Opportunities for reform to improve workforce participation of Disability Support Pension recipients

This concept paper comprises ideas and evidence for reform to the Australian Disability Support Pension (DSP) exploring how targeted changes to the DSP could reduce the financial risks and disincentives facing recipients who want to work.

Too many people with disability are locked out of employment – 53% of people with a work-limiting disability were employed in 2022, compared to 82% of the broader population. Using national datasets and leading economic frameworks, the paper analyses how DSP taper rates, suspension rules and administrative complexity affect employment decisions and labour force participation. 

Despite growing policy momentum around inclusive employment, analysis shows that DSP recipients remain significantly underrepresented in the workforce, with only 14% in paid work compared to 46% of similar peers not receiving the payment. Findings show that the current 50-cent taper rate creates steep effective marginal tax rates, discouraging people from increasing their hours. A rigid two-year suspension period also increases fear of losing DSP eligibility – particularly for those with fluctuating or long-term conditions. 

Small and practical changes to DSP settings could improve employment and reduce system inefficiencies. Modelling shows that reducing the taper rate to 30 cents and extending the suspension period to 10 years could deliver a net benefit of between $419 million and $2.3 billion between 2026 and 2035 (in Net Present Value terms), through increased earnings, taxation revenue and reduced benefit payments. 

These opportunities for reform to DSP would complement the Australian Government’s new Inclusive Employment Australia program and provide guidance to policymakers seeking to deliver on the recommendations of the Disability Royal Commission. Together, the proposed changes to DSP offer a pathway to stronger employment, economic and life outcomes.