Over the course of this year there has been considerable media coverage on the record numbers of Australians who receive the Disability Support Pension (DSP). However, calling the recent growth in DSP a crisis is hyperbole. Two thirds of the increase has come from declining economic conditions and mistakes in Australia’s income support policy framework that can be rectified.
Over the last decade DSP recipients have increased by 22%, with 821,738 on the payment as of June 2013 costing the taxpayer $16 billion in 2013-14. The National Commission of Audit predicts expenditure on DSP could increase by as much $9 billion over the next 10 years.
However, population growth, an ageing population and changes to Age Pension eligibility for women have all contributed to some of the increase (research by the Melbourne Institute finds these explain 34% of the increase).
To an extent this increase is unavoidable. However, welfare will never be as good as having a job, and currently the DSP does not do enough to ensure that people with disabilities who can work are encouraged to do so.
There is a range of people with disabilities covered by the DSP; it is not just for people with profound disabilities. Many on the DSP have some capacity to work. However, the design of this payment does not adequately reflect these different capacities. It is structured as a pension and, unlike the lower-rate Newstart allowance, there are no job search requirements.
This creates perverse incentives, encouraging people with lower job prospects to seek entry to the higher pension payment. The effect of this is clear: the rate of entry onto DSP closely follows the unemployment rate and some of the most significant growth in DSP in recent times occurred during the recession of the early 1990s.
Many people on the DSP never re-enter the workforce. Not only does this have implications for government spending, it can also lead to isolation and condemn people with disabilities to a lower standard of living than they might have obtained from paid work. Recent governments have tightened the eligibility criteria for new claimants and diverted them onto a payment that had job search requirements. However, these policies only applied to those making new claims and not to those already on DSP.
One of the most significant reforms to DSP in recent years has been the current government’s moves to retest the eligibility of those under the age of 35 who entered payment between 2008 and 2011 under less stringent eligibility criteria than exist now. In fact, there is a case for expanding the scope of retesting.
However, with 18% of those on DSP having been on it for over 20 years, the government needs to be realistic about the employment prospects of those who have been out of the labour force for long periods of time.
Matthew Taylor is a research fellow at The Centre for Independent Studies.
Home > Commentary > Opinion > No crisis but DSP still needs reform
No crisis but DSP still needs reform
Over the last decade DSP recipients have increased by 22%, with 821,738 on the payment as of June 2013 costing the taxpayer $16 billion in 2013-14. The National Commission of Audit predicts expenditure on DSP could increase by as much $9 billion over the next 10 years.
However, population growth, an ageing population and changes to Age Pension eligibility for women have all contributed to some of the increase (research by the Melbourne Institute finds these explain 34% of the increase).
To an extent this increase is unavoidable. However, welfare will never be as good as having a job, and currently the DSP does not do enough to ensure that people with disabilities who can work are encouraged to do so.
There is a range of people with disabilities covered by the DSP; it is not just for people with profound disabilities. Many on the DSP have some capacity to work. However, the design of this payment does not adequately reflect these different capacities. It is structured as a pension and, unlike the lower-rate Newstart allowance, there are no job search requirements.
This creates perverse incentives, encouraging people with lower job prospects to seek entry to the higher pension payment. The effect of this is clear: the rate of entry onto DSP closely follows the unemployment rate and some of the most significant growth in DSP in recent times occurred during the recession of the early 1990s.
Many people on the DSP never re-enter the workforce. Not only does this have implications for government spending, it can also lead to isolation and condemn people with disabilities to a lower standard of living than they might have obtained from paid work. Recent governments have tightened the eligibility criteria for new claimants and diverted them onto a payment that had job search requirements. However, these policies only applied to those making new claims and not to those already on DSP.
One of the most significant reforms to DSP in recent years has been the current government’s moves to retest the eligibility of those under the age of 35 who entered payment between 2008 and 2011 under less stringent eligibility criteria than exist now. In fact, there is a case for expanding the scope of retesting.
However, with 18% of those on DSP having been on it for over 20 years, the government needs to be realistic about the employment prospects of those who have been out of the labour force for long periods of time.
Matthew Taylor is a research fellow at The Centre for Independent Studies.
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