Future growth in DSP receipt—not all bad news

No doubt one of the priorities of the proposed review of income support payments will be the Disability Support Pension (DSP). DSP numbers have risen substantially in recent decades, despite numerous reforms designed to tighten eligibility and hence restrict growth. However a recent paper suggests that changes made to other income support payments have offset these reforms, and that the story is more positive than previous reports suggest.

The factors behind DSP growth

The paper examines the factors behind the growth in DSP recipient numbers over the last 30 years, which rose from 216,600 in June 1982 to 827,500 in June 2012. Demography accounts for a significant amount, with an estimated 117,000 of the increase due to population growth in the working age population (defined as aged 16-64 years for both men and women). In addition, some 17% of the increase in the proportion of the working age population receiving DSP has been a result of population ageing.

On the other hand, there is evidence of a slight fall in the rate of disability across all age groups, particularly for men aged 45 to 64, who form the bulk of DSP recipients. Labour market factors and the DSP payment rate increasing relative to the minimum wage do not appear to explain much of the remaining growth.

The paper argues that the major driver of increasing DSP receipt is changes to other payments. The authors have used Australian Bureau of Statistics (ABS) data to show that the percentage of the working age population with a disability who are dependent on welfare has declined since 1993, at the same time as the proportion of people in receipt of DSP has risen. What has changed is the income support payments those with a disability receive. For example, the increase in the age at which women can claim the Age Pension is estimated to account for 30% of the growth in the proportion of working age women receiving DSP, as women over 60 with a disability now get DSP whereas they previously claimed the Age Pension. There has also been a significant decline in the numbers receiving Service Pensions, from a peak of 411,800 in 1995 to 211,400 in 2013, some of whom would have been aged under 65 and had a disability which otherwise would have entitled them to DSP.

In addition, the closure of other income support payments such as Mature Age Allowance and Partner Allowance, and tightening of the eligibility for Parenting Payment, means that those with a disability who may previously have claimed these payments are now receiving DSP. The increasing disparity in payment rates between DSP and Newstart Allowance probably means that those with some capacity to work who may previously have registered for Newstart in order to receive greater support to return to the workforce, are more likely to apply for DSP to receive the higher rates of payment and be subject to a more liberal means test.

Does this matter

For the income support system as a whole, many of these shifts are not significant. For example, whether a 62 year-old woman with a disability receives the Age Pension or DSP makes little difference either to her circumstances or the public purse. And while raising the Age Pension age does mean some ‘leakage’ to DSP, many of those who fall under the raised Age Pension age will remain in the workforce, resulting in net reduction in income support recipients and corresponding government expenditure.

However, where the move has been away from payments which are designed to support workforce participation (such as Newstart or Parenting Payment) there are implications both for the likelihood of future employment and, given the relative payment rates and means tests, for budget outlays.

What does this mean for future growth in DSP numbers

Population growth and ageing will continue to put pressure on DSP receipt in the future, increasing numbers by more than 100,000 over the next decade. Increases to the Age Pension receipt age to 67 for both men and women is expected to result in an extra 100,000 or so, meaning that DSP numbers are likely to top one million within the next 10 years.

However, the good news from this analysis is the fall in the disability rates and the decline in the proportion of those of workforce age with a disability who are reliant on income support will reduce the demand for DSP, although the latter trend may depend on a continuing strong labour market. In addition, the Productivity Commission estimated that implementation of the National Disability Insurance Scheme, if combined with DSP reform to encourage greater participation, could lead to an increase in employment of people with a disability of some 220,000 by 2050, which would reinforce this trend.



Flagpost is a blog on current issues of interest to members of the Australian Parliament

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