Per Capita Policy Exchange 2009: Valuing the Future: Policymaking for the Long Term

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Before I begin, I would like to acknowledge the traditional owners of this land and pay my respects to their Elders, both past and present. Thank you for the invitation to speak here on a subject I have long been passionate about. Policy making that responds to the here and now but, just as importantly, stays the distance over the long-term. It’s something that has occupied my thinking for most of my career. I’m confident I can safely divulge my obsession with policy here because I suspect I am in the company of fellow policy enthusiasts. People who share Per Capita’s and the Australian Government’s view that when it comes to policy development we must take into account “the national challenges of the next decade rather than just the next election cycle.”

I think we all would agree that at the heart of all good policy is its ability to both respond to immediate, pressing needs and to anticipate and meet future challenges. Nowhere is this better reflected than in the sweeping reforms made by the Government to the pension system and implemented last month. Reforms which were driven by the immediate and urgent need to make the pension adequate for the millions of Australians who depend on it.

But just as importantly, shaped by the long-term imperative to deliver sustainable income support for a future where by 2050, one in four Australians will be 65 or older.

In this case, reforming the pension system meant building on the century-old age pension which has evolved to become the bedrock of Australia’s social security system. Of course, back in 1909 the introduction of the age pension followed a year later by the invalid pension, was both groundbreaking and controversial. It was also a founding policy platform for a very young Federal Labor Party. And a fundamental reform which responded to immediate need but then grew and evolved to shape the development of a modern Australia.

The 1909 age pension was ahead of its time by international standards of the day – but it was certainly modest in its reach and rate. And discriminatory.

Ten shillings a week paid to 34,000 customers. Representing 12 per cent of male total average earnings. And excluding people deemed ‘aliens’ – Asiatics, Australian Aboriginal people, Africans, Pacific Islanders and New Zealand Maoris. Over time, things changed. Pensioners no longer had to prove they were people of good character, they didn’t have to report to their local post office to be paid in cash and in a landmark Whitlam Government reform – the pension was benchmarked to earnings.

When we came to office, ninety-eight years after its introduction, the age pension remained the bedrock of Australia’s income support system but was in desperate need of reform. A decade of neglect had left many pensioners struggling to make ends meet – particularly single people renting in the private market. The base rate of the pension was inadequate and pensioners relied on ad hoc, one-off bonuses to help them get by. They were living from day to day with no security, no certainty. Which is why, even in the most difficult economic times, we reformed the pension system to meet the challenges of an ageing population. Making the tough policy decisions necessary to provide an adequate level of support for millions of age and disability pensioners, carers and veterans – offset by savings to underpin the long-term sustainability of the system.

This is progressive reform. Reform which retains and builds on the key features of the Australian pension system enacted in the first decade of Federation: the pension is paid regardless of past earnings; it is non-contributory and funded from general revenue; and is means tested to ensure it is targeted to those most in need. Today the social safety net is there to support:

• Three out of four Australians over the age of 65 who receive the age pension;
• Three quarters of all families with dependant children who are paid family assistance through Family Tax Benefit; and
• Around 140,000 carers who also receive a pension and just over three quarters of a million Australians receiving the disability pension.

When the global recession struck, Australia’s century-old safety net was there to cushion the impact – kicking in with financial support when and where it was needed. These were our economy’s automatic stabilisers in action. Today I want to share with you new data which demonstrates this.

Before the crisis hit in August last year, the average weekly number of claims for the age pension was around 2,500 – with around 2,000 pensions granted. As the crisis hit and financial markets and investment returns tumbled, these numbers grew rapidly. By November, the claim rate was 3,500 a week with more than 2,700 grants of new pensions. This rate largely continued through February and March with a slight decline in April; however in May, claim rates were still over 3,000 a week. By August this year, the age pension claim rate had subsided to below 2,500 – the level before the crisis.

We saw a similar picture for the disability support pension. In August last year around 2,300 assessments were made per week, resulting in an average of 1,500 grants. This grew to around 2,600 assessments in the early months of the year, reaching 3,000 in May. In August this year he claim rate for the disability pension was back to levels seen a year ago – around 2,400 a week, with around 1,500 grants being made each week.

At a broader level, Australia’s social security system also served us well as we dealt with the economic reality of a global financial system in deep chaos. As the Prime Minister, the Treasurer, and other senior government ministers met to map out a plan, the Government had at its disposal a social safety net whose reach and strength could be in used in a strategic but non-traditional way. When the Government decided stimulus was needed, swift action was possible because we had the levers to pull. Australia’s payments system allowed the Government to respond more quickly and effectively than many other countries.

