big difference between 4g/3g mobile phone wireless and the sort of fixed wireless to the premises that would be used in such a network. For fixed wireless, you still need a technician to come out to your house and install a dish on your roof, precisely calibrated to point towards the central hub.

    The reason for this? The massive limitations of data transmission on 3g/4g. There is a reason you only get a gig or 2 with your mobile plan, and why 3g/4g network services are outrageously expensive compared to more traditional network services.

    How this “build the NBN out of wireless” meme has taken off in Australia to such a large degree is beyond me. The sections of the mainstream media which have been feeding these lies to those that do not no better have a lot to answer for.

  13. Gratton Wilson

    There are a very large number of people who do not have mobile reception because the carriers have calculated the cost and decided that some people will just have to go without. Bad luck. I want as good a communication service as Malcolm Turnbull and Tony Abbott expect for themselves.

  14. Jane Salmon

    If unpaid carers, the majority of them family, contribute over $40b in labour and resources to Australian society every year, surely a strike would be quite powerful.
    How about we disability carers ALL drop off our kids at Ms Westacott’s office? Or for two unsupervised hours at Myer? Surely Joe Hockey can lend them a hand …

  15. Savonrepus

    You are getting it Gratton. If we can not afford the resources to get a wireless connection to every home we then can absolutely not afford to get a fibre connection to every socket. So we do the node thing and make sure we have fibre to wireless points this is something we can afford as well as having extra funding to support the NDIS. It is not rob Peter to pay Paul it is rob the NBN to pay the NDIS but in actual fact this is a far more efficient distribution of resources.

  16. Simon Mansfield

    Savonrepus you said fibre was being superseded by wifi. That is simply not true. Wifi is wireless technology that is strung together using cable. It cannot deliver the bandwidth fibre can. The only reason there is any oppostion to fibre to the home is that News does not want FoxTV to be made obsolete by a billion channels.

    Wireless is a very expensive packet service that is prone to dropouts and cellular lockups. It’s great for when you are the go – but a major pain when you are trying to do anything serious. I know – as I use it often and basically give up trying to work between 6-10pm.

    NBN is the most significant project in Australia in decades, it will completely transform our economy over the decades to come. It won’t be made obsolete and will make wireless work.

    The LNP are planning three enquiries to make sure they get the reports they need to justify changing their policy and completing the NBN rollout.

    On every other point you make you will not get the LNP agreeing with you on any of these issues. So I hardly see why you are looking forward to Abbott.

    The cost of NBN spread over several decades is very cheap. Long term bonds at the lowest rates in decades can easily pay for projects like this.

    The voodoo economics of the opposition party with be nothing like what they actually do once they get into government.

    Australia is a wealthy country – lets start acting like one instead of the two dollar outfit Abbott wants to reduce us to.

  17. Mel Rodwell

    There is no doubt that the National Disability Insurance Scheme (NDIS) is overdue for individuals with a disability to provide choice and control over their own lives, however the decision to fund the scheme through an increase in Medicare levy should not be taken lightly. Julia Gillard’s announcement of a 0.5% increase to the Medicare levy may provide an extra $3 billion for the scheme however it will not cover the entire cost. The Gillard Government needs to stop playing its political game and start thinking about the welfare of those living with a disability. The Government needs to put the future election aside and put some serious thought into the funding of the NDIS. The Productivity Commission’s recommendations need to be considered to provide a secure and stable stream of funding for the NDIS. The scheme will enable people with disability a chance to live independently and receive the necessary education so they can contribute to the Australian economy therefore the government should make room in the budget for the outstanding cost of the NDIS. Australia prides itself on being a country with equal opportunity therefore the Government needs to produce a strategy to completely fund the NDIS so Australians with a disability can receive the care they are entitled to.

  18. Ronson Dalby

    The Medicare levy will only be partially funding the NDIS – about 60%, I believe.

    Like all government schemes there will be huge blowout so I wonder how long it will be before the Medicare levy is raised again or the rumours about removing the disability support pension become a reality.

  19. Savonrepus

    My goodness you guys are so so short sighted.

    1 Every home broadband network these days is wireless? Who is cabling their home. The next logical extension is wireless to the node. Good ol home grown CSIRO technology.

    2 Cabling from the node to the home is a waste of money. It is a product that is in decline. People get wireless broadband because it is sufficient for most needs because they can travel with it and they dont need the cost of a fixed home connection. Home phone connections have been a product in decline for years.

    3 At the current rate of expansion NBN the will not be available for most homes for years.

    4 At current rates of connections the NBN will not be connected to most homes for decades – if ever see above.

    5 Right now there are other budget priorities for spending money and other ways to provide cheaper home connections and this is the whole point of my statement.

  20. Achmed

    Good to see people have stayed on subject. My only contribution to the off topic debate – I live in a fairly large regional town in the NW of WA. Wi-Fi is very limited.

  21. Achmed

    Savonrepus – you seem to have missed the point on taxes. No matter what the tax is applied to the consumer pays. PAYE tax, GST etc are all paid by the consumer. Applying a tax to the things you suggest does not lessen the tax burden of consumers

  22. Savonrepus

    @ Achmed – eliminating wasteful spending goes to the heart of funding the NDIS and for your comment see my reply to Gratton

  23. mikehilliard

    The ABC news coverage of the NDIS levy issue last night was a joke.

    Lead in with 5 mins of Abbott on his bike, off his bike, with school kids, Mr Abbott said this & that but all vacuous statements.

