DSP reform: right move, right time

It is reasonable, in fact imperative, for a prudent and responsible government to reform the disability pension, given Australiaʼs growing and ageing population.

In the institutionalised arena of conflict that is modern politics, calls for reform of existing fiscal arrangements are invariably countered by strong resistance by those with pecuniary or ideological interests to conserve the status quo.

Nowhere is this battle more evident than in discussions about reforming the welfare state.

Animated in no small part, it seems, by a concern about the reasonable capacity of taxpayers to afford ever‑growing welfare expenditures, the Minister for Social Services, Kevin Andrews, has floated several ideas to change the disability support pension (DSP).

It is fair to say there have been some adverse responses to the Ministerʼs various proposals for a more financially sustainable welfare state, including Greg Jerichoʼs latest piece on the ABC Drum website which questions the merits of more DSP reform.

Looking at the growth in the absolute numbers of DSP beneficiaries, from 138,818 in 1972 (when it was called the Invalid Pension) to 821,738 in 2013, is not without its merits, but as Jericho says it is helpful to look at these numbers in broader contexts.

In the first instance, he does this by presenting data about the DSP population as a share of the overall working‑age population, showing a slight trend increase in the prevalence of beneficiaries under the pension scheme since the early 1990s.

Using data from 1992, Jericho also observed that changes in the pensioner to working‑age population share has been largely flat from the early to mid‑2000s, at least compared with the 1990s.

Jericho seems to argue the moderation in the population share of DSP beneficiaries, and a trend of falling annual percentage growth in the benefit population, invalidates further measures to restrain the DSP.

In his view, it seems, Julia Gillard tightened DSP eligibility criteria in 2011, and so all avenues for reform since that momentous time are exhausted.

But the ad hoc range of statistics presented does not illuminate some of the more important underlying characteristics of the DSP regime, and nor does Jericho shed any great light on the broader circumstances informing the calls for reform.

Jericho mentions mental illness (ʻstressʼ) conditions twice in his piece, and does not mention musculo‑skeletal (ʻbad backsʼ) conditions at all, even though these complaints account for about 57 per cent of the total number of DSP recipients in 2013.

Another notable feature of the DSP population is that 25,774 people were transferred to the DSP from another welfare payment in 2013, with about 70 per cent of those people formerly on the Newstart unemployment allowance.

The DSP clientele is skewed towards older age brackets, with about 64 per cent of the DSP population aged between 45 and 64, and another four per cent of DSP recipients in their retirement age.

Finally, once a claimant gets onto the DSP roll, there is a good chance he or she could stay on it for a lengthy period of time, judging by Department of Social Security statistics showing that, in 2013, about 56 per cent of the DSP population received payments for at least a decade.

Against the background of strong economic growth, at least until recently, a generally healthier population, shown by a declining death rate for the Australian working‑age cohort, broad policy concerns about the extent of DSP uptake have not been invalid.

And to ensure that DSP spending does not pose as an intolerable burden upon the taxpaying public is a matter that governments should rightly contemplate, at all times.

There is no question that some people are inhibited by profound disabilities and some severe instances of psychological and musculo‑skeletal problems do exist, but these latter ailments are also often difficult to diagnose accurately and, in any case, can sometimes diminish in their severity over time (including as a result of rehabilitation).

It does not seem unreasonable to contend most people would agree that DSP recipients, particularly with milder or less severe ailments, should be encouraged to seek and attain work, in instances where they can reasonably do so.

This applies, for example, to working‑age people laid off work, including from manufacturing jobs, and who succeed in moving from Newstart to DSP to enjoy a higher payment rate and less onerous work requirements.

Employment not only avoids the fiscal burden of DSP payments but delivers economic and social benefits, including the opportunity to cooperate with others in providing economically valuable products, and an ability to earn an income through oneʼs own exertions.

Jumping the DSP dependency hurdle into work can also, other things being equal, depress the relative income inequality that Greg Jericho openly worries about.

Tackling the problem of extensive DSP dependency right now is also appropriate, given the risk that todayʼs younger DSP recipient becomes tomorrowʼs DSP recipient living among an older populace with relatively fewer taxpayers to support continuing welfare state growth.

Jericho wants to defend the status quo on the basis that further DSP reform would worsen inequalities and economic growth.

But the IMF study , which Jericho uses to defend his claim, does not square with the message, in the very same paper, that excessive redistribution does, in fact, hamper the growth performance of an economy (a point noted recently by Tim Worstall of the Adam Smith Institute):

when redistribution is already high … there is evidence that further redistribution is indeed harmful to growth … further redistribution seems to start having a negative direct effect when it exceeds about 13 Gini points.