On 14 October last year we announced our Economic Security Strategy. By early December, payments of $1400 to single pensioners and $2100 to pensioner couples combined were made – benefiting 3.3 million pensioners. One indicator of the success of this prompt action was that the subsequent lift in retail sales figures was so significant the Australian Bureau of Statistics had to suspend its trend series.

Of course, policy development must be a continuum. It’s not something that’s finished, filed away and forgotten. For true believers in the policy development space, continuing assessment, evaluation and adjustment is the mission statement. It’s a work in progress – always anticipating, responding and evolving. Always looking to the challenges ahead. One of the challenges for me is maintaining a strong, sustainable social safety net which supports those who need it, when they need it. At the same time ensuring it doesn’t become a welfare crutch for those who could and should be working. Achieving this requires a delicate and complex policy balance. Particularly when considering the Disability Support Pension which provides essential income support for a group of Australians who are unable to work to fully support themselves. They need an adequate standard of living and that is why our pension reforms included the disability support pension. The pension reforms substantially increased the base rate of the pension. After years of waiting, just one month ago, single disability pensioners over the age of 21 received an increase of more than $70 a fortnight. Two thirds of all disability pensioners are paid at the single rate.

But much more needs to be done to encourage people with disability to participate in community life – and key to that is supporting those who can to enter the workforce. This is especially important when you consider the trend over the last decade which has seen the number of disability pensioners increase by over 31 per cent, reaching more than 757,000 in June this year. For men, there was a 13 per cent increase which is in line with the 13 per cent general growth in the working age population. For women there was a 63 per cent increase – mostly attributable to the closure of payments like the Wife and Widow pensions, and restrictions on parenting payment single.

But what is worrying about these increases is, that apart from the economic downturn of the past year, these significant increases occurred during a decade of significant prosperity. If the number of working age Australians moving out of the labour market and into long term income support goes up in times of strong economic growth and record employment, they are even more likely to be sidelined in uncertain times. Unfortunately the disability support pension has become a destination payment. The average length of time spent on the DSP is almost 12 years. And most people who leave the DSP move on to the age pension, or, sadly, die. Very few end up in employment. So clearly the policy challenge we face is to determine why existing policies are failing Australians with disability. Failing to encourage and help those who might be able to work, get and keep a job.

This is an area of policy which has seen many different approaches. The last major change to the disability support system was the previous Government’s Welfare to Work initiative. It reduced the number of hours people could work to qualify for the DSP from 30 to 15. But the big stick approach had no impact on the number of people on Disability Support Pensions. In fact, the numbers kept going up. And it did nothing to support the many disability pensioners keen to contribute more actively to their community. It was a simplistic approach to a complex problem.

A complex problem where many different factors are in play. For example, we know that over half of all disability pensioners come from another income support payment. Analysis by my Department shows that there is a very high correlation between those areas with high numbers of disability pensioners and those on the Newstart allowance. When you measure net inflow into DSP against the unemployment rate, it shows a strong correlation between the unemployment rate and increases in DSP. Which leads us to the view that many new applications for the disability pension are not triggered by the acquisition of an impairment or disability, but by changes in an individual’s employment circumstances.

In addition, we know that only around 9.5 per cent of Australia’s 757,000 disability pensioners have employment income. And of the 100,000 or so disability pensioners who reported earnings over the two years to the end of 2008, only 36,000 had a job for the whole two years. Compared with other developed nations, Australia has the fourth lowest employment rate for people with disability of the 11 countries so far examined by the OECD’s Sickness, disability and work reports.

So it is clear there is a great deal of solid policy work needed to turn this around. This work is underway. To begin with, there must be early and appropriate help and support before people move on to the DSP because we know that most people who go onto that pension will never work again.

Currently around half of the new entrants to DSP go on to the payment without accessing the support available to help them enter or re-enter the workforce. In July next year we are launching a pilot re-engagement strategy with 16,000 new DSP entrants. As part of the strategy, in selected regions new disability support pensioners will be required to attend targeted information sessions providing advice on disability employment, outlining the services available and possible assistance. These sessions will occur immediately after the grant of a DSP, and then 3 months and 12 months after the initial pension payment. Not only will these sessions outline assistance and incentives to work, they will also help us learn more about effective early intervention strategies.

We must also break down the many barriers which people with disability encounter. The obstacles of discrimination and exclusion which unfairly impede too many people with disability. Stereotypical views of people with disability – based on what they can’t do rather than what they can do.

