Reform of the NDIS is focused on slowing growth, but neglecting one of the biggest pressure points. Without proper psychosocial supports outside the scheme, unmet need will keep driving costs and harm alike.

Reform of the National Disability Insurance Scheme (NDIS) remains a headache for the Albanese Government, with a lot hinging on initiatives earmarked to deliver savings of more than $19 billion already factored into the budget. NDIS growth slowed to 10.8 per cent last year, lower than the 20 per cent in each of the previous four years but well short of the 8 per cent target for 2026 and about twice the rate of aged care payments or Medicare.

To make matters worse, the federal government remains locked in a complex negotiation with the states and territories to secure matched funding for its Thriving Kids initiative, the first priority in establishing so-called foundational supports (disability-specific supports outside of individual NDIS packages) to relieve pressure on the beleaguered scheme in response to recommendations from the 2023 NDIS Review.

These supports were originally supposed to be rolled out from 1 July 2025 – but that’s been put back by a year. And Thriving Kids is only one part of a bigger picture focusing on children under nine with developmental delay and disability, with no progress made so far on building up non-NDIS services for disabled adults.

First among those are adults with psychosocial disability – disabilities that result from living with significant mental health challenges. While some people with the most significant psychosocial disabilities are eligible for the NDIS, access rates have plummeted in recent quarters, leaving more than 130,000 adults with severe need for support getting no services at all.

This is a problem for these Australians and their families – missing out on support means poor health and wellbeing, lower rates of employment, and increased experience of homelessness. But it is also bad for governments – with more demand on hospital beds and for costly NDIS packages when needs are allowed to escalate. This is despite evidence that shows that good psychosocial supports – which help people to build skills and independence – can deliver results for individuals and government budgets.

Currently, the availability of non-NDIS services for Australians with psychosocial disability is a postcode lottery, with a patchwork of mostly inadequate provision across jurisdictions. Whether you get any support at all and how much comes down to where you live rather than your level of need.

Fixing this issue and building a larger ecosystem of support is meant to be the next cab off the rank with NDIS reform for Minister Mark Butler in 2026. The co-location of disability with mental health within the same federal government department affords a new opportunity to get these systems working better together that could improve equity of access to services and help stabilise the NDIS. But realising this opportunity cannot be tied to further funding negotiations with the states around new money – obvious fiscal constraints have meant zero movement on that prospect since National Cabinet agreed in December 2023 to establish these services.

What is instead needed is a clear-eyed look at the value government is getting from its current investments. A third of all government spending on mental health now goes through the NDIS, with packages of about $90,000 per person per year for eligible people with a psychosocial disability. That money primarily goes towards funding practical in-home and community supports that are poorly aligned with the evidence for what works in enabling personal recovery, which is the government’s stated goal when providing support for this group.

Our new Grattan Institute report shows how these NDIS funds can be better allocated to establish a new National Psychosocial Disability Program so that spending totalling $5.8 billion last year can spread further to address the considerable unmet need for this support that exists outside the national scheme.

Bold policy decisions from government could see this new program established to provide support for 130,000 adults with the most significant psychosocial disabilities without requiring any new spending. Under our plan, the NDIS budget will go further to support more people in more efficient and effective ways so that this important area of reform can be progressed at no additional cost to the taxpayer.

But money isn’t the only issue to be overcome. It will be equally important that governments agree on the right design and funding approach for these new services. The tug-of-war for control of these services between both levels of government should be resolved so that the federal government can play a lead role in driving a consistent national service offering, with states fully engaged as co-funders. Governments should agree to use the regional knowledge and infrastructure of existing Primary Health Networks for this task, building on the PHNs’ existing role as commissioners of community mental health services.

Grattan Institute’s proposal is simple: fund an ambitious tier of psychosocial supports for people outside the NDIS from within governments’ existing contributions to the scheme. This will be the best and most timely way to bridge the gap and better meet the needs of Australians with psychosocial disability.

Dr Sam Bennett is lead author of Grattan Institute’s new report, Bridging the gap: Meeting the needs of Australians with psychosocial disability, which can be read for free.