Disability pension spend to fall $4.8 bil

Income support for Australians living with permanent disabilities is expected to shrink by $4.8 billion in 10 years time, as the government stems the flow of people onto the payments.

The disability support pension covers roughly 760,000 recipients and is one of the biggest areas of federal government spending, costing $16.3 billion or 10.6 per cent of the social security budget in the past year.

But in a report released on Tuesday, the Parliamentary Budget Office has slashed its medium-term projections for public outlays on the pension, citing tougher compliance and assessment measures.

The payment is offered to people with permanent physical, intellectual or psychiatric impairments which prevent them from working.

The proportion of recipients with physical disabilities has declined in recent years while the proportion of those with psychiatric and intellectual impairments has increased.

In the years following the global financial crisis, spending on the pension soared by 8.7 per cent.

But in the past five years, annual spending growth has crept up by an average of just 0.2 per cent.

The slowdown in spending has been largely driven by harsher eligibility measures introduced in 2012, with the number of recipients falling by almost 70,000 since they took effect.

Social Services Minister Dan Tehan said changes to the disability support pension were focused on encouraging people into work and strengthening assessment of medical conditions.

Mr Tehan extended his argument to all welfare payments for working-age Australians, which he said had increased by 250,000 people under Labor.

"Under the coalition the number of working-age Australians dependent on welfare has reduced by 140,000, taking it to 15.1 per cent of the working age population - the lowest proportion it's been in at least 25 years," he said.

The share of applicants granted access to the disability support pension fell from an average of 63 per cent between 2001-02 and 2010-11, to just 43 per cent from 2011-12 to 2014-15.

The number of new disability support pension recipients also fell from a peak of 89,000 in 2009-10 to just 32,000 in 2016-17.

The Parliamentary Budget Office expects spending on the disability support pension to be $4.8 billion lower in 2027-28 than projected in the 2017-18 forecasts.

"Over the medium term, we are projecting that DSP expenditure will average one per cent annual real growth, which would see recipients as a proportion of the working-age population continue to drift lower," its report said.

Greens senator Rachel Siewert said the spending slowdown should not be viewed as a good thing.

"Rather than focusing on driving down DSP rates, we should be focusing on revenue raising measures so that those with disability don't have to desperately defend their right to receive support," she said.

A federal budget update released in December signalled a significant rebound in disability pension recipients over the next four years.

The Parliamentary Budget Office said there were risks to its medium-term projections because of the short time period since tougher compliance measures were enforced.