Working towards self-reliance: three lessons for disability pension reform

This report outlines current problems with the Disability Support Pension and offers three approaches for its reform.

More than 800,000 Australians rely on Disability Support Pension (DSP). The program costs taxpayers more than $13 billion a year, a figure that is projected to increase. There is clear bipartisan support for the idea that growth in DSP must be reduced. Both the Howard and Rudd/Gillard governments have attempted to reduce the number of people on the pension, but it has continued to inexorably grow. 

Since 2002, the proportion of the working-age population on DSP has remained fairly stable, but at the same time the proportion of people relying on other major working-age welfare payments has fallen substantially.

Australian policymakers have been remarkably successful in reforming much of the welfare system over the past decade and a half. Yet DSP remains the big unsolved problem. If we are to be successful in increasing the number of people with disabilities in the workforce, we must apply the lessons learned from reforms of other income support payments to DSP.

Broader reform of the income support system is required to reduce the incentive to transfer from unemployment benefits to a disability pension. 

The paper offers three lessons. 

1. Better categorisation equals better results.
2. Create rules, and ensure recipients stick to them.
3. Economic incentives matter.