Originally posted at APO (Australian Policy Online)
• New participation requirements for disability support pensioners under the age of 35 with some capacity to work;
• Fast tracking new rules that require new disability support pension (DSP) applicants to get employment assistance to try and get back to work before they can apply for DSP;
• More generous rules for existing disability pensioners to encourage them to work more hours; and
• Supporting employers to take on more disability pensioners through new financial incentives.
In the Budget Speech, the Treasurer stated that the initiatives were intended in part “to slow the growth of Disability Support Pension numbers…”. Concern with the growth in DSP numbers has been expressed for some time. For example, in a series of speeches at the CEDA Luncheon in February, the Inaugural 2011 Gough Whitlam Oration on 31 March, and an address on ‘The Dignity of Work’ at the Sydney Institute in April, the Prime Minister indicated that “We have moved beyond the days of big government and big welfare, to opportunity through education and inclusion through participation”, noting that in addition to the unemployed and discouraged job seekers, “there are many thousands of individuals on the Disability Support Pension who may have some capacity to work”.
Similarly, in an address to the Queensland Chamber of Commerce and Industry, the Leader of the Opposition suggested reforming DSP with a more targeted payment for people whose disabilities might not be permanent. He pointed out that Australian disability pension numbers are set to pass 800,000, with more working age people on the disability pension than on unemployment benefits.
Figure 1 shows the trends underlying these concerns. The number of persons receiving unemployment payments has changed dramatically in different periods depending on labour market trends, with a large increase in the early 1980s, a further larger increase in the early 1990s, followed by a more sustained decline until 2007, and a substantial increase following the GFC (but much lower than in the recessions of the 1980s and 1990s).
In contrast, the number of people receiving the Disability Support Pension appears to keep rising throughout the whole period. Indeed, a briefing note by the Parliamentary Library prepared on initiatives in last year’s budget pointed to “the inexorable growth in the DSP population over the past 20 years … No other income support program has seen this level of sustained increase.”
Figure 1: Trends in the number (000s) of recipients of Disability Support Pension and Unemployment payments, 1981 to 2011
Note: Figures are at June each year, except Unemployment payments in 2011, which are for March. DSP numbers for 2010 are preliminary. Source: FaHCSIA, Statistical Paper No. 8: Income support customers: a statistical overview 2009
What explains these trends? Is DSP a welfare payment out of control? Is disability really rising in the Australian community or are people who are really unemployed being “parked” on DSP. Or are individuals manipulating the system to get more from these benefits? This concern may appear justified because for long-term welfare recipients there are clear incentives to qualify for DSP, as the gap between DSP and Newstart payments is nearly $260 per fortnight, and widening.
To fully understand these trends in DSP numbers it is necessary to consider a range of factors, including population size and the age profile of disability in Australia, the effects of income support policy changes, and the state of the labour market.
Age structure and population size
Over the last 15 years the population of Australia has been growing relatively rapidly. The growth in numbers of DSP recipients is therefore partly a consequence of population growth. What is important from a policy perspective is the rate of DSP support – that is the number of recipients as a per cent of the eligible population. In fact, the rate of DSP receipt as a percentage of the population of working age has been basically stable since 2002, although with a small fall just before the GFC and a minor rise since then.
Disability and receipt of DSP are strongly age-related. In 2009, for example, less than 2% of people aged 16 to 29 received DSP, but this rises with age to 5% of people in their 40s, 9% of people in their 50s and over 14% of people aged 60 to 64 years. Disability rises further with increasing age over 65 years, but after 65 most people are entitled to an Age Pension and DSP is currently no longer relevant.
This age profile is important, because the age structure of the Australian population has also changed significantly in the last 15 years. This is an effect of the ageing of the baby boom generation, conventionally dated to those born between 1946 and the early to middle-1960s. Analysis by demographer Natalie Jackson shows that up until 1996, changes in the age structure of the Australian population had a slightly negative effect on these trends.
By definition, people born in 1946 started to turn 50 years of age in 1996, so in contrast with the earlier period, changes in the age structure of the population became likely to increase levels of receipt of DSP after the middle of the 1990s.
Overall between 1996 and 2009 the proportion of people of working age receiving DSP rose from 4.3% to 5.1%. If the age-structure of the population was held constant at 1996 shares, then rather than there being 5.1% of the population receiving DSP there would be 4.7%. This means that about half of the total increase in numbers was the result of population ageing and in itself unrelated to any changes in the labour market, the incidence of disability or individual behaviour.