As Worstall notes, France redistributes by 19 Gini points and Sweden by 17, which exceeds the threshold at which redistribution dampens growth. Australia happens to be just over the edge of the threshold, with its redistribution policies reducing its Gini coefficient by 13.2 points.

In the final assessment, the challenge that Jericho lays out in front of prospective reformers of the gargantuan DSP system is an empty one.

Welfare reform was not unreasonable in 2011 under Julia Gillard, and would not be unreasonable in 2014 under Tony Abbott and Kevin Andrews.

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34 Responses to DSP reform: right move, right time

  1. Monkey's Uncle

    and another four per cent of DSP recipients in their retirement age.

    I don’t understand how anyone can be on DSP past retirement age. I thought they would automatically be assessed for an aged pension instead of DSP if past retirement age.

  2. Julie Novak

    According to the latest DSS disability support pension characteristics report, 31,162 people over the age of 65 were on the DSP as at June 2013. No new applicants under the age of 16, and over the age of 65, are to receive DSP.

  3. Tom

    LOL. The publisher of Dogshit Today – an anonymous suburban blogger and internet troll who’s into the DSP up to armpits using a feigned injury to a hand several years ago — just happens to give prominence today to Jericho’s spurious defence of the welfare system’s biggest and most lucrative ($750 per fortnight versus $500 for Newstart) rort. The moochers are going to squeal whenever their theft of taxpayers money is taken away. They will get little sympathy from the minority of net taxpayers in this country who are paying for their holiday from reality. Abbott and Andrews simply have to keep making the point about justice and fairness. People hate cheats.

  4. dweezy2176

    Why is it whenever there is discussion of the DSP the rorting is never factored in? No matter how much is reported it is always as if ALL DSP recipients are genuine! I get baffled by this attitude and wonder if I live in a very unique part of OZ?
    Here, in the backblocks of Fairfield, NSW where English is a second language DSP is the norm! I live in a small HC estate (69 houses) and the majority of the adult (parents) are on DSP and have been for up to and over the 30 years I have lived here! In the cul-de-sac I live in which accounts for nearly half of the properties you can count on one hand the number of adults who have worked in the past 30 years! I haven’t spoken to a “neighbor” in all that time as I have never had one that uses English! They haven’t needed to learn as none have ever worked. In all this time frame only one resident of this estate has had a visible condition that would prevent work. There are two households near me in which all the family members over 16 are on DSP.
    Is this the norm? Because if it is it goes a long way to explaining why 1 in 15 adults are incapacitated. Methinks we have too many compliant ethnic quackticians rather than genuine DSP recipients. After all is a Muslim quack going to argue with a recommendation from the local mosque?
    Also none are lacking the necessities of life, new cars, wide screen TVs, kids in designer label plus regular trips to the homeland(s) so getting by isn’t a problem on DSP!

  5. Well put, and bravely put, Dr Novak.

    (In anticipation of Rabz at this point – she is just as much a Dr as I am, so you can get stuffed.)

  6. Rabz

    so you can get stuffed

    Well, that’s just bloody charming, that is!

    :x

  7. Mr Rusty

    No Government is ever going to tackle the DSP head on and put those who are not truly disabled back onto Newstart because the resulting 10%+ unemployment figures would kill them politically.

    Instead, we’ll get a little tinkering around the edges, a few high profile cheats will be exposed and taken off DSP, the rest will be hidden away or given some other benefit entitled “Special” or “Supplementary” Benefit that won’t count towards unemployment figures and 1 in every 12 people of working age will continue to mooch off and laugh at those that choose to work for a living.

  8. Demosthenes

    I’m consistently impressed by the quality of your articles, Dr Novak.

  9. Squirrel

    I hope recent reports about cut-backs to Centrelink’s compliance/fraud avoidance resources are just that. There wouldn’t be much point devoting a lot of effort, and at least some political capital, to changes to the DSP and other benefits, only to have any resulting savings eroded by increased fraud.

  10. stackja

    Walls of Jericho protect DSP it seems.

  11. Rebel with cause

    I had a family member that ended up on the DSP due to a drug addiction. That put it down as ‘stress’ or ‘depression’ or something like that, but the real reason they got on the DSP was because they couldn’t hold down a job, and the reason they couldn’t hold down a job was because they were too messed up on drugs. Centrelink were only to happy to provide drug money.

    As soon as they stopped using, and picked up some work (after a lot of hard work by family to assist) they didn’t need the DSP anymore.

