National Disability Insurance Scheme - Policy Funding Submission

Dear Finance Minister,

It is widely understood that the National Disability Insurance Scheme (NDIS) has an uncertain funding burden in the future. Estimating dependency on this necessary welfare safety net is difficult and pricing forward estimates on future participation growth in the NDIS is nearly impossible. The requirement for a NDIS is partially due to an ineffective take up of privately available alternatives.

Our proposal explores ways to make private, market based insurance more attractive, abating NDIS dependency via increase private insurance participation.

Current private solution

The private sector, if personal insurance take up was higher, could significantly reduce forward looking NDIS dependency. Private forms of risk mitigation, namely income protection or salary continuance insurance, have poor participation levels. 

Increasing private participation in insurance would significantly reduce future costing of the NDIS, improving its feasibility as a generous social safety net.

The Challenge

Incentivising companies and individuals to take out personal salary continuance / income protection insurance.

Solutions Proposed

1. Implement tax reforms that give companies a better incentive to maintain group income protection schemes (an insurance policy contract taken out between a company and an insurer on behalf of the company’s employee base). This can be achieved in many ways, but we outlined some options that we believe could be effective;

• Allow company's to offset their insurance scheme premium against payroll tax obligations (currently only deductible against company tax)
• Introduce a penalty payroll tax scheme levied against companies, above a minimum threshold, if group insurance benefits are not provided to employees (similar to Medicare levy surcharge in place for individuals)
• Allow for payroll tax to be extinguished if appropriately structured group insurance scheme is undertaken

2. Make life & TPD insurance tax deductible to individuals, not just superannuation funds. This is especially poignant given the proposed reductions in capacity to accumulate wealth in superannuation.

Both proposals would be effective as stand-alone or combined initiatives.