Welfare review by Patrick McClure lays out plan for simplified payments, tightening eligibility for disability support

A wide-ranging review of the nation's $150 billion welfare system has laid out a plan for five basic payments and recommends tightening the eligibility for disability support.

The Coalition commissioned the review in December 2013 and asked lead author Patrick McClure, a former head of Mission Australia, to find ways to save money and encourage more people to return to work.

"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," Mr McClure said.

His report called for simplification of the 20 income support payments and 55 supplementary payments, but said no-one should receive less money than they do now.

The report suggests there should be five primary payments:

• A tiered working age payment;

• A supported living pension;

• A child and youth payment;

• A carer payment;

• And an age pension.

"The key to a simpler architecture is to have fewer primary payment types with varying rates within the primary payments that better reflect different circumstances," the review said.

"Many people currently on Newstart Allowance would be better off in the new system," it added.

The report recommended creating a supported living pension for those assessed as having a work capacity of less than eight hours a week and who are expected to have the same limited capacity for another five years.

It recommended that a person's eligibility for the supported living pension be based not on the permanence of their impairment, but instead on how long they would be limited in their capacity to work.

Those with a less severe disability would be on a working age payment, which would have three levels reflecting people's capacity to work.

The upper tier would be for people with a disability and a capacity to work between eight and 14 hours per week.

The middle tier would be for those with a disability and a moderate capacity to work between 15 and 29 hours per week or those with dependent children or young people under 22.

The foundation tier would then be for people with full capacity to work or study full-time.

The review also suggested a number of changes to the Child and Youth Payment, reflecting the fact young people were staying at home longer while they finished their studies.

"Children and young people are expected to be engaged in education and so are not expected to support themselves through work below a certain age," it said.

Currently, dependent children over 16 can receive youth allowance or the disability support pension, and Indigenous children and young people can receive ABSTUDY living allowance.

Mr McClure said genuinely independent young people should still be able to get Youth Allowance.

However, he proposed the new "age of independence" should be 22 and suggested parents with children living at home should continue to receive payments until their child reached this age.

"If a young person was living independently, obviously they're an exception. If they're living independently – for example, they could be homeless, [there] could be a range of circumstances why they had to live independently – then they would get access to the payment," he said.

The report suggested the Child and Youth Payment should be paid per child, should increase with the age of the child to better reflect the increasing costs of children as they grow up, and should be conditional.

"It should be conditional on the child or young person having up-to-date immunisations and being in school, education or training, where they have capacity," the review said.

Labor concerned report a 'blueprint' to cut payments

Labor's families spokeswoman Jenny Macklin said she was concerned the report was a blueprint to cut payments to the vulnerable.

"It's already very hard to live on unemployment benefits or pensions, and what we don't want to see is these vulnerable Australians facing even more cuts from the Abbott Government," she said.

"Sure, simplify the system if we can, but make sure that those people who rely on pensions and benefits in Australia are not worse off."

In addition, the review said it supported the Productivity Commission's suggestion to simplify the range of childcare payments and ensure they encouraged and supported employment.

The report said the system should be designed so no-one moved to a new payment that was below what they were previously receiving.

Welfare Rights Centre director Maree O'Halloran questioned how that would be possible.

"I can't join together the idea that we're making the system more sustainable in a cost-cutting environment and at the same time nobody will be worse off," she said.

The report said the new carer payment system should continue to be a means-tested payment available to those providing constant care for someone with a physical, intellectual or psychiatric disability or older people in need of care.

Mr McClure said it was possible because there would be fewer people going onto certain payments in the future and savings would also come from new investments.

"We talk about and recommend an investment approach, this is based on a New Zealand model that's been very successful, one in getting people into jobs but also in making considerable savings over the longer term," he said.

While the reference group had earlier suggested carers should receive a working age payment, the review suggested that a separate payment for carers would be more appropriate.

The report said the age pension was out of the scope of the review.

The Government said it would consider the recommendations and make any decisions in the May budget.