Around 60 per cent of people who apply for the Disability Support Pension (DSP) are getting rejected, because of a crackdown that started under the Gillard government.
With around 760,000 people on the payment, the DSP is one of the largest and most-expensive welfare payments, costing the Commonwealth $16.3 billion a year.
But in the past decade, there has been a huge drop in the number of new recipients, down from a peak of 89,000 to less than 32,000 last financial year.
PBO projections of new DSP recipients (thousands)
According to the Parliamentary Budget Office (PBO), if that trend continues, the Federal Government could save $4.8 billion over the next 10 years.
The PBO attributes the decline to the previous Labor government's overhaul of the eligibility criteria and new Job Capacity Assessment in 2012, which tests whether the person can undertake any work rather than simply reviewing their medical diagnosis.
This resulted in a "structural break", which together with the Coalition's changes to doctors' assessments, made it much harder to qualify.
Under these changes, a person must prove they have a permanent disability that prevents them from working more than 15 hours a week.
The findings will take some of the sting out of Labor's argument that the Coalition's changes to the DSP have been "cruel".
But they also undermine the Coalition's claims that Labor's policies were fiscally reckless.
While generational change and the job market have a big impact on the rate of welfare applications, this report makes it clear that policy changes have driven the massive decline in DSP recipients.
Annual change in DSP recipients
During the height of the Global Financial Crisis, the number of people moving onto the DSP peaked at nearly 90,000 but since Labor's changes came into effect in 2012, that number has fallen sharply.
But those who fail to qualify would most likely end up on the much lower Newstart Allowance, which is worth about $540 a fortnight compared with the DSP, which pays $815 a fortnight.
Psychological impairments soaring
Most people on the DSP are between 40 and 60 years of age and tend to stay on the payment until they are old enough for the Age Pension, or die.
Very few are kicked off for failing to comply with the criteria.
About 70,000 people on the DSP have their eligibility reviewed each year and of those, only 5 per cent are taken off the payment.
Who's on the Disability Support Pension?
- Most are aged between 40 and 60
- Increasing number of men under 40, with psychological impairments, moving on to DSP
- 70,000 people reviewed each year, about 5 per cent taken off
- More women moved on to DSP after changes to Age Pension
A lot of women moved onto the DSP in the mid-2000s, because an increase in the pension age meant they could not qualify for the Age Pension, while there was a big increase in the number of men in their 50s with a physical impairment (often as a result of their work).
But as the baby boomer generation ages, that demographic is changing.
An increasing number of people moving onto the DSP are men, under 40, suffering a psychological impairment.
Given that most people remain on the payment until their mid-60s, the report points out that this "changing dynamic" could create longer-term budget issues.
"This structural change will contribute to growth in DSP expenditure over the longer term as the total number of recipients will remain larger than would have otherwise been the case," the report said.