The government will slash spending in real terms on the National Disability Insurance Scheme over four years, as it undertakes a massive “reset” of the program.

People with lower support needs will be moved off the scheme and over the next two years the average spending on plans will reduce to about A$26,000 – back to where it was in 2023 – down from the current $31,000.

Spending on third parties who manage most NDIS plans and claims will be cut by 30%, and more providers will need to be registered, particularly those giving personal care.

Announcing the crackdown, Health Minister Mark Butler said the changes would cut the number on the scheme, currently 760,000, by 160,000 to about 600,000 by the end of the decade, instead of the number growing to well over 900,000.

Spending will be about 2% a year for the next four years, only half the current inflation rate, before rising to about 5% annual growth after that. At present the NDIS cost is growing at 10%.

Instead of a projected $70 billion in 2030, the cost of the scheme will be about $55 billion, Butler told the National Press Club. Currently the scheme is costing about $50 billion.

In aged care changes, Butler also announced the government would scrap the higher subsidy for private health insurance for people aged over 65. Butler said this was “not fair between generations”.

“This budget will return the rebate for older Australians back to the level paid for everyone else and divert the money back into aged care,” Butler said.

This includes spending $1 billion to scrap the co-payment for showering and other personal services in home care packages, support the construction of an extra 5,000 aged care beds each year by 2030, and invest more than $200 million to expand dementia care.

Butler described the NDIS reforms as “a move away from the let-it-rip market”.

“You need more ID to get into a licensed club than to be an NDIS provider, that will change,” Butler said.

Butler will introduce legislation for many of the changes as soon as parliament resumes for the budget session next month. The drastic federal government changes will throw more of the burden for disability support onto the states, which have been reluctant to do a lot more.

New South Wales premier Chris Minns said the NDIS needed to be on a firmer financial and economic footing.

“I’m not going to throw sand in the gears of the federal government. They’re grappling with an issue that, if I were in their shoes, I’d be doing the same thing.

"I just think we need to be clear. We can’t provide at the state level the same services that were currently provided by the NDIS. This is going to be billions. We don’t have billions. We don’t have billions to throw into it,” Minns said.

Despite earlier speculation, the reforms do not remove particular conditions from NDIS eligibility. Eligibility will depend on people’s level of disability.

Changes will apply to those presently on the NDIS as well as to new entrants.

There will be tighter criteria for unscheduled reassessments of plans, as well as tighter assessment of support for new entrants.

Plan rollovers will be ended and a stop will be put to unspent funds being rolled over. Diagnosis lists will be removed as the means of entry to the scheme.

Butler said: “Part of the challenge we face is that the NDIS has become a soft target for shonks and rorters – as well as the worst elements of organised crime”.

“These reforms are about much more than budget savings. This is about saving the NDIS itself,” Butler said.

“If we act now, we can safeguard and strengthen it, so that it serves Australians it was created to help.

"Then we can make sure that – like Medicare – the NDIS is still changing lives, three decades from now.

"But if we wait, if we hang back, if we imagine that hard choices can wait for easier times. Then the decision will simply be taken out of our hands.

"The social licence will be lost. And the NDIS will not be able to deliver what Australians with disability deserve.”

The government faces a sharp backlash from disability representatives.

Its aim to get its changes flowing quickly will depend on how soon it can get legislation through the Senate. This is likely to depend on the opposition’s attitude.