A series of policy changes from the mid-1990s onwards also had a major impact on the number of people receiving DSP. The most important of these was the increase in the age pension age for women from 60 to 65 which started in 1995, and at around the same time a number of other payments such as Mature Age Allowances, Partner Allowance, Wife Pension, Widow B Pension and Widow Allowance started to be closed.
These changes had a profound impact on the level of receipt of welfare payments as well as which payments people receive. For example, in the mid 1990s the “closed payments” – mainly for women – were received by around 4% of the working age population, but now they are received by only 1%.
As noted, increasing the age pension age has had the largest effect. In 1996 only 3,400 women aged 60 to 64 years received DSP, but 194,000 received Age Pension. In 2009, there were 68,000 60-64 year old female DSP recipients, but 81,000 age pensioners. Women aged 60 to 64 years are the fastest growing group of DSP recipients and DSP recipients are now close to 30% of all the women in this age group receiving social security benefits, whereas in 1996 they accounted for only 1.4% of all welfare recipients in this age group.
But while receipt of DSP in this group has “skyrocketed”, total welfare receipt has plummeted: in 1996 68% of women aged 60 to 64 years received a social welfare payment, while in 2009 was 39%.
So “welfare dependency” for this group has actually fallen significantly – it’s just that more of this (smaller) group are now on DSP. This fall in welfare receipt for older women is also matched by a fall for older men – in 1996 26% of men aged 60 to 64 years were receiving DSP whereas in 2009 it was 16%.
The pension age for women has not yet reached 65 years, so it could be expected that the number of women in this age group receiving DSP will continue to rise. Moreover, the announced increase in the age pension age to 67 years for both men and women, which is to be phased-in between 2017 and 2023 will undoubtedly also mean that the number of DSP recipients will increase as a result. However, given the recent experience with women aged 60 to 64 years it could be expected that the total proportion of 65 and 66 year olds reliant on social welfare payments will fall.
Rather than a picture of spiralling welfare receipt, what has actually happened in the last 15 years is a significant decline in the proportion of the working age population receiving social security benefits; and the decline would have been even greater if not for the structural ageing of population. This decline in welfare receipt has been achieved through reforms starting in the 1990s and reinforced by the very strong labour market growth between 2002 and 2007.
Figure 2 shows that the declines in welfare reliance among people of working age between 1996 and the period just before the GFC were significant for all age groups, but the largest declines were among those where the household reference person was aged 55 to 64 years.
Figure 2: Per cent of households with a head of working age whose principal source of income is government cash benefits, by age of household head, 1996-97 and 2007-08
Note: Principal source of income is 50% or more of total income. Source ABS, Household Income and Income Distribution Survey, 2007-08
Welfare reliance in this group more than halved from 38% to 17%, and overall the proportion of working age households who derive 50% or more of their income from benefits fell from 21% to 12%. If a more stringent definition of welfare dependence is used – households who receive more than 90% of their income from government cash benefits – then the decline in welfare dependence among people of working age is even greater – from close to 17% to 7.2%. Moreover, adjusting for changes in the age structure of the working age population would further reduce this to 6.7%.
There are very strong arguments in favour of further welfare reforms, but these are arguments based on improving equity, not constraining out-of-control growth in numbers. The equity arguments are those referred to by the Prime Minister in her speeches this year that the main path to improvements in social inclusion is through increases in employment and participation.
In Australia, about 40% of working-age people with a disability are employed, which is below the OECD average of 44%. However, the OECD finds that the relative incomes of people with a disability are lower in Australia than in any other OECD country and poverty rates are the second-highest; with most of the explanation for this being lower incomes for those who are not in paid work. So to improve equity, we need to both increase employment and improve benefit rates. The Government has already improved benefit levels for people on DSP (and Age and Carer Pensions), and the package announced last night has been welcomed by welfare groups such as the Brotherhood of St Laurence as balancing increased obligations with improved support services.
However, population growth, continuing population ageing, the ongoing effect of past policy changes and the future increase in the age pension age to 67 years are likely to mean that the numbers on DSP will continue to grow for some years. But this will not mean that these reforms will necessarily fail. To judge the success or otherwise of the Budget, we need to look at age and gender-specific rates of DSP receipt, and we also need to look at the total rate of welfare receipt.