    What pisses me off is that there was a young person that needed help to get off drugs, but the welfare system just wants their bank account details so they can give them cash – never mind if they toddle off to their dealer straight after the Centrelink payment hits.

  12. so you can get stuffed

    Well, that’s just bloody charming, that is!

    I said it in a nice way, and in my posh telephone voice.

  13. MemoryVault

    It would be funny if it wasn’t so sad. Every time we get a government with a budget hole to fill, “welfare reform” is trotted out as the obvious solution. Then the magical “welfare reform” is immediately translated into “who can we pay less to”? So we reduced the number of “dole bludgers” by upping the school leaving age – and look how well that’s working out. Next we upped the retirement age – and people really think that’s not going to increase the number of people on DSP? There’s talk of changing the age when people can draw on their super – guaranteeing that some will HAVE to go onto DSP. So that leads us to the DSP itself. How can we reduce the number of people on it? Or pay them less?

    It would be nice if just once the term “welfare reform” meant actually reforming the welfare system.

    Where to start? How about starting by identifying the REAL problems. A cursory glance at the Social Security Act 1991 reveals no less than 90 plus different payments and benefits – not counting payments to or for children. Then there are as many again variations in those payments – at least five different payments under Newstart (the dole), where the requirement to seek work is either reduced or suspended altogether, for instance.

    This was a complete and utter mess even prior to the 2011 “reforms”. But at least most of these payments, from assessment to grant, then ongoing monitoring and review, were handled at the local Centrelink office, and could be sorted out there. Unfortunately, along with Gillard’s “reforms” came the greatest bit of bureaucratic empire building outside of the climate change sphere. Now the Centrelink offices do little more than collect forms, which are then sent off to remote centres for assessment and processing. This has reduced the administration of welfare in this country to the level of disorganised chaos, with each of these sub-departments applying their own interpretations of the Act. This leads to ludicrous outcomes.

    For instance I am currently working with a couple in their sixties, less than three years from retirement. Four years ago the husband suffered a major heart attack and a stroke. The heart attack left him with major permanent heat damage, resulting in degenerative, congestive heart failure, which is gradually getting worse and will, in all probability, kill him in the next few years. Nonetheless once he got out of hospital he managed to return to work for another three and a half years, until his degenerating condition made this impossible. By that stage he could no longer cook a meal or perform simple household duties, or drive a car. He applied for a DSP, and his wife applied for a Carers Benefit.

    The outcome? The husband’s claim for DSP was rejected. Furthermore, he has been assessed “fit for work” despite a doctor’s certificates to the contrary, and so must attend fortnightly meetings with an “employment provider” who has no intention of ever referring him to an employer, given the legal implications involved. The rejection decision has been reviewed, and upheld, and is now subject to appeal. Meanwhile, the wife has been granted a full Carers Benefit, to look after him.

    This is only one of a hundred idiotic outcomes I could quote. Overpayments are raised with no legal basis, documents are lost, Human Services employees regularly make decisions with no legal basis within the Act, people are stressed, the Review and Appeals systems are overloaded with cases that should never have even come into existence.

    In truth, discounting payments made to or for children, Centrelink / Human Services only administer two types of payments – income support (IS), for people in need of temporary assistance, and income replacement (IR), for people unlikely to ever work again. And that’s all there should be. IS replacing Newstart, Supporting Parent’s Benefit (until the youngest child starts school), and people currently receiving DSP for depression and/or drug dependency (who would be required to undertake remedial treatment instead of seeking work, for a fixed period). IR replaces Age Pension, DSP for those with permanent incapacity, and Carers Benefit, for those who look after them.

    Both IS and IR payments should be the same amount, and be at a rate comparable to the minimum wage for couples and single supporting parents, and a percentage of the minimum wage for singles. Conversely, at such a rate, there is no justification for paying extra benefits for children, or for paying rent assistance, or any of the other dozens of vote-buying “add-ons” that currently exist. Finally, standardise the amount than can be earned and the rate at which it affects payments, to something workable, to remove the current benefit poverty trap.

    In other words, instead of fiscally bashing old people and cripples, how about we have some meaningful welfare reform? First reform the administration, which is currently in chaos. Scrap all these sub-departments in Canberra, Sydney and Melbourne, and return the administration back to the Centrelink offices. Either that, or close them. Then reform the payment system itself, as outlined above, down to just two easily administered payments.

    Then, and only then, should we start looking for the “bludgers” and “malingerers”.