Bringing about this change is something Bill Shorten, my Parliamentary Secretary for Disabilities and Children’s Services, is pursuing with his trademark vigour and commitment. Last month, the Minister for Workforce Participation, Mark Arbib, and Parliamentary Secretary Shorten released the National Mental Health and Disability Employment Strategy – tackling the barriers to employment faced by people with a disability, including mental illness. It sets out priority actions to break down these barriers and get people into jobs.

The Strategy includes a $1.2 billion investment in the new disability employment services to begin on 1 March next year. Places in the new disability employment services will be uncapped. This means job seekers with a disability will have immediate access to a personalised employment service linking them to skills development and training.

The Government has also moved to remove the disincentives for people on DSP using employment services to find work. Previously pensioners were in the iniquitous position of fearing that they would lose their pension if they sought help to find a job through an open employment service. Now disability pensioners can seek employment assistance without fear of losing their DSP through the automatic triggering of a review of their eligibility.

And this is already showing dividends. Since this reform was introduced in September last year, more than 12,000 Disability Support Pensioners have sought employment assistance. These are existing disability pensioners who have now volunteered to seek help to get employment after previously being discouraged by old, punitive rules.

Employers, of course, are a critical part of this equation. Over the past two years, Bill Shorten has been traversing the country speaking to employers and enlisting their support with very positive results. More than 20 large companies, including the ANZ, Coles, Woolworths, Wesfarmers, Westpac along with the ACTU have signed up to work with the Government to create more job opportunities for people with disability. With the support of employers and as part of the new Mental Health and Disability Employment Strategy, we are running a $6.8 million Incentive Pilot to trial ways of encouraging employers to offer jobs to Disability Support Pensioners.

The trial will provide jobs for 1000 disability pensioners, giving them an opportunity to demonstrate their skills and willingness to work. On the income support side of the equation – we face a sizeable challenge making the monolithic, universally-available income support structure more responsive to the very different, individual circumstance faced by people with disability. What is needed is the flexibility to take a compassionate approach towards those with clearly manifest disabilities, while providing a more thorough assessment for others. To do this, from July next year a new triage system will be introduced to cater for the different needs of new claimants for the DSP. More people who are clearly or manifestly eligible due to a catastrophic, congenital disability or cancer, will be fast-tracked so they can receive financial support more quickly. This will cut red tape for vulnerable people. People who are clearly not eligible will be streamed out of the claim process earlier and referred to appropriate assistance more quickly. In cases which are not clear cut, people will now have their eligibility for DSP assessed by Senior Job Capacity Assessors to receive a thorough assessment.

We are also establishing new and clearer guidelines for assessing work capacity including the explicit consideration of prior work history in determining a person’s current capacity to work. At the moment there is no assessment of prior work history when determining whether an individual has the capacity to work in the future. We will also establish a new Health Professional Advice Unit within Centrelink to give Job Capacity Assessors advice on medical issues including treatment, to complement the claimant’s doctor’s report. And we’re overhauling the currently inconsistent and out of date impairment tables used for DSP assessments, to make sure they are consistent with contemporary medical and rehabilitation practice. At the moment, for example, we have the incongruous situation where the benefit of a hearing aid is not included in the assessment of hearing impairment, but glasses are when sight impairment is assessed.

The Government also recognises the impact of the increasing incidence of mental illness, including among people on the disability pension and other payments. In Australia, 27 per cent of disability pensioners have a psychological or psychiatric impairment. I am pleased to announce today that Australia will be taking part in a new OECD study “Confronting the challenges of mental illness”. This study will examine the particular challenge of mental illness in disability policy, especially disability and work as a follow up to the ongoing OECD’s Sickness, Disability and Work review which will be completed early next year.

As I said earlier, getting disability policy requires a delicate and complex policy balance. It is an evolving policy challenge for government and the community. I’m sure many of you here have already been thinking about a policy idea which emerged from the Prime Minister’s 20/20 summit – the proposal for a disability insurance scheme in Australia. It’s an important policy debate, and one I am glad that we can have. An insurance scheme warrants further, and detailed, consideration. We know that social insurance is a feature of the disability systems in other developed countries which have better outcomes than Australia on a range of indicators – including employment for people with disability. Here, one of the critical policy questions is how our uniquely Australian social security system – a disability pension paid to everyone entitled to receive it regardless of past earnings; non contributory and funded from general revenue; and means tested – would interact with an insurance model. This is just one of the policy questions we need to resolve as we debate the merits and structure of a possible disability insurance scheme. There are many astute advocates and policy makers already concentrating their attention on these questions, and many members of the government, including myself, keen to engage with them. I hope Per Capita will join with us in the next challenging chapter of social policy in Australia.