With inflation numbers volatile and wages lagging, the Reserve Bank has held off reducing interest rates. Money policy remains tight. This will be a problem as the states take on responsibility for delivering NDIS programs.

In case you missed it, the Reserve Bank didn’t cut interest rate this week, This leaves households (and state governments) squeezed by a stagnant economy and shrinking revenue.

This is disappointing for anyone paying off a mortgage, of course, but why discuss it in a newsletter about the NDIS? Well, US President Bill Clinton explained why in a short, pithy phrase some 30 years ago: “It’s the economy, stupid.”

The economy drives politics just as emphatically as your own income drives the household budget. Everything is affordable, but as the budget becomes tighter and tighter, you need to make increasingly difficult choices on what to spend your money on.

Reserve Bank Governor Michele Bullock spelt it out: although headline inflation is easing, it’s because of subsidies (like those for energy bills). These are temporary measures the Bank won’t factor into long-term strategy. Underneath, she said, inflation is running hot.

People need more money to live and government programs, like the NDIS, are still growing much faster than the economy.

Growth of the NDIS is still significantly outpacing broader economic growth.

This is the problem for the NDIS. If politicians want re-election, they’ll be concerned about spending money the economy doesn’t have. And they will make cuts.

Is this what’s behind the current changes to the NDIS?

Rental prices—once a key inflation driver—have flattened across most capital cities, but not because conditions have improved. Households are hitting affordability limits. More people are cramming into the same dwellings, demand is softening, and wage growth is stalling. That’s hardly a foundation for recovery.

It might mean inflation’s coming down, but the cost of the NDIS is still growing faster than the rest of the economy - and that’s a problem.

But the other real strain may be elsewhere: from the very governments expected to pick up the slack as federal programs like the NDIS face tighter controls. New research from the Australia Institute shows state budgets are being hollowed out by a decade of underperforming GST collections. As the Commonwealth looks to step back from disability funding, the states may be the least capable of stepping in.

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As Canberra reins in disability support funding, attention is turning to the states. The problem? They’re broke.

If the GST had kept pace with economic growth since it was introduced, the states would have had an additional $231 billion to spend. Instead, in 2023-24 alone, they lost $22 billion in revenue.

The Australia Institute’s Richard Dennis says low-income households are spending a growing share of their income on untaxed essentials like rent. As wealthy Australians avoid GST through private schools and health insurance, the tax base is eroding. Yet the states are being asked to bridge the gap as the Commonwealth retreats from providing foundational supports.

The economic picture for the NDIS is particularly bleak. Sluggish growth, stalled wages, and uncertain housing costs combine with service cuts and provider withdrawals. The RBA’s caution may be warranted—but it’s cold comfort to those already on the edge.

The economy isn’t in freefall, but it is stuck. And as governments at every level weigh their options, it’s becoming increasingly clear: the safety net is only as strong as the tax system that funds it.