The Federal Government has received a blueprint for an overhaul of the country's welfare system, recommending that 20 current welfare payments be cut to four.

The interim report, compiled by former Mission Australia chief Patrick McClure, suggests the system be simplified to include the age pension, the dole, disability pension and a child payment.

It also proposes extending income management, similar to what is being used in some Aboriginal communities. It is a move supported in principle by Social Services Minister Kevin Andrews.

"We believe that [income management] had very positive effects for quite a number of people, not the least of which are women and children in Indigenous and non-Indigenous communities," Mr Andrews said.

Mr Andrews says the report proposes a new "simplified architecture for the welfare system in Australia".

"Australia's current welfare system is incredibly unwieldy, with around 20 payments and 50 supplements," he said.

"It is not only difficult to administer, it is very difficult for many people who are recipients of welfare, or potentially recipients of welfare, to actually understand the system."

Proposed four pillars for welfare 1. Simpler and sustainable income support system 2. Strengthening individual and family capacity 3. Engaging with employees 4. Building community capacity

Mr Andrews says an ageing population and therefore a "significant contraction in net growth of the workforce over the next decade" is a further challenge to the system.

"With an ageing population, we also need a system that is sustainable in the years ahead and one that encourages most people who are capable of working to work, while supporting those who need it most," he said.

Despite the proposed changes to the payment structure, Mr Andrews says the welfare system is not just about allowances and supplements.

"The system should help people build the capacity they need to participate economically and socially, to the extent they are able."

Disability pension changes flagged

The report also proposes the Government reserve the Disability Support Pension (DSP) for people with no capacity to work.

"There are people in various phases of disability," Mr Andrews said.

"Some have episodic disability, increasingly that's the case, where there are opportunities for them to work at times, but there are other times they can't work.

"The question is, how can we assist those people rather than just, as we do now, largely say once you're on the DSP, you're on it for the rest of your working life."

There are currently 830,000 people receiving the Disability Support Pension.

People with Disability Australia's Craig Wallace has criticised some of the proposed changes.

He says people with disabilities want to work if they can.

"Rorters, bludgers, slackers, slouchers, that kind of language that we have seen over the past couple of months reduces and trashes and destroys the brand of people with disabilities to employers," Mr Wallace said.

"I say right here, we are not rorters, we are not slackers."

Opposition frontbencher Anthony Albanese says the Government is targeting the vulnerable.

"People, through accidents at birth or indeed accidents during life ... find themselves with severe disabilities," he said.

"They deserve better than to be told they are just a burden on society ... the problem with this Government is that it treats people in that way."

Report to 'reset' the welfare debate

Chief executive of Australian Council of Social Services (ACOSS), Cassandra Goldie, says the release of the report is an opportunity to "reset" the debate about welfare.

"We certainly welcome the recognition by Mr McClure and his colleagues that there are people living on a payment that is not adequate," she said.

"We also welcome the recognition ... that we cannot do this on our own.

"In other words, this requires government to do its work in providing the right kind of income support arrangements.

"It also requires business and employers to do their bit by entering into the debate in a big way ... saying we are prepared to do our bit to open up the workplaces of Australia."

But Ms Goldie says ACOSS fears the use of the income support system for "social engineering".

"There is a debate that's been triggered again in this report to say that if you are experiencing difficulties with your children ... then you can use compliance in the income support environment to try and address the vulnerabilities of these families," she said.

"We don't support using top-down controlling mechanisms like income management to tackle very sensitive challenges that these families face."

Changes flagged as medium to long-term

Report author Mr McClure says the "need for reform is obvious", adding that the report is focused on changes to the welfare system in the medium to long-term.

"It is about the design of a new system and it's not part of the budget measures which really make changes to the current system," he said.

Mr McClure's review was commissioned in January with an emphasis on unemployment benefits and the disability support pension.

According to information tabled by the Department of Social Service to a Senate committee, the review has as its top guiding principles that changes provide "incentives to work" and "adequately" supports those who are "genuinely not able to work".

Mr McClure conducted a similar review for the Howard government in 2000 and recommended in what became known simply as the McClure Report that all welfare payments be replaced by a single base rate with additional supplements to address individual circumstances.

There will be a six-week consultation period before recommendations and a final report are issued later in the year.

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