By Angus Whitley Apr 3, 2014
Bloomburg News
Determined to shake off his depression, Rankin registered with an employment agency and landed a job last year at a metal components factory. Now he’s building a new life with plans to buy a car and find his own place to live.
“I’ve been feeling alive and like I’m worth something,” Rankin, 32, says in an interview in the west of Sydney. “When I got the job, it was just like winning the Lotto. I felt free.”
The equivalent of 7 percent of Australia’s workforce claims a disability pension — more than double the population of the capital Canberra — and the government needs more recipients to work to rein in a A$138 billion ($128 billion) social-security bill it says is unsustainable. Disincentives to seek a job in current policies mean the biggest losers are those with health problems or disability, almost half of whom live in poverty.
“The system gives up on them and they give up on themselves,” said Roger Wilkins, associate professor at the Melbourne Institute of Applied Economic and Social Research, part of the University of Melbourne. “It’s not simply a matter of unnecessary government expenditure. It’s a lower level of wellbeing for many of the people who could be working.”
From Australia to the U.S., where 8.94 million people received disability benefits at the end of 2013 — equivalent to almost 5.8 percent of the labor force — developed nations are grappling with aging populations, increasing welfare costs and ongoing budget deficits. The conundrum: how to trim spending while still caring for those who need support the most.
Australian Failure
Australia, with one of the developed world’s best-performing economies over the past decade, hasn’t been able to answer that question. About 45 percent of Australians with health problems or disability live in poverty, more than double the average among nations in the Organization for Economic Co-operation and Development, according to a 2010 report.
“It’s a national shame,” said Martin Wren, 54, chief executive officer of Nova Employment, a disability employment agency based in Sydney’s western suburbs that he co-founded in 1990. “The greatest harm of all is a waste of a life.”
The program’s growth — recipients have soared more than fivefold since 1974 — has defied efforts by both major political parties to rein it in with tighter eligibility criteria.
The number of people claiming the Disability Support Pension, as it’s called in Australia, totaled 832,148 in January, while 726,740 received unemployment benefits, according to data from the social services ministry.
Tightened Rules
The number of disability pension recipients doubled in the past 20 years even after the Labor government, ousted in September, tightened qualification rules in 2012. Previously, obesity in itself was considered grounds for qualification and those with hearing problems were tested without their aids.
Some jobseekers claiming unemployment benefits attempt to switch to the disability pension to avoid having to look for work, said Danielle Ballantine, Sydney-based chief operating officer at Break Thru People Solutions, a not-for-profit provider of employment services for people with disabilities.
To be eligible for the disability pension, a person must be assessed as being unable to work 15 hours or more a week. In her eight years at Break Thru, which helps thousands with disabilities every year, Ballantine said she has heard of cases of medical referrals being sold for as little as A$100.
“I am not sure it’s that difficult to get medical reports from practitioners who don’t necessarily have the expertise to make a recommendation about a person’s capacity to work,” she said in an interview.
Rising Joblessness
Wilkins at the University of Melbourne estimates the number claiming the disability pension will climb to 1 million within a decade if current policies don’t change.
A single person receiving the disability pension gets A$766 every two weeks. The equivalent jobless payment is A$510.50 and the recipient must routinely prove they’re seeking employment.
Australia’s Minister for Social Services Kevin Andrews, who declined to be interviewed for this story, said in January in an interview with the Australian Broadcasting Corp. that the benefit mismatch creates a “perverse incentive” that encourages unemployed people to get on the disability payroll.
With more than one fifth of Australia’s 23 million population on some degree of income support from the state, Andrews has ordered a review of the welfare system.
Qantas Cuts
Australia’s jobless rate was 6 percent in February, the highest in more than a decade. That month, Qantas Airways Ltd. (QAN) announced plans to fire 5,000 workers. About 50,000 jobs in the car and auto-parts industry are at risk after Toyota Motor Corp., Ford Motor Co. and General Motors Co. said they’ll stop making cars in the country.
Records show many job seekers later become disability pensioners. In the year ended June 2013, about 36 percent of those who started receiving the pension previously were paid unemployment benefits, government data show.
Once on the payment, few give it up: more than half have been on the disability pension or some other form of income support for more than a decade and most stop only to receive their aged pension, government data show.
The easiest way to slow the shift from jobless benefits to the disability pension is to make the two payments equal by raising the unemployment payment, said Nova’s Wren. That would remove the concern among disability claimants that a short-lived re-entry to the workforce could land them back on the smaller jobless payment, he said.
Participation Penalty
“You’d solve half the problem,” he said. “Encourage people by showing them the benefits of participation rather than the penalty for participation.”
Australia needs to boost its labor productivity to maintain living standards as mining investment wanes and the price received for its biggest exports declines. The labor force participation rate slipped to 64.8 percent in February from 65.8 percent in November 2010.
For George Danilidis, injured in 2008 when a 200-kilogram (441 pounds) bucket of cement fell on him, the one-size-fits-all disability payment doesn’t come close to being enough.
“I don’t wish this on anybody,” says the 56-year-old former builder, whose leg and shoulder injuries mean he’s unable to dress or wash himself unaided. “The pension should be rated on your injury.”
Even after putting mortgage repayments on hold, Danilidis says he barely gets by. “I feel abandoned by the government,” he said in an interview in his home in the west of Sydney.
Rising Cost
The disability pension will cost A$15.5 billion in the year ending June, a bill that’s set to rise 15 percent in three years, according to government budget estimates. This year, the government will spend just A$928 million on employment services for those with disabilities.
That’s not enough, according to Lynette May, who quit in February after four years as chief executive officer of Disability Employment Australia, which represents employment service providers. She said she’s moving on to a role where she’s better able to help people with disabilities find work.
“If there was a sense of frustration, it’s pointed at the task that’s ahead of us and the lack of resources to support such a movement,” she said. “The government should be investing in a cultural transformation.”
Renee Agresta, who runs the Plantmark Direct plant nursery in Kellyville, a 45-minute drive from Sydney’s center, last year hired Toby Drew, 16 years after he first signed up for a disability pension.
Success Story
“What have you got to lose?” said Agresta, calling on other employers to follow her example. Drew has never been late for work nor taken a sick day, she said.
The 35-year-old Drew, who said he had a brain tumor removed as a child and has learning difficulties, lays out stock, removes weeds and tends to customers.
“It’s been good,” Drew said, taking a break from his tasks. “I was sitting at home and getting too bored.”
Factory worker Rankin, whose learning disability allowed him to receive a disability pension, said he spiraled into depression after spending years on welfare. Now, earning more on his own than he ever received from the government, things are looking up.
“This has changed my life,” he says. “I buy clothes, go out and do fun things.”
To contact the reporter on this story: Angus Whitley in Sydney at awhitley1@bloomberg.net