Ideas@TheCentre
Disability pension needs tough love
New data released this week confirms the rate of growth in Disability Support Pension, which has long been the social policy thorn in the government’s side, has peaked. Despite a range of measures introduced in July and September this year to make the pension tougher, the number of people on DSP is still growing.
CIS has long argued that growth in the pension must be stemmed. The federal government deserves praise for its sensible and incremental approach to reform. But piecemeal reforms focusing only on new DSP applicants risk exacerbating other problems in the income support system.
Measures to tighten entrance requirements will not encourage any of the 800,000 people already on the pension to move back into the workforce. In fact, they will increase the pension’s ‘lock-in’ effect.
New, tougher rules mean the disability benefits system is increasingly two-tiered. People already on the DSP enjoy ‘grandfathered’ status and pension level payments, while new applicants face far stricter rules and must survive on miserly subsistence-level benefits.
It is now more difficult for ‘borderline’ cases to transfer from unemployment benefits to the DSP. But work disincentives for existing pensioners are also higher.
The changing profile of disability pensioners makes this especially problematic. One-third of all recipients suffer from mental health problems, which are often episodic in nature. Yet the current system discourages them from testing their ability to work for fear of being subject to the new tougher rules.
Many people in their 20s and 30s will remain on the pension for life because the design of the system makes this the economically rational thing to do.
Changes to the DSP are a welcome and an important step. But taken in isolation, they will lead to knock-on unintended consequences.
Wholesale reform of the income support system is needed to remove the incentive to transfer between payments or stay for life on the DSP. The Henry tax review provides a good blueprint to achieve this.
Jessica Brown is a Research Fellow at The Centre for Independent Studies and author of Working Towards Self Reliance: Three Lessons for Disability Pension Reform.