    Follow with 60 seconds of PMJG with people obviously suffering from disabilities trying get the message out.

    Cut back to the talking head in the studio.

    This is symptomatic of the debate, rather see some bloke peddling around the country than discuss the issue in any detail.

  24. Achmed

    “wasteful spending” a term we hear a lot. Very easy to say – Pink Batts is seen as wasteful by some, BER was seen as wasteful by some. What else, now that these “projects” to create employment during the Govts successful attempt to stave off the worst effects of the GFC have stopped.

    What do you (and Abbott) define as wasteful spending?

  25. Person Ordinary

    @Savonrepus … you seem unable or unwilling to see the value of the NBN in terms of the next wave of applications. Maybe check out some high tech magazines or websites to get a feel for what is coming, and you may start to see the relationship between economic competitiveness and universal access to high bandwidth? No one here that gets it is going to shake you from your old-thinking argument – that will take enlightenment on your part …

  26. Julia Birchwood

    wireless to the node? that doesn’t even make sense.

  27. Apollo

    I’d like to digress a little bit. In the future there will be some disable people who can use and control robotic body parts and don’t need carers. Investment in this sort of technological development would be good.

  28. Achmed

    While people discuss the pro’s and cons of the NBN, wireless etc.

    I live in Broome, quite a significant town. I dont rate wireless, and I admit I’m no technological whizz, but to use my mobile phone I am to stand on outside in the garden, not in the house or under the patio. I cant connect to Wi-Fi…….so no I-Pad for me

    In my simplistic way I see a mobile as “wireless”, so how would wireless be any good to me.

  29. Savonrepus

    @ Achmed – it is like this you need a solution. You could spend say $1m dollars sending fibre to every socket in your neighbourhood so that you can put a local wireless solution on the end to feed your home – internet, mobile, cordless phones maybe tv and anything thing else or you could spend $200k on sending fibre to a node point whereby everyone in your neighbourhood connects their wireless devices in the same way. Clearly both are solutions to your problem but one is much cheaper than the other and the second leaves 800k over to spend on things like NDIS . Dont hold me to costings these are purely for illustrative purposes.

    You also have to think of wider descriptions of neighbourhood than just quarter acre blocks – might be a unit block, hospital, office building etc etc

    The big cost of the NBN is what they call the ‘last mile’ – and it is the ‘last mile’ that we now have cheaper solutions.

  30. Savonrepus

    @Person Ordinary – I so love your condescending tone but you are talking about the Government providing a solution for stuff that does not even exist in mainstream yet – on the other hand things like people with disabilities are real and do exist. Surely they need to get priority?

    I repeat again – put in a fibre connection to socket in a premises and it will terminate on a device that produces a wireless signal. That is mainstream. There is nothing wrong with understanding that and producing an outcome that is cost effective.

  31. Savonrepus

    Sorry I have to add because seems that many are not following what I am saying – the cost effective solution to NBN is to move the wireless device from the premises back to the Node and this allows so much more funding to be made available for the NDIS.

  32. Student T

    Bernard,

    It would be really helpful if, in future articles, you could clarify the following key parameters of the NDIS.

    Is the annual cost b$8 or b$14 as listed on some government sites?

    The number eligible is estimated at 410,000 (those with permanent disabilities). But on a recent age front page, it was mentioned that 2 million people access disability services.

    How much overlap is there between the new NDIS and current services? Which current services will be replaced? Only then will I understand whether the b$8 (or b$14) is a headline cost or a net cost.

    If b$14 per annum is distributed to 410,000 people they would get $34,000 each. This seems pretty generous. Would they be eligible for any other additional existing services?

  33. Achmed

    Student T – I could be misunderstanding your $34,000 each.

    This funding is about Carers, facilities etc.

    I’m guessing until we see the criteria etc but I would imagine its also about modifications to their homes to enable to be more self sufficient, perhaps modifications to a car so they are mobile.

    And its not just about the metro area where many facilities etc are accessible, remote and regional towns also need to be serviced. And we have all well aware of the increased costs of doing things in the regions

  34. Person Ordinary

    @Savonrepus Yes, there are many applications emerging today for wireless. But tomorrow’s avalanche of innovation needs far more bandwidth. And if that bandwidth is not available to everyone, our market will be too small for that innovation to occur here, and we will fall behind those building proper infrastructure. So a system without the last mile would fail to deliver the economic benefit, and because it would have so few subscribers it would also be of much less value, and its cost would not be recouped on privatisation. It would clearly be far more economically efficient to do nothing at all than to build any system without that last mile.

  35. browser

    Savonrepus

    What is it that you don’t understand? Wireless is wireless, the more people that use it the slower it gets.

    Your solution is to get the government to pay most of the cost to pay for a fibre network, then at the last stage restrict access to the network to people able to afford $5000? to connect to their home. Sounds like a pretty inequitable distribution of government spending to me.

  36. Savonrepus

    browser

    – most of the cost of the fibre network is the last mile???? Well not most but a good proportion of the cost

    – many people for their communication needs now do not need a fixed connection to their homes – so anything spent on running to a socket in their house is a total waste of money

    – fibre to the home is about providing something for things that are not even invented yet – when I go to a university for instance they seem to be surviving very well on their main communication needs being wireless – ultra high speed is only required for specialist applications

    browser I understand that the cost of fitting out the whole country is a waste of money and with budget pressures like the NDIS which is what this article is about we need to fund that first before we go down trying to reinvent star wars

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