More than 160,000 Australians are set to lose access to the NDIS under a sweeping government crackdown on the scheme, plagued by fraud, with every participant to be reassessed.

The dramatic overhaul means people with lower support needs will be moved off the scheme by 2030, while stricter eligibility tests, spending cuts and a new government-approved provider system are rolled out.

NDIS and Health Minister Mark Butler used a National Press Club address on Wednesday to unveil the reforms, declaring the NDIS had drifted far from its original purpose.

He launched a blistering attack on operators accused of exploiting taxpayers and vulnerable Australians.

'The fraud in the NDIS is being perpetrated by lowlifes who are scamming both the taxpayer and people with disability.

'Australians expect the NDIS to support people with a disability and their families and to continue to transform their lives in the way we've seen happen over the past 13 years.

'Not for it to be an ATM for shonks and drifters, fraudsters and crooks.'

As part of the changes, standardised assessments will be rolled out, with a list of diagnoses no longer the sole standard for access.

'The bill I intend to introduce in the budget sittings will allow us to introduce standardised, evidence-based assessments of a person's functional capacity to determine access to the scheme,' Butler said.  

'In line with the scheme's original intent, access will be based upon a significant reduction in a person's functional capacity that impacts their day-to-day living. It will also remove the use of lists that decide on a participant's eligibility based on diagnosis alone.'

An advisory group, the disability community, and states and territories will help formulate the eligibility tests.

The government aims to reduce the number of people on the NDIS from about 760,000 to 600,000 by the end of the decade, much lower than forecasts of more than 900,000 at current rates. 

Butler said every person on the scheme would be reassessed.

Those who do not meet the benchmark for inclusion will be directed to other support services.

A major target of the reforms is the scheme's social and community participation budget, which Butler said had surged from $4 billion a year five years ago to $12 billion this year.

He said that single area of the NDIS was now costing roughly the same as the entire Pharmaceutical Benefits Scheme.

Changes will bring the average cost of plans down to $26,000 per year, from $31,000 in 2026.

'This is about stabilising the costs of the scheme – and guaranteeing the essential services the NDIS provides – here and now,' Butler said.

Butler said a shortlist of approved providers would replace the current open-market model as Labor moves quickly to cut costs and lift standards among third parties that manage most NDIS plans and claims.

'Instead of this contest continuing, our Government will identify a short list of accountable, quality providers, which people can then choose from.'

He said the government would cut spending on third-party NDIS providers by 30 per cent.

'Many of these people provide valuable support to participants. But others have no qualifications or background in disability services and seem more interested, too often, in clipping the ticket,' he said.

'Too many participants tell us their support workers are spending more time on their phones than engaging with them and providing support.

'We've received reports of participants falling out of their wheelchairs while a support worker is scrolling on their phone. There's no connection there. There's no participation, there's no inclusion.

'This is not only a failure to show respect and dignity, it's also a safety issue. This approach hasn't just led to the decline of genuine community support, it's also become extraordinarily expensive.'

The reforms also include a $200 million fund to help community groups deliver support services as more people are moved off the NDIS.