  14. Overpayments are raised with no legal basis, documents are lost, Human Services employees regularly make decisions with no legal basis within the Act, people are stressed, the Review and Appeals systems are overloaded with cases that should never have even come into existence.

    Yes, absolutely.

    Then reform the payment system itself, as outlined above, down to just two easily administered payments.

    Ditto. There you go, Julie – half your work done for you …!

  15. Andrew

    Yes, what dweezy said. I’m about the most injured person I’ve ever seen in 2165, and one of the few with a job.

    I have a new design for the application process.

    1) watch video of Prof Hawking.
    2) state, on pain of perjury, that bearing in mind he worked for 45 years like that, you are TPD and can never work again due to your disability
    3) offer work-for dole programme, but no $ for 2 weeks
    4) if noticeably thinner in 2 weeks, it’s possible they are actually too sick to work – move to step 5:
    5) satisfy 3 doctors of completely different ethnicity – pref a common enemy – of your condition, using interpreter if necessary. Any POMEAs to be sent to Bondi to see a Jewish doctor, with an obviously Hebrew name. Serbs to Croat doctors etc.
    6) repeat at frequency calculated by govt actuary to minimise outgoings to public purse after costs. Not daily, but not once a decade.
    7) everyone works for DSP unless in coma. In wheelchair, in bed if necessary. On iPads.

  16. johanna

    In the affluent Canberra suburb that I live in, there are two classes of people – those who work and those on the DSP.

    Those on the pension get subsidised housing, pegged at 25% of their (taxpayer funded) income. Meanwhile, our rates go up and up to cover the costs of services that most of us never use, like the Oxycontin Users’ Puppet Show (OK, I made that one up – but go to the ACT government website and it is in the middle zone of absurdity).

    They mostly have sidelines like drug dealing, markets, and cash in hand domestic services like lawn-mowing or cleaning.

    From their point of view, it is economically rational. From the taxpayers’ point of view – time to change the incentives.

  17. MemoryVault

    7) everyone works for DSP unless in coma. In wheelchair, in bed if necessary. On iPads.

    And what, precisely, do you suggest they do – on their ipads, or even elsewhere – that won’t displace somebody already working?

  18. They mostly have sidelines like drug dealing, markets, and cash in hand domestic services like lawn-mowing or cleaning.

    This is what annoys me. There IS enterprise and innovation out there, but it’s being negated because it’s publicly funded, just as if it were being done on a big fat ARC grant.

    In fact, you could probably swap the two groups of people involved – the more loopy ARC project grant recipients, and those on the DSP – and not notice too much difference in the outcomes.

  19. Tintarella di Luna

    Then, and only then, should we start looking for the “bludgers” and “malingerers”.

    Thanks for your thoughtful comment MemoryVault

  20. johanna

    Not quite, Philippa. At least when I pay someone to mow the lawn, it gets mowed.

    The same can’t be said of ARC grants recipients.

  21. Tintarella di Luna

    everyone works for DSP unless in coma. In wheelchair, in bed if necessary. On iPads.

    Andrew I hope people who are severely intellectually disabled would also be eligible under your criteria otherwise my big boy will be in real trouble.

  22. johanna

    oops, Tinta. Apologies to both.

  23. Rebel with cause

    And what, precisely, do you suggest they do – on their ipads, or even elsewhere – that won’t displace somebody already working?

    Demand for labour is not fixed.

  24. MemoryVault

    Demand for labour is not fixed.

    I just love the way you economistical types think.
    Labour and capital – two sides of the same coin.
    Interdependent and at the same time interchangeable.

    What a load of crap.

    Capital is capital (money) whether invested in horses, houses or hotels, and remains interchangeable.
    Labour is not.
    The brickie’s labourer who gets his spine smashed in four places by some drunk running a red light,
    is never going to end up working in astrophysics alongside Professor Stephen Hawking, as previously suggested, ipad or not.

    Demand for labour is not fixed, true, but suitability of one person to various different forms of labour certainly is.

  25. Tel

    Capital is capital (money) whether invested in horses, houses or hotels, and remains interchangeable.

    Not really, a lot of people get that confused but money is only a medium of exchange between people, nothing more than that. Money can store value for an individual person, only at the agreement of another person (think of it like an IOU note).

    Capital in the broader sense (horses, houses or hotels) must be physical in order to store value (and hopefully productively make value when invested in a well chosen venture). Money cannot store value in any absolute sense (I’m talking about fiat paper money here with no intrinsic value).

  26. MemoryVault

    Money cannot store value in any absolute sense (I’m talking about fiat paper money here with no intrinsic value).

