Here's what you need to know about the major changes proposed for Australia's $150bn welfare system

Photo: Getty.

A major review of Australia’s $150 billion welfare system has recommended 75 different types of government support be simplified to just five payments.

It also recommends tightening the criteria for disability support, and raising the “age of independence” for young people to 22.

Patrick McClure’s report into Australia’s welfare system, commissioned by the Coalition when it came into power in 2013, proposes reducing 20 income support payments and 55 supplementary payments to five options: tiered working age payment, supported living pension, child and youth payment, carer payment and the age pension.

McClure, the former head of Mission Australia, was tasked with finding budget savings and incentives for people on support payments to return to work.

McClure’s review – he also wrote one for the Howard government in 1999 with similar proposals – was welcomed by Social Services Minister Scott Morrison, who said government action on the recommendations will commence with the 2015-16 Budget.

“One of the key recommendations is a major redesign of Australia’s welfare payment structure to address the costly, confusing and inequitable elements of our current system,” Morrison said.

“This is a worthy goal and provides a positive vision of how our welfare system could work more effectively in the future.”

McClure said his recommendations were about designing a new welfare system.

The age pension was outside the scope of the review.

“The current system is complex and inefficient, it’s very difficult to understand and navigate for people on income support, and in addition there are a lot of disincentives to work,” he said.

The review describes the income support system as a “patchwork quilt” pointing to a lack of coherence, citing how pensions and allowances are indexed differently, which has created a widening gap between the two.

“People with similar basic living costs and similar capacities to work may receive very different levels of financial support, and have different participation requirements,” the report says.

“These differences significantly reduce the effectiveness of the system and lead to incentives for people to try and qualify for higher income support payments, rather than building their capacity and aiming for greater self-reliance through employment.”

McClure identifies the “four pillars of reform” as: a simpler and sustainable income support system, strengthening individual and family capability, engaging with employers, and building community capacity.

The among the key changes, he recommends:

    The current child and youth payment should be a means tested payment and paid to parents or guardians of dependent children and dependent young people under the age of 22.

    It should be paid per child, increase with the age and be conditional on up to date immunisations and education or training attendance.
    It says independent young people should still get Youth Allowance.

    A tiered supported living pension to replace the disability support pension, based on how many hours a person can work each week and rather than basing it on impairment, benchmarking it against how long their capacity to work is limited for.

    It would begin with people with a disability that leaves them unable to work more than eight hours a week, followed by an upper tier eight and 14 hours of work a week, a middle tier for people able to work 15-29 hours weekly (or with dependent children under 22). The foundation tier is for people able to work or study full-time.

    A tiered “working age payment” to replace a number of existing payments, including Newstart, Austudy, carers payment, wife pension and sickness allowance. The tiers would be the same as those used for the supported living pension, based around work capacity.

    Each tier, should offer both single person rates and a partnered rate, with single rates more than the partnered rate (i.e. more than half the rate to a couple combined) to reflect that single people have higher costs than couples living together.

Here’s how the payments would be reformed:

Source: Dept of Social Services

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