ONE in every four households survives on social security payments, with Australian taxpayers now forking out more for welfare than health care.

Annual welfare costs have grown to a staggering $119 billion - or $1300 for every man, woman and child, a new federal government report reveals.

Taxpayers now spend a third more on welfare than on health care.

The Australian Institute of Health and Welfare yesterday released its two-yearly report card, revealing welfare spending grew 3.1 per cent faster than inflation each year, on average, during the decade to 2010/11.

The disabled and elderly have received much bigger increases than families with children.

Spending on welfare for families rose 0.7 per cent faster than inflation, while payments to the elderly grew 3.3 per cent and spending on the disabled grew 6.6 per cent, on average, during the decade.

Spending soared during the global financial crisis (GFC), with welfare payments soaking up 34.5 per cent of government revenues in 2010/11, compared to 29.3 per cent in 2007/09.

Twenty-six years ago, former Labor prime minister Bob Hawke proclaimed that by 1990 no Australian child would live in poverty.

But the latest welfare data shows that poverty afflicts 13 per cent of the population, with no one working in 11.6 per cent of families.

About one in eight Australians lives in poverty - defined as an income of less than $20,000 a year - including one in five single parents.

And the dropout rate for young Australians has not budged despite a decade of intervention to make them "earn or learn''.

One in 14 teenagers and one in eight Gen Ys aged 20 to 24 are neither working nor studying.

The number of abused and neglected children has grown 18 per cent between 2007/08 and 2011/12 - based on confirmed cases - with a 27 per cent jump in the number of kids in foster care.

And more than one in every 200 Australians is homeless.

Australian Council of Social Service chief executive Cassandra Goldie yesterday said the next federal government needed to spend more money on wage subsidies to get the long-term jobless back to work, rather than simply paying unemployment benefits.

And the jobless needed more "targeted training'' to find work, she said, instead of "training just to keep them busy''.

Dr Goldie said much of the welfare spending rise was linked to Australia's ageing population and reliance on the aged pension.

"Since the GFC there's been significant increase in people who are long-term unemployed and serious growth in long-term unemployment,'' she said.

"There is an ongoing reluctance for employers to be taking people on without experience.''

Ms Goldie said a third of Australia's unemployed were older than 45, and the unemployment benefit of $35 a day left people living in "destitution''.

"We have one in six children living in poverty and it's on the rise,'' she said.

"There's no point pushing major investment in education if we're not looking at the social situation these children are placed in.''

The AIHW report adds up spending by federal, state, territory and local governments on social security payments and welfare services.

Cash payments - such as the aged pension, dole, disability pensions and family tax benefits - made up 75 per cent of welfare spending.

The report shows the welfare nation is generating jobs - the community services workforce grew by 24 per cent between 2006 and 2011.

Despite the huge cost of welfare, Labor said it was proud of its record supporting struggling Australians - while the Coalition declared a job was the best form of welfare.

Families Minister Jenny Macklin said Labor had worked hard to better target family payments, reform the disability pension and increase the aged pension, which is the biggest single area of welfare spending.

The Opposition spokesman on families, housing and human services, Kevin Andrews, said a Coalition government would grow the economy to "reduce people's reliance on welfare and encourage them to seek employment''.

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