    True. But this is not a discussion about what constitutes “money”, nor the intrinsic non-value of fiat currencies. It is a discussion about DSP bashing in general, and the comment “Demand for labour is not fixed”, in particular.

    Regardless of how we define money and decide what its intrinsic value is, the truth remains that someone with it (money) can choose to invest it horses, houses or hotels, change their mind, withdraw or cash-up their investment, and re-invest in one of the others, usually with minimal fuss.

    Labour does not enjoy the same mobility, especially not damaged labour. The horse trainer with a lifetime of experience in their chosen field who is crippled in a skiing accident, is unlikely to find the transition to building houses or managing hotels, particularly easy. Ditto for the above-mentioned brickies labourer, who is unlikely to secure employment either training horses or running hotels. The hotel manager who suffers a major stroke that leaves him crippled, paralysed and speechless, has little to offer the horse-training or building industries.

  27. Monkey's Uncle

    Demand for labour is not fixed, true, but suitability of one person to various different forms of labour certainly is.

    And what, precisely, do you suggest they do – on their ipads, or even elsewhere – that won’t displace somebody already working?

    So “demand for labour is not fixed, true,”. And yet it is apparently self-evident that forcing one person to work will displace someone else already working?

  28. Monkey's Uncle

    I would not be surprised if MV is a government troll paid to derail sites like this.

    Someone calls him out on resorting to the lump of labour fallacy. So he responds with some point (probably true but irrelevant) that labour is less fungible than capital. Talk about non-sequiters and red herrings!

  29. MemoryVault

    And yet it is apparently self-evident that forcing one person to work will displace someone else already working?

    Okay Monkey, I’ll play.

    Give us just ONE example of a meaningful, required, affordable job (as opposed to “make work”, subsidised employment) that a genuinely handicapped person in receipt of a pension can do, that isn’t already being performed by an unsubsidised able-bodied employee or contractor.

  30. MemoryVault

    Someone calls him out on resorting to the lump of labour fallacy.

    And therein lies the difference between me, and you and the other economatrists here.
    To you and the others, there’s capital and units of labour (eg – “lump of labour”).

    To me, we’re talking about people – you know, living, breathing human beings.

    I would not be surprised if MV is a government troll paid to derail sites like this.

    For the record, Monkey, back in 1987 – probably about the same time you were learning not to piss in your pants, I was described in Federal Parliament as:

    The most sinister, insidious right-wing extremist threat to the delicate fabric of democracy that this country has ever seen.

    That was a member of Hawke-Keating Labor government (Keith Wright). But it was non-partisan criticism – National Party Senator Ron Boswell was claiming much the same in the Senate, and getting it preached in Assembly of God churches as “gospel truth”.

    About the same time Labor luvvie Laurie Oakes was claiming in a feature article in Time Magazine (I think), that I was the secret head of the Ku Klux Klan in Australia.

    .
    So who am I supposed to be spruiking for now, Monkey?
    Obviously – at least according to you – I am incapable of independent thought.

  31. .

    Give us just ONE example of a meaningful, required, affordable job (as opposed to “make work”, subsidised employment) that a genuinely handicapped person in receipt of a pension can do, that isn’t already being performed by an unsubsidised able-bodied employee or contractor.

    Meaningful?

    FFS.

    Able bodied people work utilitarian jobs for excellent pay, without “meaning”, they are in the mining industry etc.

    The most sinister, insidious right-wing extremist threat to the delicate fabric of democracy that this country has ever seen.

    It’s Des, peoples.

  32. MemoryVault

    Able bodied people work utilitarian jobs for excellent pay, without “meaning”, they are in the mining industry etc.

    Doesn’t even address the point I made.

    It’s Des, peoples.

    Wrong. In fact “Des” and I crossed swords less than a couple of weeks ago, when he claimed that there had been no such thing as “affirmative action” within the APS in the 1980′s.

    You were there in the thick of the conversation, Spot.
    Learn to remember – it can be valuable.

  33. Tintarella di Luna

    Keith Wright? now this is getting too weird. Ciao gatti

  34. MemoryVault

    Keith Wright? now this is getting too weird.

    Too weird?
    Tanta, Most Cat readers (and contributors) have obviously all had very sheltered upbringings.
    They are, for the most part, kind, gentle, unassuming souls.
    I’m trying to introduce them to real life very gently, to minimise the shock.

    Too weird?
    We haven’t even scratched the surface of “novel” yet.
    The “weird” stuff is still at least a couple of months away.

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